KSE Institute: Ukrainian Gas Buffer to Derisk Winter 2023-24 in Europe

17 March 2023

KSE Institute experts propose the EU should purchase and store a further reserve buffer of natural gas in Ukraine to derisk next winter and give Europe the confidence to make further progress towards complete energy independence from Russia. This would involve raising Europe’s target gas storage level by 10% (11 bcm), allowing gas stored in Ukrainian storage facilities in Western Ukraine to count towards the target. 

In 2022, Europe successfully reduced its dependence on Russian gas by sourcing gas from other places, notably additional LNG, and reducing consumption. As a result, European gas storage is around a record high for this time of year, and gas prices have fallen sharply. However, concerns remain that a cold winter in 2023-24 could leave Europe and Ukraine low on gas and drive another period of elevated prices. 

Our “sanctions for victory” package of measures sets out a plan to constrain Russia through further sanctions.  In gas, we propose to turn the tables on Russia by requiring all Russian gas sales to Europe to flow through Ukraine, banning the supply of Russian gas via Russia-controlled pipelines, and ending purchases of Russian LNG. These measures would squeeze Russian export earnings. Cutting Russian gas supply to  Europe would cost Russia around $13 bn in annual export earnings, while cutting all supplies apart from current flows through Ukraine would reduce annual Russian gas export  earnings by around $8 bn. 

According to KSE Institute, Ukraine has at least 15 bcm of capacity to store additional volumes of European gas, and action should be taken now to support injections from early in the filling season. Using Ukrainian storage as a reserve buffer for European gas can enhance European energy security and support Ukraine in its war with Russia. The Commission should set a higher storage target for winter 23/24 and allow gas stored in Ukraine to count towards it. 

IEA estimates show Europe would now be able to cope without any Russian gas  even in a stress scenario, provided it continued to improve energy efficiency, expand renewable generation, deploy heat pumps, and make behavioral changes. A full Russian gas cutoff would reduce European gas supply by 40 bcm – and according to the IEA, Europe can generate an additional 40 bcm of gas savings from policy measures, fully covering this  shortfall. Moreover, no LNG imbalances are expected in 2023, and the volume of LNG trade is to increase by 4.3%. 

The experts of KSE Institute conclude, in spring 2023 Europe can end all purchases of Russian gas, except via the Ukrainian GTS, and be confident in having an adequate supply of gas in winter 23/24, even in a stress scenario.

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