OPINION: War-torn Ukraine has achieved a major victory on the economic front against Russia, with European gas players snapping up a long-offered opportunity to store natural gas in its vast underground storage facilities.
Built during the Soviet era to store natural gas in the summer to meet peak winter demand in Europe, most of these facilities are located near Ukraine’s western border with Poland and Slovakia and are capable of holding up to 31 billion cubic metres of gas.
Last month, European customers pumped about 1.1 Bcm of gas from the continent to Ukraine for temporary storage, with the inflow continuing in September.
Compare that with the first seven months of the year, when total inflow was less than 900 million cubic metres.
Most analysts — as well as the country’s state oil and gas importer and producer, Naftogaz Ukrainy — attribute the sudden jump to a lack of available space in Europe, where gas storage facilities are at 90% capacity.
But it also reflects confidence among European importers that they will be able to retrieve the gas stocks this coming winter, a vote of confidence in Ukraine, previously seen as country where the risks outweigh the rewards.
Years before the Russian invasion of February 2022, Kyiv had been offering storage opportunities to European gas players with promises of simplified, transparent paperwork and up to 10 Bcm of available storage, which could add about 10% to total European capacity.
However, foreign operators made only occasional use of the available space, largely out of concern for “country-specific” risks such as the unpredictability of Ukrainian authorities and courts, perceived corruption and previous incidents of unauthorised seizures of stored gas by third parties.
President Volodymyr Zelensky has recently taken steps to change those perceptions, promising to submit a draft law to parliament that would equate an act of corruption to national treason, punishable by a prison term of 10 years to life.
Although some observers view his proposal as populist and potentially detrimental to existing anti-corruption measures, the message from the country’s political leader and moral standard-bearer is clear: Ukraine has no option other than to build a stronger and more accountable economic system that is based on the rule of law.
Naftogaz, which has promoted Ukraine’s storage options to Europe, is leading this transition. Despite the challenges presented by the ongoing war, the company is set to grow gas production by 1 Bcm this year after drilling highly productive development wells.
Its executive chairman, Oleksiy Chernyshov, even talks about growing domestic output to a level that would permit the country to end gas imports.
Naftogaz, Ukraine’s largest gas producer and taxpayer, was previously a near-constant object of anti-corruption investigations, riddled by scandals that tarnished its reputation both at home and internationally.
The company had also announced ambitious production targets, but failed to achieve them.
A strong, corruption-free economy and closer economic ties with Europe and the US are key prerequisites for Ukraine to achieve the much-desired goal of repelling the Russian invasion and prevailing in the war.
(This is an Upstream opinion article.)
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