Ukraine energy chief calls on EU to help protect gas storage from Russia — Financial Times

Naftogaz CEO
Oleksiy Chernyshov
Naftogaz chief executives highlights air strikes targeting natural gas tanks used by European countries.

The head of Ukraine’s national energy company has called on EU countries to help protect its natural gas storage facilities from a recent spate of Russian attacks so they can keep contributing to lower prices across the continent.

Oleksiy Chernyshov, chief executive of state-run Naftogaz, said: “It is of interest of the EU to protect storage, transportation and production [facilities]”, given that Ukraine’s gas infrastructure is “well integrated” into Europe’s energy system.

Naftogaz said gas storage sites in western Ukraine had come under attack several times in recent months, but only above-ground facilities had been damaged. Underground storage tanks, which may be as deep as 3km beneath the surface, had remained unaffected, it said.

“Technologically, we’re all fit, and we have managed to repair the [damaged surface] equipment and we fulfil our obligations [to our customers]” after the attacks, said Chernyshov.

Three attacks on gas storage facilities have been made public since March in the first known instances of the Kremlin targeting these sites.

Ukraine still acts as a transit route for Russian pipeline gas into Europe, and its underground gas storage provided European traders with valuable space to park their excess gas ahead of last winter as sites in the EU reached maximum capacity.

The chief executive’s comments come after US President Joe Biden signed into law a bill including $61bn in new aid for Ukraine, but Kyiv’s European allies are still haggling over supplying additional air defence systems. At the same time, Russian attacks on Ukrainian energy infrastructure have intensified.

The US aid will help Ukraine’s defence, but continued protection of infrastructure and assets “require[s] a very high number of air defence[s]”, Chernyshov said.

“We might remain in a position where we would still need more air defence” even after the US aid comes through, and “EU countries, of course, should play a crucial role in that assistance,” he added.

Ukrainian gas storage played an important role in the EU’s energy security last year by enabling European nations to refrain from withdrawing too much from their own reserves. The country emerged as a storage alternative, despite the risks from Russia’s invasion, in part because of incentives such as cheap storage tariffs and customs duty exemptions allowing gas to be easily reimported to the EU.

Chernyshov said there was still interest from European parties in using the storage facilities this year. The company aims to increase European natural gas stored in Ukraine from 2.5bn cubic metres last year to 4bn this winter.

Ukraine has also continued to allow Russian gas to pass through the country under a deal Naftogaz signed with Russia’s Gazprom in 2019. Russia sharply cut gas piped to Europe through this route after its full-scale invasion of Ukraine, however, and Russian gas sent through Ukraine now accounts for less than 5 per cent of the EU’s supplies.

Naftogaz’s deal with Gazprom will finish at the end of this year, and Chernyshov said Naftogaz would not renew the contract. That means it is likely no Russian gas will be piped through Ukraine in 2025, forcing countries including Austria and Slovakia to seek alternative supplies.

“The reason why Naftogaz has continued with this transit deal [even amid the war with Russia] is to satisfy the EU’s gas needs and to remain as a reliable partner [to the bloc],” said Chernyshov.

“The money that Naftogaz receives from Gazprom is less than what we spend on organising this transit, because Gazprom has been underpaying us almost since the start of the full-scale invasion and our cash flow is constantly negative in this operation.”

Most analysts and traders believe the EU’s record volumes of stored gas will enable it to avoid shortages in the coming winter, but some say there are still risks attached to losing the Russian gas that is piped through Ukraine.

The loss of 15 bcm “on its own isn’t good but [is] not terrible”, said Aldo Spanjer, senior commodities strategist at BNP Paribas. But should there be an increase in gas demand from Asia and in Europe, combined with a cold winter, “gas balances would tighten significantly in the first quarter of 2025, which is the peak winter period”, he said.

Chernyshov, however, said the loss of this gas would have negligible effects for Europe. “Can a supply of 3 per cent of all [EU] market consumption change the market? I don’t think it can change the market at all, neither in terms of pricing, nor in terms of volume,” he said. “It’s not a big deal.”

Prepared by Financial Times