Today, the Verkhovna Rada of Ukraine adopted Law No. 3176, titled “On Amendments to Public Procurements in Purchases of Natural Gas.” This legislative initiative will allow the GTS Operator (GTSOU) to make daily purchases on the gas trading exchange. And it will give us the tools to balance the system better, based on production and technological costs. It’s a long-awaited law that was first introduced in 2018 in close cooperation with the GTSOU. Supported by Ukraine’s international partners, numerous business associations, and reform advocacy groups, it received 300 votes and no significant objections.
Further development of exchange trading will create the conditions for Ukraine to form its own gas-price index. This is important because today, we are forced to use different formulas, which do not reflect the domestic gas market conditions.
Without the participation of the largest buyers, the exchange can not achieve the necessary liquidity. The current laws require GTSOU to maintain a certain technical volume of gas in the system to ensure the continuity of transit. Under Law 3176, we will now be able to buy or sell additional volumes of gas in one trading session, which is a significant breakthrough that will underwire a more flexible and dynamic trading system.
The GTSOU and gas storage operators use natural gas for their own operational needs. Thus the GTSOU’s participation in the gas exchange is a prerequisite for developing a competitive environment and the formation of market price indicators for gas, according to the international experience and best practices.
The price of natural gas is inherently volatile and is best formed daily in accordance with modern market trends as the result of exchange trading. On the other hand, the purchasing of gas via Prozorro procurement process may take several months. That would render the short-term balancing of the system impossible.
At the first stage, access to the gas exchange will be granted to the GTSOU and the operator of gas storage facilities, given their status as qualified market participants with the deepest knowledge of the gas sector. At the second stage (as of 01/07/2020), all other natural gas market entities of the state and municipal sector will gain access to the exchange. Accordingly, state-owned companies and utilities will be able to quickly solve the current needs of buying additional volumes of gas. Such process optimization will inevitably yield greater efficiencies and cost savings. The participation in the exchange will be contingent on the market player’s ability to secure and maintain the license to supply gas, as required by the GTS Code.
Despite its complexity, the Gas market reform is among the most successful in Ukraine. And it has already delivered many economic benefits. With the passage of law 3176 and the development of gas trading exchange, we are making a significant step forward. A step towards stronger competition, greater market efficiency, and ultimately better prices.