Ukraine gas stocks at highest for this time of year in a decade: Ukrtransgaz

London — Ukraine's gas storage sites held 18 Bcm of natural gas as of March 1, which is 13% higher than a year ago year and the highest level for this time of year over the past decade, Ukraine's storage operator Uktransgaz said March 3.

The record figure comes despite the high level of withdrawals seen in February, when freezing temperatures resulted in 2.9 Bcm of gas being extracted from Ukraine facilities, two and a half times more than in February 2020, according to Uktransgaz.

Withdrawals were particularly high during the Feb. 6-21 period, when more than 100 million cubic meters were taken out from storage facilities every day, the operator said.

Over the whole withdrawal season so far a total of 10.23 Bcm has been taken out from Ukraine facilities.

Customs warehouse volumes

Of the total 10.1 Bcm of gas injected in Ukraine's facilities under the Customs Warehouse regime in 2020, about 4 Bcm have been withdrawn since the start of the heating season, leaving about 6.15 Bcm in storage.

Of the remaining volumes, 5.6 Bcm are owned by foreign traders -- 6.3 times more than in February 2020 -- while 0.55 Bcm belong to domestic traders -- 3% less than a year ago.

Under the customs warehouse regime, foreign and domestic traders can store gas in Ukraine facilities for up to three years without paying value-added tax or custom duties.

Traders can sell customs warehouse gas to non-resident players and export it outside of Ukraine, also without levies. Taxes are paid only when stored volumes are sold to Ukrainian companies and imported into Ukraine.

While these volumes are usually sold in Europe, according to traders the cold temperatures in Ukraine and lack of favorable spreads in Europe have encouraged many to sell customs warehouse volumes on the domestic market this winter.

Sergiy Pereloma, acting general director of Ukrtransgaz, seemed to confirm this in his quote accompanying the storage figures released on March 3. "This year, the last month of winter was one of the most active periods in terms of natural gas extraction. In particular, non-residents play an active role in the Ukrainian gas market. They not only export gas but also carry out transactions for the purchase and sale of gas in UGS in the Customs Warehouse regime, as well as sell their reserves to residents," Pereloma said.

Bearish summer outlook?

While one more month remains before the start of the injection season, spreads in Europe are not conducive to more gas withdrawals, meaning most of Ukraine's custom warehouse volumes are likely to remain in storage until winter 2021.

"Jan-Feb Ukrainian withdrawals exceeded expectations due to stronger demand, but the majority of customs warehouse gas remains in storage," S&P Global Platts Analytics' Anna Sutcliffe said.

"This means that even if we don't see further customs warehouse injections in Summer 21, we still expect similarly strong withdrawals in Winter 21," Sutcliffe said.

A Prague-based gas trader noted that, with the March day-ahead contract in Austria currently at a Eur1.100/MWh discount to the Winter 2021 equivalent contract, and a more or less similar situation in Slovakia, waiting to sell next winter makes sense.

"If you really want to sell, the best solution is to sell it within the warehouse regime to someone else or sell it to local buyers," he added.

Looking at the high level of gas still stored in Ukraine's facilities, European players are contemplating what this will mean in terms of summer gas demand.

In summer 2020, Ukraine's large storage facilities proved crucial in creating demand for gas amid otherwise bearish fundamentals. But with record gas reserves, Ukraine may not be able to offer the same this year.

A German energy broker noted that with the storage draw "more or less done for this winter," the key factors behind the outlook for summer 2020 would be Russian exports to Europe via Velke Kapusany -- on the Ukraine-Slovakia border -- and deliveries of US LNG to Europe.

"What is Gazprom Export going to do via Velke -- flow more than now? [Will] US LNG [be] back to normal," the broker said.