• The Ukrainian gas transmission system (GTS) is one of the most reliable and powerful in Europe. Its entry capacity amounts to 302.1 bcm/year, with 21 bcm/year on the EU side. The exit capacity equals 178.5 bcm/year, including 146 bcm/year in the direction of EU countries and Turkey. The total length of Ukrainian gas trunk lines is 38 thousand kilometers.

    The Ukrainian GTS is connected to the gas pipeline systems of neighboring countries — the Russian Federation, Belarus, Slovakia, Poland, Hungary, Romania and Moldova — and thereby it is integrated into the European gas network.

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Direct Stream, the traditional and the most powerful route of delivery of Russian gas to Europe, passes through Ukraine

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The strategic priority for Ukraine is full integration of the Ukrainian GTS into the European gas transmission network. The operator of the Ukrainian GTS should work directly with all related GTS operators while maintaining all rights and obligations under the relevant European legislation.

    UNBUNDLING THE TSO FUNCTIONS

    The operator of Ukraine's GTS is Ukrtransgaz, which is 100% owned by Naftogaz. As a member of the Energy Community, Ukraine has committed itself to unbundle the function of control over the transmission system operator (TSO) in accordance with EU energy legislation and the Third Energy Package. The first step towards an independent GTS operator was the adoption and implementation in Ukraine of the law "On Natural Gas Market". This law has received numerous positive assessments from market participants, international partners of Ukraine, and industry observers.

    In July 2016, the government of Ukraine approved a plan to unbundle the TSO function from Naftogaz group. The plan stipulates that this function shall be transferred to a newly established company which will be completely independent of Naftogaz. The plan also includes several measures to determine the most economically viable method of use and management of Ukraine's underground gas storage facilities.

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    In December 2015, Ukrtransgaz successfully passed an audit by international certification body TÜV SÜD (Germany)

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The unbundling of the TSO functions is scheduled to take place within one month after the entry into force of the decision on the merits of the case between Naftogaz and Gazprom, which is currently being considered by the Arbitration Institute of the Stockholm Chamber of Commerce (see Strategy and Reform: Creating an effective gas market in Ukraine).

    UKRTRANSGAZ

    Ukrtransgaz ensures gas transmission by trunk pipelines to consumers in the EU, the Balkans and Turkey, as well as to consumers in Ukraine. In addition, the company manages Europe's largest system with 12 underground gas storage facilities (UGS) with total capacity of over 30 bcm in mainland Ukraine (see Underground gas storage) and provides for maintenance of this infrastructure.

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The 2015-16 heating season passed without purchases of Russian gas for the first time in the modern history of independent Ukraine

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Ukrtransgaz is the only state-owned company in Ukraine's energy sector certified according to the international standards of management systems for quality, environmental protection, occupational health and safety.

    Ukrtransgaz is the largest domestic company in the service sector: it employs almost 21 000 workers. According to an EY assessment, the value of Ukrtransgaz's fixed assets as of 1 January 2016 amounted to UAH 422 billion.

    TRANSMISSION OF GAS TO THE EU

    After a significant decline in transit through Ukraine in 2014, the volume of transit increased in 2015. Last year, Ukraine transmitted 64.2 bcm to the EU and Turkey, which is almost 8% (4.8 bcm) more than in 2014 (59.4 bcm).

    REDUCTION OF NATURAL GAS CONSUMPTION IN UKRAINE

    Five years ago, Ukraine used almost twice as much gas as in 2015. Ukrainian consumers used 50.4 bcm in 2013, while this figure decreased to 42.6 bcm in 2014 and to 33.8 bcm in 2015.

    The decline in gas consumption was caused by three main factors: the increase in gas prices, natural factors (relatively higher temperatures during the heating season), and regulatory factors (changes in consumption standards applied to consumers who do not have gas meters).

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Ukraine ended the heating season with more than 8.6 bcm of gas remaining in the system — the highest balance for the past five years

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Further reduction of gas consumption is possible primarily due to energy efficiency measures and energy saving activities in the commercial and residential sectors. On the other hand, the demand for gas may increase due to the economic recovery of industrial consumers as Ukraine's economy recovers.


    DIVERSIFICATION OF SUPPLY ROUTES AND GAS MARKET REFORM

    Providing capacity and opportunities to diversify the routes of gas supplies to Ukraine remained one of the priorities of Ukrtransgaz in 2015.

    Currently, the Ukrainian GTS has capacity to receive over 21 bcm/year from Europe, which exceeds Ukraine's total annual need for imported gas by almost half. The number of private importers has increased as a result of gas market reform in Ukraine. In early 2015, only four independent private gas traders were supplying gas to Ukraine from Europe. At the end of 2015, more than 10 suppliers were operating on the market. Some large industrial Ukrainian consumers also started importing gas from the EU directly. The volume of gas imported by private companies from the European direction has increased by 7.5 times to 1.1 bcm in 2015 against 0.14 bcm in 2014 (see Strategy and Reform: Reform of the gas market).

    The effective use of reverse supplies from the EU has significantly changed the complexion of competition in the Ukrainian gas market.Gas transmission through Ukraine

    Despite the fact that the average temperature in winter 2015-2016 was slightly higher than usual, Ukraine was prepared for a more severe winter. Naftogaz and Ukrtransgaz ensured uninterrupted gas supplies to Ukrainian consumers throughout the season, including periods of severe frosts and significant temperature changes in January 2016. Meanwhile, Ukraine continuously provided reliable supplies of Russian gas to the EU.

     

    Slovakia: physical reverse

    Increasing gas transmission capacity from Slovakia to Ukraine from 8 bcm to 15 bcm/year from early 2015 made it possible to diversify gas supplies to Ukraine and eliminate the need for gas purchases from Russia (see Strategy and reform — Security of supply and Operating activities — Gas imports and wholesale trading).


    Poland: new interconnector

    Ukrtransgaz continues to work on expanding the capacity of gas transmission between Poland and Ukraine. In October 2015, Ukrtransgaz and Polish gas transmission system operator GAZ-SYSTEM completed a feasibility study (FS) for the new interconnector in line with the integration of the gas transport systems of both countries. It is expected that construction of the Drozdovychy–Hermanowice interconnector between Ukraine and Poland will begin in 2017 and be completed by 2020.

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Construction of the new interconnector will help deliver up to 8 bcm/year from Poland to Ukraine

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Ukrtransgaz plans to engage over 1,000 of its employees in the construction of this interconnector with total length of 99.3 kilometers.

    Construction of the new interconnector will help deliver up to 8 bcm/year from Poland to Ukraine.

    This project will contribute significantly to favorable opportunities for consumers who consider storing gas in Ukraine's underground storage facilities.

    Hungary: connection of networks

    In May 2015, Ukrtransgaz and the Hungarian operator FGSZ signed an interconnection agreement on cross-border gas pipelines between Ukraine and Hungary. Based on this agreement, GTS operators of neighboring countries will exchange information on the volume, direction, and schedule of gas flows, clients, recipients, etc.

    The agreement is fully consistent with the network code C/2015/2823 adopted by the European Commission in late April 2015. It was the first step to establishing full-scale cooperation between Ukrtransgaz and operators of neighboring European TSOs.

    Nevertheless, Ukrtransgaz cannot fully cooperate with FGSZ and operators of other neighboring EU member states because of certain provisions in the long-term contracts with Gazprom. This scheme is a Soviet-time legacy and does not comply with current legislation of the Energy Community of which Ukraine is a contracting party.

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Interconnection agreement is the only legal basis for cooperation between TSOs in the Energy Community

    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Gazprom does not provide Ukraine with the so-called shipper code pairs, or data about individual gas shipments that are transmitted through Ukraine. Only the neighboring TSOs in the EU receive this information from the Russian supplier. As a result, Gazprom's subsidiary Gazprom Export, which supplies gas to European consumers, acts as a TSO, which is a violation of the fundamental principles of the EU Third Energy Package.

    Naftogaz demands that the current situation be brought into line with current legislation through arbitration proceedings against Gazprom concerning the gas transit contract (see Strategy and reform — Security of supplies).

    In July 2016, Ukrtransgaz signed a similar agreement on cooperation with SPTGN Transgaz company, the Romanian TSO. Ukrtransgaz also plans to conclude similar agreements with the rest of TSOs in neighboring EU member states.


    CAPITAL INVESTMENTS

    Although the Ukrainian GTS has been operating for over 40 years, it is estimated that it can serve another 40 years if duly maintained.

    To ensure the reliability of the Ukrainian GTS, Ukrtransgaz conducts repairs and maintenance of its trunk pipelines annually from April to September. Due to the system's high branching and flexibility, these works are usually performed routinely without limiting the volume of gas supplies to consumers either in Ukraine or the EU.

    Increase investments in repair work

    UAH 1.7 billion was spent on repairs of GTS facilities in 2015, which is 66% more than in the preceding year. With these allocated funds, 95km of gas pipelines were repaired, which is 11% more than in 2014.

    A financial plan for Ukrtransgaz was approved for the first time in the past 6 years, which enabled the company to increase its capital investments 2.4 times to UAH 1.2 billion (UAH 0.5 billion in 2014).

    The company currently operates nearly 5 000 vehicles with an average age of over 20 years. In 2015, the company purchased 160 specialized vehicles, including 25 UK produced excavators, 11 KrAZ-Reno based emergency multipurpose vehicles, 70 four-wheel drive diesel Mazda pickups, and 54 buses for GTS maintenance.


    GTS RELIABILITY

    To evaluate the reliability of the GTS, several indicators are commonly used, including trunk pipeline emergency rate (number of emergencies per thousand kilometers).

    Over the past 20 years, the emergency rate in Ukraine's trunk pipelines has not exceeded 0.06 cases/thousand km compared to 0.22 cases/thousand km in the Russian GTS, which is similar to the Ukrainian one in terms of age and technical capabilities.

    New transportation and specialized vehicles

    In 2015, the number of failures in Ukrainian trunk pipelines decreased by 21% to 27 cases. Most of the failures in 2015 were due to external damage in the front-line areas of Donetsk and Luhansk regions.

    There were 41 failures in 2010 and 72 in 2005, which remains the highest figure for the past ten years.

    Ukrtransgaz conducts extensive emergency and anti-terrorism exercises every year.
    In October 2015, Ukrtransgaz conducted a joint anti-terrorism exercise jointly with the Ministry of Interior and the State Emergency Service of Ukraine at the high-altitude compressor station in Volovets with the participation of international observers. According to the exercise scenario, participants localized and eliminated a leakage in the trunk gas pipeline.

    INCREASED TRANSPARENCY

    Ukrtransgaz continues to implement new mechanisms for transparency and to disclose new data.

    In 2015, the company provided observers from the European Commission with access to GTS facilities, including gas metering stations, to monitor the transmission of natural gas through Ukraine. Besides physical access to Ukrainian GTS facilities for the monitoring mission, Ukrtransgaz launched daily updates on applications for transit of Russian gas to European consumers, citing actual volumes of Russian gas entering Ukraine and actual volumes of gas transmission for the EU and Ukraine.

    Increase in repair works

    Maximum transparency is ensured by daily reports on Ukraine's GTS performance published on the platform of the European Network of Transportation System Operators for Gas (ENTSOG) https://transparency.entsog.eu and on the official website of Ukrtransgaz.

    Key operating data are published on a daily basis on the Ukrtransgaz transparency platform: http://utg.ua/live/.

    INCREASING GTS EFFICIENCY

    Gas used to operate the system is the largest expense item for Ukrtransgaz.

    Through strengthening cost control and energy saving measures, Ukrtransgaz has managed to reduce gas consumption and costs per transported unit of gas.

    The company has actively used mobile laboratories to find gas leaks in pipelines and has improved gas measuring systems. According to Ukrtransgaz calculations, the use of electrically driven gas pumping units saved UAH 216 million for the company in 2015.

    In 2015, Ukrtransgaz saved UAH 1.5 billion (13%) on gas purchased for operating and technical needs compared to planned targets.

    Besides the reduction of total costs, the company also decreased consumption of gas for operating and technical needs per transported unit of gas by 18%, or to 13.6 cubic meters per tcm of transported gas.

    UKRAINIAN GTS

    UKRAINIAN GTS

     

    << Previous paragraph
     
    Next paragraph >>