Ukraine’s winter energy outlook: Challenges and opportunities – Interview with energy expert

27 October 2023, 01:06 PM

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Volodymyr Omelchenko, the Director of Energy Programs at the Razumkov Centre, suggests that even in an optimistic scenario, Ukraine will face a power shortage during freezing days, with more critical issues on the horizon.

On a brighter note, Ukraine has taken steps to bolster its energy security. In September, Ukrgazvydobuvannya announced the opening of five additional wells, increasing gas production by 500,000 cubic meters per day. This year has seen a record-breaking introduction of 58 new wells, according to Naftogaz of Ukraine. Oleksiy Chernyshov, the CEO of Naftogaz, has expressed confidence that Ukraine will experience its first winter relying entirely on domestically produced gas.

Given these developments, what can Ukrainians, especially those relying on gas for heating, expect this winter? Volodymyr Omelchenko, in an interview with NV, delves into the challenges and prospects for the upcoming season.

In your opinion, how could the Russian strategy regarding shelling our energy infrastructure change this autumn and winter?

There are several scenarios to consider. The first scenario involves a focus on Iranian drones. Russia has limited ballistic missiles and faces supply challenges. Our anti-aircraft defenses are improved, focusing on missiles. They may prioritize Shahed drones. The most critical, high-risk period is November.

In a positive winter scenario, significant large-scale shelling might not occur due to possible internal Russian power struggles. However, we must prepare for a worst-case scenario in which energy infrastructure is targeted throughout winter, mainly using drones. Nuclear power plants are unlikely targets, but substations and transformers could be focused on to disrupt the power grid.

Can Russia increase attacks on our gas distribution system and pipelines, considering that Ukraine intends to get through this heating season with its domestically produced gas?

Last year, Ukraine primarily relied on domestically produced gas. Gas imports were mainly for commercial, not heating purposes. While gas production is lower than three years ago, it increased by 5-6% compared to the previous year. Substantial reserves from last year are still stored underground.

It’s unlikely that Russian attacks will comprehensively target gas transmission networks. There are many of them, and shelling the main gas pipelines wouldn’t make sense due to surplus capacity. Even if one is hit, it’s harder to damage compared to the energy system. We have backup capacities to redirect transport, and Russian resources for simultaneous attacks on electricity and gas infrastructure are even less likely this year.

However, the Russians do have a significant number of Shahed drones.            

They indeed have many Shaheds. But again, many of them get shot down, and it’s difficult to predict that they will damage a main gas pipeline.

What about the transit of Russian gas through our territory – how has it changed compared to last year?

Compared to last year, it’s at approximately the same level – 40-42 million cubic meters per day. Although the contract stipulated a volume of around 107-109 million cubic meters. In other words, they are not fulfilling their contract. As you know, the coming year will be the final one for this contract, as it will no longer be in effect from Jan. 1, 2025.

While it’s still in effect, it probably provides some protection for the transit infrastructure from shelling?

The situation is critical for Russia. Gazprom has lost around 85% of the EU natural gas market. While it still supplies gas to Slovakia, Hungary, and non-EU countries like Serbia and the Balkans, these volumes are smaller. Gazprom couldn’t fully replace Europe with China, as recent negotiations between Russian leaders and Xi Jinping revealed China’s reluctance to embrace projects like Power of Siberia 2.

If Russia further reduces gas supplies through networks like the Turkish Stream, Gazprom would face a catastrophic situation. However, Russian actions aren’t always rational, so unpredictable events could occur. Still, the likelihood of this scenario is relatively low.

How are things progressing in Europe regarding the abandonment of Russian gas? Which countries have been most successful, and which remain the most dependent?

The most gas-dependent countries, notably Hungary and Slovakia, face a challenge. Other countries like Germany, Spain, and Belgium buy substantial volumes of Russian LNG. Those handling the situation best are the ones actively working to eliminate Russian gas entirely, such as Denmark and Sweden. They serve as models for the EU to transition to renewable energy sources and energy conservation.

Germany’s situation is not ideal. They no longer receive the discounts on Russian gas they had during (former German Chancellor) Angela Merkel’s tenure. These discounts were tied to certain security processes that contributed to the conflict, making them costly. Germany’s economy is struggling, with the closure of businesses and reduced production in sectors like chemicals, cement, and metallurgy. The same applies to the Czech Republic and other Central European countries. Although not without challenges, the transition away from natural gas is underway, ensuring no one freezes in the EU. The main issue remains high prices for natural gas and electricity, emphasizing that Russian gas is more than a commodity; it’s a form of energy warfare.

Let’s return to Ukrainian infrastructure. How well is it protected from shelling?

As I mentioned earlier, you can’t protect gas distribution infrastructure 100%, but it’s more challenging to damage it than the electrical infrastructure. Gas pipelines are mostly underground, but the infrastructure, including above-ground facilities like compressor stations, is vulnerable. Still, it’s not as vulnerable as the electrical infrastructure. I don’t want to go into too many details here, as it’s a complex topic, but I don’t see a significant danger to the gas infrastructure today, unlike the electrical infrastructure.

What are the current reserves of Ukrainian gas in underground storage facilities, how do they compare to the previous season, and will it be enough for us?

This year, there are 16 billion cubicmeters of gas reserves, including 2.4 billion cubic meters in a customs regime held by European traders, which can be re-exported to EU countries. The situation resembles last year, and I believe there will be sufficient gas supply. Although there’s a coal shortage and limited capacity for coal-fired power plants, which are currently using some gas-powered units, the winter situation will be similar. Some gas-powered units may be used, leading to expenses roughly on par with last year, possibly slightly higher, but significant gas supply problems are not anticipated.

By the way, can we use these 2.4 billion cubic meters that Europeans are storing with us if necessary? Is that a possibility?

There is no such possibility; it is not owned by Ukraine.

What else is being discussed in the industry, what should we expect this season, what challenges?

The primary concern is the electrical infrastructure, especially Ukrenergo’s high-voltage transmission lines and thermal power generation. Despite some protective measures, more work is needed. Over 60% of thermal power generation capacity has been damaged, and the role of Kakhovska HES is significant. Even in an optimistic scenario, I anticipate a power deficit of about 2-3 GW during peak hours on cold days this winter.

To address this, the Cabinet of Ministers must facilitate electricity imports from EU countries. Without imports, we cannot cover the electricity deficit in the winter. The National Commission for State Regulation of Energy and Public Utilities (NCREPU) needs to optimize price caps to make it commercially attractive for EU countries to supply electricity to Ukraine. Collaboration with the state regulator and the Cabinet of Ministers is crucial.

Additionally, working with partners to increase the technical capabilities for electricity imports to Ukraine, currently at 1.2 GW, could be beneficial. Raising this limit to at least 1.6-1.8 GW would be advantageous.

What does the possible deficit of 2-3 GW mean? Does it require a schedule of power outages?

With normal import conditions in place, it is possible to manage without power outages or with minimal scheduled outages. In this scenario, planned outage schedules would be minimal or non-existent. This assumes that infrastructure is not subjected to mass attacks, as it was last year.

However, if price caps remain at their current levels, meaning that the National Commission for State Regulation of Energy and Public Utilities (NCREPU) does not optimize them based on EU market conditions, we will encounter a substantial deficit and face significant schedules of power outages.

You mentioned that over 60% of thermal power generation capacity was damaged. How much of it has been restored?

Around 60% of the thermal power generation capacity has been restored. While the restoration plan has been carried out, it didn’t aim for a 100% restoration of all the damages due to financial and time constraints. The repair plan was based on realistic possibilities, and while full restoration wasn’t achievable, it has been executed to a significant extent.

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