Russian Attacks Hinder European Gas Market's Use of Ukrainian Storage

Russian attacks on Ukrainian gas infrastructure have hindered the European gas market's ability to utilize Ukrainian storage facilities. Ukraine plans to import a record 19,484 megawatt hours of electricity from five European countries due to substantial damage to its energy infrastructure.

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Russian Attacks Hinder European Gas Market's Use of Ukrainian Storage

Russian Attacks Hinder European Gas Market's Use of Ukrainian Storage

Russian attacks on Ukrainian gas infrastructure have hindered the European gas market's ability to utilize Ukrainian storage facilities, which have a capacity of 10 billion cubic meters (Bcm) available under the customs warehouse regime. The unpredictable escalation of the situation and unfavorable pricing dynamics have raised concerns about the reliability of Ukrainian gas infrastructure and its implications for the European gas market.

Why this matters: The disruption of Ukrainian gas infrastructure has far-reaching implications for European energy security and the global energy market. It also highlights the need for diversified energy sources and reduced dependence on Russian gas exports, which can be used as a political tool.

The impact of the attacks has been significant, with Ukraine planning to import a record 19,484 megawatt hours (Mwh) of electricity from five European countries on Monday, May 13, 2024. This decision comes after Ukraine reported substantial damage to its energy infrastructure following Russian strikes. The previous record high of 18,649 Mwh was recorded at the end of March 2023, after the first wave of Russian attacks on the Ukrainian energy sector.

The situation has been further exacerbated by Russia's actions in the global energy market. Russian President Vladimir Putin has been using Russia's oil and gas production to stoke global inflation, which is a major obstacle to the energy transition. As Joseph Webster from the Atlantic Council's Global Energy Center states, "Inflation isn't just politically destabilizing. It's also the enemy of the energy transition." Putin understands this and is seeking to drive energy prices and inflation higher ahead of elections in Europe and the United States to weaken the energy transition.

The European sanctions have had a deep impact on Russia's gas industry, with Gazprom, Russia's state-owned energy company, reporting its first annual net loss of $7 billion since 1999. Gazprom's gas exports to Europe decreased by 55.6% to 28.3 Bcm in 2023, compared to a peak of 200.8 Bcm in 2018. The mysterious blasts at the Nord Stream undersea gas pipelines from Russia to Germany in September 2022 have further undermined Russian gas trade with Europe.

Russia has turned to China to boost its pipeline gas sales, but faces challenges in pricing and other issues. As Dr. Michal Meidan, head of China Energy Research at Oxford Institute for Energy Studies, notes, "China gives Russia an outlet, but at much lower prices and revenue than Europe." The Power of Siberia 2 pipeline via Mongolia, planned to export 50 Bcm per year, has hit pitfalls due to the lack of agreement over pricing and other issues.

The Russian attacks on Ukrainian gas infrastructure have not only disrupted the European gas market's ability to utilize Ukrainian storage facilities but have also highlighted the limitations of Russia's growing partnership with China. With Gazprom facing significant challenges in restoring its profitability and the unpredictable escalation of the situation in Ukraine, the European gas market remains vulnerable to the ongoing geopolitical tensions and the impact of Russia's actions in the global energy market.

Key Takeaways

  • Russian attacks on Ukrainian gas infrastructure hinder European gas market's ability to utilize 10 Bcm storage capacity.
  • Ukraine to import record 19,484 Mwh of electricity from 5 European countries due to infrastructure damage.
  • Russia's actions in global energy market stoke inflation, hindering energy transition.
  • Gazprom reports $7 billion net loss, 55.6% decrease in gas exports to Europe in 2023.
  • Russia's partnership with China faces challenges, including lower prices and revenue.