Risks of war and lower prices are keeping traders away from Ukraine’s gas storage

War risks and narrower differences between summer and winter prices are keeping European natural gas traders away from Ukraine’s underutilized underground gas storage sites.

Last year, many traders were willing to take a chance and ignore the potential damage to Ukrainian storage sites, as natural gas prices in Europe were much higher and the reduction in summer prices compared to winter prices was large enough to justify fuel storage. in a war zone.

The goods can be bought anywhere and sent to Ukraine through reverse flows in pipelines from Hungary, Slovakia and Poland.

In the summer of 2023, despite the risks of a Russian invasion of Ukraine and the possibility of a direct hit or a deliberate attack on Ukrainian gas infrastructure, traders believed the risk was worth taking because storage costs were cheaper and capacity was readily available. .

For traders expecting higher gas prices in Europe during the winter, Ukraine was a good bet for storage sites, especially as EU storage filled up quickly during the summer and was very close to hitting – with plenty of time to spare advance – target of 90% maximum by November. 1.

But EU warehouses can only hold roughly less than a third of typical consumption volumes, and traders were turning to storage in Ukraine.

This summer, the risks of war increased after Russia targeted Ukrainian energy infrastructure, including natural gas storage sites, in the spring of 2024. In late April, the head of Ukraine’s state energy company appealed to the European Union to help protect gas storage sites from Russian attacks.

The increased risk of an attack on Ukrainian storage sites is no longer worth the cost, as the winter price compared to the summer price is now around $5.46 (€5) per megawatt-hour (MWh), down significantly compared to USD 21.84 (20 euros). ) premium per MWh at this time last year, the Financial Times reports, citing data from price reporting agency Argus.

“The price differentials are not attractive enough to justify the risk of injecting gas into a war zone,” Marco Saalfrank, Head of Commercial Trading for Continental Europe at Axpo, told the FT.

By Tsvetana Paraskova for Oilprice.com

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