Increased Integration of Ukrainian and Polish Transmission Systems and Gas Markets

The USAID Energy Security Project has conducted an overall study, determining areas which can be further improved to enhance the integration between Poland and Ukraine with respect to regional security of natural gas supply and increasing cross-border trade. The detailed results of the study are presented in the report “Increased integration of Ukrainian and Polish Transmission Systems and Gas Markets”. In this article we present key conclusions and recommendations, based on the analysis of the current level of integration in terms of technical, commercial, legal and regulatory elements in Poland and Ukraine, outlining potential actions to further increase integration between the two countries and taking into consideration a market forecast and outlook of challenges and opportunities of the evolving gas balance in the region including changes to transit of Russian gas to Europe.

More specifically, the study describes the potential technical bottlenecks in the gas infrastructure in the absence of volumes from Russia to Poland via Ukraine, as well as the additional value and benefits the countries could bring to each other from the perspective of security of gas supply.

Ultimately, the analysis provides an assessment of cross border business cases, such as utilization of Ukrainian storage, the development of Poland as a regional gas hub, the facilitation of LNG imports to Ukraine through Poland for diversification of supply. To support the various cases and scenarios, analysis was conducted to determine enablers, such as potential commercial structures (i.e. bundled capacity products), and recommendations for harmonization of legal and regulatory frameworks. The report also provides a guideline on how to move forward towards developing a product that will not only modernize the market but will create further opportunities for these two countries and the region beyond.

As part of the study, analysis was conducted to determine whether Ukraine and Poland’s portion of the interconnector is adequate to meet possible future demand of bidirectional flow (including for injection/withdrawal from the western Ukrainian UGS).

The overall study on the integration of Ukrainian and Polish transmission systems and gas markets concluded that there is significant potential for further integration based on the best EU experience.

Taking into account the fact that the gas exchanges between Poland and Ukraine might be significantly restricted after 2022 as a result of the end of the Yamal contract, then the enabling of fully bi-directional flows between Poland and Ukraine could be considered essential to increase flows in the medium and long term. This would require new arrangements between the Polish and Ukrainian TSOs in order to assess which investments are actually needed to provide fully bi-directional flows via GCP OGP Gaz-System/UA GTSO.

With regards to regulatory aspects of gas exchanges between Poland and Ukraine, the licensing requirements in Poland impose significant market entry barriers on Ukrainian gas traders. In order to remove or at least mitigate this barrier, it is recommended to extend license accessibility in Poland to Ukraine-based companies and facilitate licensing proceedings to reduce administrative barriers to the presence of gas traders in both markets and provide gas supplies and price arbitrage between Polish and Ukrainian markets.

In order to faciliaite and streamline physical gas exchange across the interconnect, bundled capacity products could be offered at the GCP Gaz-System/UAGTSO.

The possible use of Ukrainian UGS for the purpose of gas stocks for Polish customers’ needs would require major regulatory decisions. Additionally, in view of the limited working volume in Polish UGS and spare working volumes in Ukrainian UGS, one can consider allowing maintenance of the compulsory gas stocks in Ukraine under Polish law.

Additionally, to bring Ukrainian metering regulations in compliance with EU regulations, it is necessary for the Ukrainian Parliament to adopt the Draft Law “On Amendments to Certain Legislative Acts of Ukraine on the Implementation of Metering and Calculations on the Gas Volume in Energy Units on the Natural Gas Market” No. 2553, which was approved in the in the first reading.

• establish a firm capacity at the cross-border interconnection point between Poland and Ukraine. This is seen to be a critical task as there is a significant risk that the infrastructure will no longer be actively used by the market unless firm capacities in both directions are established.
• simplify the licensing regime in Poland for Ukrainian companies. Again, this is a critical activity, however it is determined to be a complex activity due to the involvement of multiple stakeholders in Poland.
• allow the use of Ukrainian gas storage facilities for storing compulsory stock required by polish legislation. This is seen to be a required recommendation; however, it is not critical.
• create a bundled product for cross-border interconnection point capacity of the TSOs. This is a required activity that can be achieved in the long term.
• create separate regime (reasonable tariff and simple requirements for Ukrainian traders) for transit from Germany and/or LNG facility to the Ukrainian border. This is both a critical and complex task as the process depends on the finalization of the second recommendation.
• fully-fledged gas exchange within Ukraine. Whilst this is a complex process, it is not seen as essential, and instead is determined to be a desirable recommendation.
• create a short-term product from the Polish side, which allows discounted transmission tariff for dedicated use of Ukrainian storage facilities. This recommendation will allow for the increase of utilization of the UGS facilities.