Cablegate: Ukraine's Natural Gas Storage: Tanks Are Full but Who Owns

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #3998 2910920
ZNR UUUUU ZZH
R 180920Z OCT 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0062
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEHMO/AMEMBASSY MOSCOW 0004
RUEHAH/AMEMBASSY ASHGABAT 0001

UNCLAS KYIV 003998

SIPDIS

SIPDIS
SENSITIVE

DOE FOR LEKIMOFF, CCALIENDO

E.O. 12958: DECL: NA
TAGS: EPET ENRG PREL RS TX UP
SUBJECT: UKRAINE'S NATURAL GAS STORAGE: TANKS ARE FULL BUT WHO OWNS
IT?

REF: A) KIEV 1743 B) KIEV 2435 C) KIEV 2607, D) KIEV 3933

Sensitive but Unclassified. Not for Internet Distribution.

1. (SBU) Energy Minister Yuriy Boyko announced on October 11 that
Ukraine had pumped 25.5 billion cubic meters (bcm) of natural gas
into its underground storage facilities. The amount, according to
Boyko, was sufficient to both guarantee steady gas transit to Europe
and meet increased domestic demand this winter. (Note: NaftoHaz told
us in July (ref c) that in fall 2005 they had 24 bcm in storage; in
other years the reserves have been even lower, e.g., 17 bcm in
2001.) Boyko added that state oil and gas monopoly NaftoHaz owned 6
bcm of the stored gas, while RosUkrEnergo owned 10 bcm and the
NaftoHaz-RosUkrEnergo joint venture UkrHazEnergo owned 6 bcm. The
balance belonged to other gas traders, the State Reserve Committee,
and the Finance Ministry. (Note: The timing of Boyko's announcement
was significant, as it came just days before October 15, which is
the end of the 6-month gas storage fill season and the start of the
winter heating season. During winter, gas stores are drawn down to
supply Ukraine's antiquated communal heating system and other
household gas users.)

2. (SBU) Comment: NaftoHaz withdrew 6.2 bcm from storage last
winter during December and January alone to supply Ukrainian
consumers, according to industry data. That raises the question of
whether Naftohaz's 6 bcm will be sufficient for the entire 2006/7
winter heating season, which runs from October 15 - April 15. On
the one hand, last year NaftoHaz was also supplying industrial
users, while this year UkrHazEnergo largely covers that sector. On
the other hand, the extra gas needed from storage is largely for
household heating. If the 6 bcm is not enough, NaftoHaz likely will
be dependent on purchases from RosUkrEnergo and UkrHazEnergo to meet
Ukraine's domestic gas needs. We have no indication that NaftoHaz
has agreed with either company on a price, so they could face high
spot prices. Financially strapped due to higher imported gas prices
and alleged mismanagement, NaftoHaz in turn would likely have to
take out loans to purchase additional winter gas, if needed, or
resort to siphoning. Mention of these options, for now, is being
studiously avoided by both the Ministry of Energy and the Ukrainian
press.

Taylor

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