The world liquified natural gas, or LNG, market is struggling with a glut due to the coronavirus pandemic and, as a result, significant demand decrease. LNG prices fell to historically low levels due to the countries’ lockdown, mild winter, and full storages of gas. In such conditions, major LNG suppliers will compete for the new markets.
At the same time, Ukraine as a marine energy-resource-dependent country is considering LNG as an alternative to pipe gas supply. Recently, the U.S. Department of State and the Ukrainian government have agreed on supplies of 6-8 billion cubic meters of LNG every year to Ukraine with its further transportation to European countries via a hub based on Ukrainian underground gas storage facilities. At the same time, Qatar, Nigeria, Turkey have shown a strong interest in the Ukrainian market. For major producers, this is the chance to enter a new market in times of oversupply. For Ukraine, it is the opportunity to develop proper LNG infrastructure, utilize 31 billion cubic meter storage capacity, diversify gas supply, and ensure energy security. However, there are a lot of pre-conditions needed to be taken into account before these projects can be realized.
Gas regulation improved
Between 2014 and 2019, the Ukrainian parliament partially freed Ukraine from the energy clutch by enacting a new gas market law, implementing the European Union Third Energy Package into national legislation. In 2019 14.2 billion cubic meters of gas were imported from the Slovak, Hungarian, and Polish reverse flow directions by numerous independent gas traders, which signals about Ukraine’s development of a fully functioning and liquid gas market.
Gas transit is under question
Ukraine has lost a historical chance to negotiate favorable conditions during recent negotiations with Gazprom, accepting the low-volume, short-term transit contract and refusing from all $20 billion claims against Gazprom in international arbitrages. Now, Ukraine should seek new ways to guarantee the stability of gas supply and the biggest in Europe gas transition system in the long-term period.
Pipe gas vs. LNG
As the amount of natural gas transported through pipelines is limited, and the routes of transportation are inflexible, it’s far riskier to rely just on pipeline gas. Coal-to-gas transition, decarburization trends, and gas storages market development on one side and the historically low prices for LNG caused by the coronavirus crisis on the other, create good conditions for Ukraine to develop adequate LNG infrastructure. By these means, we would ensure Ukraine’s energy diversification and hence contribute to Eastern European energy security.
Being at the geographical center of Europe, at the East-West energy crossroads, having a well-developed Black Sea port infrastructure, Ukraine has a fully functioning gas market and widespread gas distribution networks, one of the most robust and flexible gas transmission systems in the world, 12 underground gas storage facilities with a total active capacity of 31 billion cubic meters. Underground storages give important flexibility for Ukraine and Europe, especially in winter when they can bring necessary volumes and speed up gas flows to Europe.
Interconnectivity is the solution
To increase regional cross-border trade, competition, and flexibility on the market, new LNG infrastructure and interconnectors are needed. Ukraine can receive LNG via pipe from Poland, Lithuania, Turkey, Greece, or via the Black Sea ports.
The most realistic route nowadays is through the Polish LNG terminal in Świnoujście, which is already capable of receiving 5.5 billion cubic meters of LNG and transporting it to the Ukrainian border. In 2019, the presidents of Poland and Ukraine signed a three-party energy memorandum with Washington, declaring their intention to import U.S. LNG to Ukraine through Poland. At the end of March 2020, Poland has signed a letter of intent between American supplier and Ukrainian Government, committing to transport 6-8 billion cubic meters of U.S, LNG. In addition, Ukrainian gas storages close to the Polish border can benefit the LNG market because of its seasonal nature.
Another option is buying LNG through the Lithuanian terminal Independence with a total capacity of almost 4 billion cubic meters. The Poland-Lithuania Gas Interconnection would allow gas transmission from Klaipeda through the Polish national gas transmission system towards Eastern Europe after 2021.
The Trans-Balkan pipeline is a desired, yet unlikely, export corridor for LNG linking Greece and Turkey to Ukraine. The North-South Gas Corridor could connect the LNG Terminal in Świnoujście with the Baltic Pipe, through central Poland, the Czech Republic, Slovakia, and Hungary, while the LNG terminal in Croatia enabling access to new sources of supply (LNG, Norway) for Eastern Europe.
Unlock Black Sea LNG Potential
Like Poland and Lithuania, Ukraine is a maritime country with a well-developed Black Sea port infrastructure. Ukraine could also transfer LNG through the Bosphorus. The connection is potentially advantageous for Turkey: the project would increase the freight traffic and the amount of fees passing through Bosporus. Tukey would become a key player in ensuring regional energy security and would achieve greater importance as an infrastructural hub. The partnership would strengthen economic relationships between Turkey, Ukraine, and LNG suppliers.
Put Ukraine on the world’s LNG market
In 2015, Ukraine managed to ensure effective alternative gas supply from EU member states and is now determined to further diversify its energy portfolio. Development of the LNG market is one of the optimal solutions as LNG suppliers will soon be seeking new markets and Ukraine needs cheaper and cleaner recourses for its population, industry, and security.
