The Paradox of Martial Law: Ukraine Has Built Up Its Largest Gas Reserves in Recent Years—Where Will the Surplus Go?
3 August 12:26
ANALYSIS FROM 
Ukraine’s underground storage facilities are now filled to their highest level in the past five years. This situation even makes it possible to discuss the potential export of Ukrainian gas. "Komersant Ukrainian" investigated what is happening with the country’s gas balance.
The enemy regularly strikes facilities that supply the country with gas in an effort to disrupt preparations for winter and create problems during the heating season. But gas production continues, and underground gas storage facilities are being successfully filled. Moreover, this has recently been achieved without relying on imported gas at all—although its share of existing reserves remains quite significant. As is well known, during the last heating season, Ukraine imported more than one billion cubic meters of gas from Europe, which ended up in the storage facilities. In fact, this is what allowed the country to end the previous heating season with a sufficiently high level of reserves and lay the groundwork for further filling of the storage facilities.
Winter Reserves
Back in April, the Ministry of Energy approved the projected balance of natural gas supply and distribution for 2026/2027. According to this forecast, the plan was to accumulate 14.6 billion cubic meters of gas in underground storage facilities by the start of the heating season. And this goal is entirely achievable, explains Mykhailo Svytsho, an analyst at ExPro.
“Currently, gas reserves in the storage facilities have already exceeded 13.2 billion cubic meters. As of November 1 last year, there were approximately 13.2 billion cubic meters. In other words, we have already, in essence, exceeded the level we had as of November 1 last year. One of the reasons we currently have such high storage levels is the relatively high reserves we carried over from the previous heating season. Let me remind you that for practically the entire past year—and especially starting in October—as well as during the first quarter of this year, we actively imported natural gas. And at the start of gas injection in the spring, reserves stood at approximately 9.5 billion cubic meters. At the current injection rate, it is entirely realistic to meet the target of 14.6 billion cubic meters. It may even be slightly higher—around 15 billion cubic meters. But this will largely depend on the extent of shelling targeting gas production infrastructure in the coming months and how it affects production volumes,” the expert notes.
As Mykhailo Svyshcho notes, in recent months, reserves have been built up almost exclusively through domestically produced gas, since imports have practically ceased since the beginning of April: in total, they amounted to no more than 50 million cubic meters per month. In other words, these are minimal volumes that have almost no impact on the balance. And the main reason for the shift away from imports is the high prices for natural gas in Europe. Mykhailo Svyshcho, an analyst at ExPro, continues.
“Gas prices in Europe have risen sharply since March. This happened after the war in the Middle East began. As a result, gas imports have become commercially unprofitable. In Europe, gas is currently trading at 60 euros per megawatt-hour; converted to Ukrainian prices, that’s about 40,000 hryvnias per thousand cubic meters. In Ukraine, however, gas is trading at 25,000–26,000 hryvnias per thousand cubic meters. That is, the difference is nearly 15,000 hryvnias. And it’s clear that importing more expensive gas just to sell it here at a lower price is irrational. Let me remind you that when it comes to the price of gas for residential customers, it’s 7.96 hryvnias per cubic meter. That is several times cheaper. It’s not profitable. If our supply balance allows us to avoid importing gas right now, then we won’t import it,” the expert notes.
According to him, the fairly good reserves, current domestic production, and consumption levels will allow us to meet the government’s target for gas storage by November 1.
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Exports to Europe
Substantial gas reserves in storage facilities, reduced gas consumption by Ukrainian enterprises, a production surplus in the commercial segment of the market, and the price situation—all of these factors have fueled market speculation about the potential export of Ukrainian gas to Europe.
Looking back at recent history, as ExPro analyst Mykhailo Svyshcho explains, there have been no significant exports of Ukrainian-produced gas over the past 15–20 years. Only minimal test or commercial shipments have taken place. And this, according to the expert, was due to the fact that, prior to the start of the full-scale war, Ukraine had traditionally been a country dependent on imports. Therefore, natural gas prices in Ukraine were set based on the principle of “European price plus delivery costs.” In other words, prices in Ukraine were higher than in Europe. Consequently, under such conditions, exporting gas from Ukraine was unprofitable. With the start of the full-scale war, gas exports from Ukraine were completely banned. But now the situation has changed somewhat. Mykhailo Svyshcho explains.
“We came out of the last heating season with fairly good gas reserves in our storage facilities. Preparations for winter are going well. And we’ve developed a certain surplus of gas production specifically in the commercial segment of the market. Gas consumption by industrial users has plummeted significantly since the start of the war—by nearly half. This is particularly evident now, as they consume even less gas in the summer. Meanwhile, production remains stable. It is precisely because of this surplus in production in the commercial segment that discussions about exports have begun. Especially given the existing price difference—let me remind you, prices for Ukrainian natural gas are currently 30–40% lower than in Europe—it would now be much more profitable to sell Ukrainian gas in Europe and earn more revenue, and in foreign currency at that. This is all the more important given the problems with maritime exports, which are affecting agricultural companies, and as a result, Ukraine is losing out on foreign currency revenue,” the expert notes.
He explained that in recent months, numerous consultations have taken place involving various ministries, transmission system operators, and production companies, and as far as is known, discussions are now underway at the level of the Cabinet of Ministers, which is, in essence, the final authority responsible for approving a resolution to open up exports and establishing the mechanism for such exports. Mykhailo Svyshcho explains what this mechanism might look like.
“Based on what is currently known and being discussed, the Ministry of Economy will determine a list of companies and issue specific licenses authorizing the sale of a certain volume of gas. That is, as I understand it, these could be production companies that will be able to sell up to 15% of their own production through the Ukrainian Energy Exchange in special auctions. That amounts to about 250–260 million cubic meters per month. And right now, we could export these volumes without any problems. The actual volume will be determined by the Ministry of Energy based on the previous month’s production figures. And it’s important to understand that in the event of any threat to energy security, these gas exports can be quickly halted. In other words, this is a temporary measure,” the expert notes.
According to Mykhailo Svytsho, the situation for making a decision on gas exports is currently as favorable as it can be, and if the decision isn’t made now, it looks like it won’t be made at all. This is because gas consumption begins to rise in September, and winter is drawing nearer. And given that Ukrainian officials are increasingly stating that the coming winter will be the most difficult in Ukrainian history, the issue of potential Ukrainian gas exports will become increasingly sensitive and political.
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