Ukraine’s partial reopening of natural gas exports could improve producer economics and encourage investment in domestic gas production, according to Artem Petrenko, executive director of the Association of Gas Producers of Ukraine.
The market-based export mechanism could also strengthen price links between Ukrainian gas and neighbouring European markets, with traders expected to prioritise routes offering the most favourable net returns.
The significant price differential between domestic and European markets makes exports commercially attractive to producers, even under the current restrictions, Petrenko said.
Export price premium
Ukraine has partially eased restrictions on privately produced natural gas exports, allowing independent producers to sell up to 15% of eligible output abroad through a controlled, market-based mechanism.
An initial auction provided an indication of the potential commercial returns. Four production companies sold 12.75 million cubic metres (mcm) of gas at approximately €69/MWh, with all offered volumes purchased. The final price was below the initial asking price of €87/MWh but nearly twice the domestic spot market level.
The gas is scheduled for delivery at the Polish border, subject to producers obtaining export licences.
The mechanism allows Ukrainian suppliers to access higher prices than those available domestically, while buyers may be able to purchase gas below prevailing Northwest European hub prices, depending on transportation and other costs.
There is no single price threshold at which exports become commercially viable, Petrenko said. Producers and buyers are expected to compare European hub prices against transportation expenses and other costs when evaluating potential transactions.
Poland, Hungary and Slovakia could offer attractive export routes because of their connections to Central European markets. Romania and Moldova may also provide opportunities.
Supporting investment in production
The partial reopening followed an assessment that Ukraine had sufficient gas supplies to permit limited exports without compromising domestic requirements.
Gas storage inventories stood at 15.8 billion cubic metres (bcm), approximately 2.6 bcm above the minimum requirement and 1.2 bcm above the target level. Winter demand forecasts and estimates of available commercial gas also indicated that some volumes could be exported while maintaining domestic supply security.
Export opportunities could help ease pressure on producer economics following a decline in Ukrainian industrial gas demand. Although comprehensive current demand figures are unavailable, market estimates indicated that consumption may have fallen by 40% in September compared with the same period a year earlier.
The decline has been linked to reduced industrial activity following repeated Russian missile and drone attacks. Major industrial consumers, including ArcelorMittal and Metinvest, have suspended operations or reduced production.
At the same time, domestic gas production has been increasing despite damage caused by the war. Private producers reached output of approximately 5 bcm in 2021, accounting for around a quarter of Ukraine’s total production at that time, according to Petrenko. Current production figures remain confidential, although both state-owned and private producers have reported increases this year.
Petrenko has emphasised the importance of maintaining access to sales markets to support production levels. A sustained decline in upstream investment could eventually increase Ukraine’s reliance on imported gas.
Reliable access to European buyers could therefore become an important consideration in future investment decisions, particularly if producers have confidence in the stability and predictability of the export framework.
Regional price formation
The export mechanism could also improve market liquidity and price transparency in Ukraine after a prolonged period of restrictions on cross-border gas sales.
Transactions are denominated directly in euros per megawatt-hour rather than being formally indexed to the Dutch Title Transfer Facility (TTF) or another European benchmark. This approach allows European traders to compare Ukrainian gas prices more easily while enabling competitive price discovery through auctions.
Nevertheless, TTF, Austria’s Central European Gas Hub (CEGH) and other regional trading hubs are expected to remain important reference points when buyers assess Ukrainian gas.
The initial auction demonstrated the difference between sellers’ asking prices and market-clearing levels, with offers starting at €87/MWh before transactions were concluded at approximately €69/MWh.
Controlled market reopening
The government retains the authority to suspend exports if domestic supply conditions deteriorate, particularly amid continued attacks on Ukraine’s energy infrastructure.
The current arrangement represents a controlled reopening of the export market rather than a transition to unrestricted cross-border sales. Its immediate objective is to establish that limited exports can operate effectively without undermining domestic energy security.
Further liberalisation will depend on adequate storage inventories, predictable domestic consumption, increased production and a stable national gas supply balance.
