Finance biggest challenge to Ukraine as country struggles to secure gas supplies ahead of winter

By Nuran Erkul Kaya

ANKARA (AA) - Finance is the biggest challenge to Ukraine in its attempt to fill up its storage with 15 billion cubic meters of gas ahead of the heating season starting in mid-October.

The country is actively trying to secure natural gas supplies through domestic production and imports to fill up storage to meet its gas demand of around 30 billion cubic meters annually, 60% of which is consumed in the winter.

However, the war caused a fall in natural gas demand by between 10% and 30%, experts guess.

"There has been a certain decline in Ukraine's gas production but, of course, gas demand declined even more steeply," Gergely Molnar, the International Energy Agency's natural gas analyst told Anadolu Agency in an interview.

As Russia's attacks on Ukraine could well have harmed critical infrastructure and gas facilities, domestic production is expected to drop accordingly, although no specific data has been released for national security reasons.

Ukraine produced 19.8 billion cubic meters of natural gas in 2021, down from 20.2 billion cubic meters in 2020.

"We are producing as much as we can. We are also importing small volumes of nature of gas from Europe, but it is not enough and our major limitation is financing," Yuriy Vitrenko, CEO of Naftogaz, said in an interview at the end of August.

He confirmed that Naftogaz pumps one billion cubic meters of natural gas into storage every month and needs to pump about 3 billion cubic meters of gas to reach the targeted levels, costing about $9 billion.

"There is currently 13.2 billion cubic meters of gas in Ukraine storage and the target is to have around 15 billion cubic meters by mid-October when the heating season usually starts in Ukraine," Molnar said.

The target was readjusted due to declining demand from the previous target, which aimed at having 19 billion cubic meters of gas in storage by mid-October.

Consequently, Ukraine needs about 2 billion cubic meters more gas to reach its new target of 15 billion cubic meters in a month.

Europe has contributed to gas supply in Ukraine with imports totaling 2.5 billion cubic meters last year, although this year has seen much more limited supplies, Molnar explained.

Ukraine had imported natural gas from German or Dutch hubs, however, natural gas prices in these hubs hit record levels this year due to the ongoing energy crisis.

The price of futures contracts per megawatt-hour in Europe, trading on the Dutch-based virtual natural gas trading point (TTF), rose from €30 at the beginning of September 2021 to €87 on Feb. 23, one day before Russia started the war in Ukraine.

Price saw massive increases when gas traded at €346 per megawatt-hour last week, marking a year-on-year 1,000% rise, putting immense pressure on all economies but even more strain on the war-torn Ukraine economy and other vulnerable countries.