How Ukraine can safeguard its gas storage role in Europe

Gas traders active in Ukraine are lobbying the European Commission to exempt gas re-exported from Ukrainian storage facilities from new EU origin verification requirements under the bloc's Russian gas phase-out regime.

They argue that existing customs procedures already provide sufficient safeguards against Russian gas entering the European market.

Several market participants have asked Brussels either to grant a full exemption under the REPowerEU regulation or to allow traders to continue relying on current customs procedures, including ex-post import declarations.

The debate centres on new EU rules that have already taken effect for spot imports of Russian pipeline gas and LNG. Under the regulation, importers of non-Russian gas must provide evidence of the gas's country of production before it enters EU customs territory, typically at least five working days before delivery.

Ukrainian companies argue that these requirements could undermine the commercial flexibility that has made Ukraine's storage facilities attractive to European traders and an important source of seasonal supply security for the EU.

They maintain that Ukraine should qualify for special treatment because the country has not imported Russian gas since 2015, imposed a broader ban on Russian goods in 2022, and ceased physical gas flows from Russia following the expiry of the Russia Ukraine gas transit agreement. Ukraine's gas network is now connected only to EU member states and Moldova.

Supporters of an exemption argue that gas stored under Ukraine's customs warehouse regime should therefore be presumed compliant with EU requirements, as it can only enter the Ukrainian system from neighbouring European countries.

Ensuring compliance

I understand that the European Commission has not granted an exemption so far and is considering the request.

Concerns surround non-compliance with one of the criteria included in the law. One of the conditions to grant exemption would be for the country to have exported more than five billion cubic meters to the EU in 2024. Ukraine does not meet this requirement.

A source close to the EU said the Commission’s overarching goal was to prevent the circumvention of the ban. Some Ukrainian observers cautioned an unconditional exemption.

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Oleh Savytskyi, senior strategist at advocacy group Razom We Stand, said Ukraine has a strong case for both re-exporting stored gas and exporting gas from domestic production, but only if robust safeguards are introduced to prevent Ukrainian infrastructure from becoming a route for Russian gas into the EU.

He noted that while Ukraine has a general ban on imports from Russia, Russian gas should be explicitly prohibited in Ukrainian legislation. He also pointed out that the REPowerEU regulation focuses on the country of production, not the country from which gas is imported.

As a result, documentation showing that gas entered Ukraine from an EU member state may not, by itself, be sufficient proof that the gas was not originally produced in Russia.

Trusted supplier

"Ukraine could become a trusted supplier of natural gas to the EU if it puts in place a strong system for tracking and verifying gas origins that is fully aligned with the EU's ban on Russian gas," Savytskyi said.

He proposed a series of safeguards that could allow Ukraine to preserve storage flexibility while satisfying EU compliance requirements.

Under one option, origin verification would take place when gas is injected into Ukrainian storage facilities—or when it first enters the EU-Ukraine trading chain—rather than being repeated every time gas is withdrawn. Once verified, gas could receive a certificate or digital batch reference that remains valid for future re-export.

Savytskyi also called for a joint data-sharing mechanism involving Ukrainian customs authorities, storage operator Ukrtransgaz and transmission system operator GTSOU.

Such a system would record injection dates, entry points, volumes, ownership information, storage accounts, withdrawal points and supporting origin documentation.

"The key principle should be that certified non-Russian withdrawals cannot exceed certified non-Russian injections, adjusted for technical losses and balancing," he said.

He added that the system should clearly distinguish between domestically produced Ukrainian gas, gas imported from exempt or low-risk producing countries, and gas of mixed or poorly documented origin.

"Domestic Ukrainian production should be relatively straightforward to certify as non-Russian. Gas bought at hubs or moved through complex trading chains should require stronger documentation," he said.

Additional safeguards could include independent audits, monthly reporting of aggregate volumes and the ability for authorities to suspend simplified treatment for any trader, route or storage account where irregularities or circumvention risks are identified.

Removing loopholes

According to Savytskyi, such measures would streamline operations while preserving the integrity of the EU's origin-verification regime.

Without them, he warned, any blanket exemption for Ukrainian infrastructure could create a loophole that weakens the entire system and allows Russian gas to enter the European market through blending or insufficiently documented supply chains.

Separately, market participants are exploring alternative solutions, including the possibility of easing restrictions on exports of domestically produced Ukrainian gas.

This could allow traders to swap gas held in storage for locally produced volumes when supplying EU markets.

However, those volumes would still be subject to the EU's origin-verification requirements once they enter the bloc.

Sources familiar with the discussions said Ukraine's Ministry of Finance may be reluctant to support such a measure because of concerns that increased exports could contribute to domestic supply shortages. In that scenario, state-owned Naftogaz might need to reimport gas from EU hubs at higher prices.

The issue is further complicated by budgetary constraints, with current public finances not providing additional resources to cover potential supply deficits.

For supporters of a conditional exemption, the challenge now is balancing the EU's objective of eliminating Russian gas with the need to preserve the commercial attractiveness of Ukraine's storage infrastructure, which many market participants view as an important component of European energy security.

A robust, auditable and EU-aligned verification system, they argue, could offer a compromise that achieves both objectives.

ABOUT THE AUTHOR: Aura Sabadus is a fellow of the Center for European Policy Analysis and associate research fellow at the Royal United Services Institute.