GTS balancing: Network Users have to regulate their portfolios independently, in particular through the exchange

Gas TSO of Ukraine encourages Network Users, in accordance with the GTS Code, to independently regulate their portfolios and to use more actively all the tools available for this, in particular the exchange market.

According to the GTS Code, GTSOU provides gas transportation services and ensures balancing of the gas transmission system, i.e. maintains the required pressure level in the GTS by balancing the volumes of gas that are injected in the GTS and withdrawn from the GTS during the day by Network Users.

To encourage traders to balance their portfolios independently, as required by law, daily balancing has been introduced. Thanks to this, it became possible to record the volumes of gas that enter to and exit from the GTS in the context of a day and to form a portfolio of each Network User with detailing by its end consumers. In addition, Gas TSO can see the imbalances status of Network Users, control the sufficient level of financial security.

It is worth noting that despite the widespread opinion on the income of Gas TSO from balancing the GTS, at the end of 2020 the provision of balancing actions is a significant item of losses for Gas TSO.

In the financial report of the GTS Operator for 2020, it is indicated that the net income from the GTS balancing amounted to UAH 4.1 billion. However, for objectivity, another financial indicator should be taken into account – the costs related with GTS balancing, which in 2020 amounted to UAH 6.6 billion (the cost price of purchased natural gas for the GTS balancing and the cost of the creation of reserves for credit losses on receivables). I.e., the expenses of Gas TSO when balancing the GTS exceeded revenues by about UAH 2,5 billion.

As for 2021, the first months showed negative results. In 2020, Gas TSO purchased natural gas for its own production and technological needs at a favorable price. However, in February-March 2021 Gas DSOs (regional, city gas companies) withdrew more than 1 billion cubic meters of gas from the GTS. Those volumes would be sufficient for Gas TSO’s own PTNs for the period of two years. The total sum, which the regional gas companies have to pay to Gas TSO, amounts to almost UAH 10 bln. As of today, the prices for natural gas in the market are higher, so Gas TSO will be forced to buy gas for its own needs at a high price and will incur additional costs thereby having a negative impact on the financial result for 2021. In addition, the aforementioned debt, which is due to be paid by regional gas companies, has significantly increased the provision for bad and doubtful debts.

“Gas TSO is not a gas vendor; our function is to keep the pressure in the system. Therefore, our gas must be expensive so that traders have an incentive to settle their own imbalances – to buy gas from other traders, on the exchange, etc., as required by the Law of Ukraine “On the Natural Gas Market”, said Sergiy Makogon, General Director of Gas TSO of Ukraine. According to the GTS Code, Gas TSO shall earn nothing on balancing. Therefore, in order to prevent the occurrence of such cases in civilized countries the principle of neutrality applies. This means that if Gas TSO has earned something from balancing according to the results of a certain period, it must return those funds to the market. However, if it incurs losses, all market participants shall compensate for such losses. As the tariff of Gas TSO does not provide for funds to cover the costs of balancing actions”.

According to the opinion of the head of Gas TSO, to make the gas market in Ukraine more transparent, it is essential to proceed with implementation of the European energy legislation: to introduce the mechanism of neutrality of balancing; to oblige Gas DSOs to purchase gas for PTNs in a transparent way – on ProZorro or on the exchange; to create an organized liquid gas trading on the exchange for obtaining a market price indicator for gas.

In particular, buyers of natural gas have the opportunity to purchase gas on competitive terms for their own economic activities, including for production and technological needs, on the exchange. Such an opportunity is provided by the Law “On Amendments to Article 3 of the Law” On Public Procurement” on the purchase of natural gas. It is about trading short-term standardized products on the intraday market and the “day-ahead market” for short-term trading and balancing their portfolios.

Currently, at least five instruments are available for Network Users to effectively balance their portfolios:

  • injection / withdrawal to / from UGSF;
  • bilateral contracts market;
  • exchange market;
  • balancing group;
  • allocation agreement.

The application of the above mechanisms will contribute to the development of a stable, liquid, transparent gas market in Ukraine on mutually beneficial terms for all participants.