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Ukraine and Poland to fight against Nord Stream 2 by strengthening the integration of their gas markets

At the end of March, the Ukrainian-Polish working group on energy issues confirmed to deepen the cooperation between the two country’s gas markets. Taking into account market forecasts and future challenges, including those associated with changes in the transit of Russian gas to Europe, Ukraine and Poland will accelerate the integration of their gas markets.

The high-level meeting was attended by the representatives of the Ministry of Energy of Ukraine, Poland’s Deputy Minister of Climate and Environment, Adam Guibourgé-Czetwertyński, the Directors of Gas TSO of Ukraine, as well as representatives of Polish Institutions and Organisation.

The parties discussed the establishment of firm capacities in the direction from Poland to Ukraine and the simplification of the licensing requirements of Poland for Ukrainian traders. The introduction of discount for the gas transportation for its further storage in the Ukrainian underground storage facilities (UGSF) and capacity allocation through joint auctions of Polish and Ukrainian Operators were also on the table.

The parties agreed that access to new sources of natural gas supply, in particular via Poland’s LNG terminal in Świnoujście, creates significant potential for the integration of their gas markets. Therefore, they discussed introducing a special regime, with favourable tariffs and simplified requirements for Ukrainian traders, for facilitated gas transit from LNG-terminal to the Ukrainian-Polish border.

Poland is a strategic partner of Ukraine in the field of natural gas transportation. In 2020, Ukraine’s GTSO transited 3.9 billion cubic metres (bcm) of natural gas to Poland, while the import of gas to Ukraine amounted to 1.5 bcm – 33 per cent more compared to the same period last year – out of which 1 bcm account for the virtual reverse. Last year, some 1.024 bcm of imported volumes were directed from Poland to the underground storage facilities, according to the information provided by Ukraine’s Gas TSO.

Source: Gas TSO Ukraine

However, apart from the efforts to improve business conditions, Poland and Ukraine also face common external challenges – the Russian Gazprom’s mega project, the Nord Stream 2 pipeline.

“The common position of Ukraine and Poland in opposing this project is critical. But the best way for Ukraine and Poland of fighting against Nord Stream 2 is to develop our cooperation and combine the potentials of Ukrainian and Polish gas markets,” said Olga Bielkova, Director on Government and International Affairs of Gas TSO of Ukraine.

Considering the rapid development of renewable energy and the implementation of the European Green Deal, Ukraine and Poland also see the potential in deepening the cooperation in the field of the transportation of renewable gases such as hydrogen, biomethane and synthetic methane.

“As the European Commission has officially recognised Ukraine as one of the main potential sites for the production and export of renewable hydrogen to Europe, we need to analyse all opportunities, so we can offer the appropriate services,” noted Paweł Stańczak, Deputy General Director for Development and Transformation, of GTSOU.

“Further integration into the European energy markets is a tool not only for strengthening the energy security of our country but also for the development of its economy,” added Mr Stańczak.

A recently published USAID expert report analysing the level of integration between Poland’s and Ukraine’s gas markets in the context of technical, commercial, as well as legal and regulatory factors concluded that the two gas markets have significant potential for further integration. The analysis identified a number of obstacles but argued that both sides have the necessary prerequisites for the implementation of expert recommendations until 2023.

“Last year, we demonstrated the potential to increase gas trade volumes between the two countries,” underlined Sergiy Makogon, CEO of Gas TSO of Ukraine, adding that already today, Ukraine could receive from Poland 5 bcm of gas per year, including from the LNG terminal if Poland will ensure the availability of guaranteed capacities towards Ukraine and the required level of pressure.

Experts predict that regional gas demand will grow due to the use of gas in the energy sector instead of coal, especially in Poland. Particular attention in the report is paid to the issue of diversification of sources, including through transportation from LNG terminals, as part of the implementation of energy security programs of both countries.

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