Release of Naftogaz’s Gas Key for Continuation of Gas Market Reforms in Ukraine

News | World | Gas

Photo-illustration: Unsplash (Quinten de Graaf)

Ukraine has achieved significant milestones towards gas market liberalization and the development of a stable gas hub in the last years. However, certain elements remain that hinder full market liberalization and competition and even threaten to reverse the progress achieved.

The Secretariat’s Position Paper on Gas Market Design in Ukraine, sent to Ukrainian stakeholders, analyses the current situation and provides market design options that would ensure fair competition in the Ukrainian gas market and provide the needed liquidity in the future gas exchange.

While the abolishment of the public service obligation (PSO) for households was a major step towards market liberalization, the country’s gas incumbent Naftogaz has absorbed the “unlocked’’ nationally produced gas volumes without other market participants having access to the national gas production.

The concept proposed by the Secretariat outlines a gas release programme which would allow all market participants to have access to the gas volumes by ensuring that it is traded on equal and transparent market segments, which are operated by the Ukrainian Energy Exchange (UEEX). These volumes would provide the crucial liquidity needed on the gas market to create a stable Ukrainian gas index.

This is not about fair treatment of private gas suppliers but about increasing benefits of Ukrainian gas consumers. Due to the fact that the country’s own production will be traded on transparent terms on the market and will be accordingly taken into account in the price formation mechanisms, the Ukrainian gas price could be lower than the TTF or NCG index price to which Ukraine is pegged to at the moment.  Besides this, the Ukrainian gas hub could, due to its size, become one of the top European reference hubs.

Additionally, the paper proposes a concept which could bring more transparency in the district heating segment, which is still covered by the PSO. In this sector, auctions in combination with a clear separation between indebted and profitable district heating companies could provide a first step towards market mechanisms.

The Energy Community Secretariat has continuously advised the Ukrainian government in the past in order to ensure that the PSO is compliant with the gas acquis and thus does not cause distortion of competition and market monopolization.

Source: Energy Community