Ukraine’s decision to halt natural gas exports is unlikely to impact European supplies

Ukraine’s transmission system operator (GTSOU) said on Thursday that the country’s natural gas exports would be halted to conserve domestic supplies as fighting with Russia raged, casting another specter on Europe’s markets. energy.

The decision does not affect international transit, meaning Russian gas supplies transiting through Ukraine to Europe would be allowed to continue. Market participants have been instructed not to export gas from Ukrainian territory, including from storage stocks as of gas day March 4 (Friday). This decision should not have an impact on European supplies, as volumes from Ukraine are not a significant source of gas for the continent.

More uncertainty

The emergency declaration, however, has created another element of uncertainty for a war-obsessed global gas market in Ukraine. The conflict continues to pose risks to European supplies, particularly if Russian energy exports are sanctioned or if key Ukrainian infrastructure is damaged.

GTSOU said on Thursday that a pipeline in the Luhansk region was damaged, forcing staff to cut off flows. The operator said it would resume operations as soon as possible, but stressed that fighting was going on in the area. GTSOU also said on Wednesday that an airstrike damaged two strings of gas pipes in the Kharkiv region.

The operator’s administrative buildings were also hit by artillery fire on Wednesday, and the Ukrainian energy exchange was reportedly hit by a bomb on Thursday.

The hostilities did not impact major transit lines, but GTSOU said it was forced to close 14 gas distribution systems across the country.

“Russia’s aggression against Ukraine has resulted in extraordinary and unprecedented conditions and restrictions as all energy companies must focus on maintaining natural gas supplies to Ukraine and Ukrainians,” GTSOU said Thursday after halting exports.

Amid a glut of natural gas two years ago, European traders took advantage of Ukraine’s vast storage capacity to ensure stocks on the rest of the continent didn’t overfill and fall. not skyrocket prices. Ukraine has the largest gas storage capacity in Europe, with nearly 31 billion cubic meters of space. The country also imports natural gas from Europe via reverse flows, as it has sought to reduce its dependence on Russian gas in recent years.

Gas analyst Tom Marzec-Manser of Independent Commodity Intelligence Services said Ukraine’s decision to halt exports was unlikely to have a significant impact on European supplies. Traders, he told NGI, have not recently used Ukrainian storage volumes to ship gas back to the European Union (EU).

Europe depends on Russia for about a third of its gas supplies and some of this gas passes through Ukraine. Punctual Russian deliveries to the continent have been weak in recent months, particularly via Ukraine, but accelerated with the onset of fighting.

“It is true that large stocks of storage in the country have been used by European traders, but most of these stocks have already been used either as exports to Europe or more likely used locally in the Ukrainian market itself. -even,” said Wood Mackenzie analyst Graham Freedman. NGI. “Ukraine’s storage reserves are currently very close to the five-year average, so I suspect the amount of gas held by European traders in Ukraine is negligible.”

Low gas stocks

According to NGI data, Ukrainian storage stocks were at 17% capacity this week. Freedman said Ukraine had been importing gas from Europe since early February, but the country was unlikely to be able to export volumes to Europe until this summer.

European stocks are themselves short, which has highlighted the continent’s dependence on Russia for supplies. This has prompted other countries, such as the United States, to step up deliveries of liquefied natural gas to Europe as prices have surged and attracted more shipments since late last year.

While Russian flows to Europe have been strong since the attack began last week, the market has largely ignored all but the continued threat of war over supplies or the possibility of additional sanctions that could further upset the market. energy market.

“Russia’s invasion of Ukraine continues to eclipse all other drivers of the European energy complex,” Schneider Electric analyst Rauhan Nazir said in a note to clients on Thursday. “Risks related to Russian gas exports to EU markets continue to offer strong upside potential for gas and power futures prices, gas flows, the risk of more direct sanctions and negotiations on a possible ceasefire remain the main factors to watch.”

The volatility continued on Thursday. The Title Transfer Facility followed the decline in Brent and snapped a two-day rally. However, there were wild swings during trading, with the fast TTF contract hitting an intraday high of nearly 200 euros/MWh, or around $65/MMBtu. The contract eventually lost about $2 to close near $52.

Another volatile stretch was likely Friday. Russia reportedly took control of Kherson in southern Ukraine and gained ground in other parts of the region as attacks intensified. Russian President Vladimir Putin also reportedly told French President Emmanuel Macron in a phone call that Russia would achieve its goal in Ukraine “no matter what”.

Meanwhile, another round of talks between Russia and Ukraine saw little progress on Thursday.

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