Russian coal supply to Ukraine halts amid deepening energy crisis

LONDON (ICIS)–Ukraine is pinning its hope on nuclear generation to meet winter demand as the country stopped receiving coal supply from Russia on Monday, according to the country’s energy committee.

Russia stopped coal supplies to Ukraine on Monday just as gas transit through the country fell to 57 million cubic metres (mcm), or half of its daily contracted volumes. Daily electricity imports from Russia and Belarus have also stopped.

Market sources interviewed by ICIS said the country was under “immense pressure” to align politically and added that in case of a harsh winter, its only hope would be domestic nuclear generation which accounts for 52.1% of demand.

According to a social media post by Andriy Gerus, chairman of the energy committee in the Ukrainian parliament, Russia had suspended thermal coal supplies to Ukraine from 1 November.

Supplies had been decreasing throughout the year.

As of the beginning of October, there were only 614,000 tonnes in stocks, four times lower than over the same period last year. This meant that 17 thermal power plants and combined-heat power plants could not operate due to the lack of fuel, according to DTEK reports seen by ICIS. DTEK is one of the main buyers of coal in Ukraine.

Ukrainian coal reserves have been falling throughout the year amid a combination of rising thermal production and electricity exports to premium European markets, falling domestic reserves and lower Russian imports.

Stocks had increased by 715,000 tonnes by the end of October but were still some two million tonnes lower than the planned reserves approved by the government.

According to the government, the shortfall could be met by an increase in locally produced coal as well as imports form Poland and Kazakhstan.

Market sources told ICIS it may be difficult to import coal from Kazakhstan because rail carriages required to export volumes to Ukraine were needed for exports to China.

Ukraine may need to buy coal from Donbas and Luhansk, potentially putting it in the difficult position of having to buy coal from separatist authorities it has been fighting since 2014.

The coal supply crisis comes at a time when Ukraine faces reduced gas supplies.

The country stopped buying natural gas directly from Russia following its occupation of Crimea.

It has been transiting 109 million cubic metres (mcm)/day of Russian gas to Europe under a five-year contract and has been able to secure volumes in reverse from neighbouring European markets.

However, transit volumes through Ukraine have been decreasing since October and fell further to 57mcm/day from 1 November.

Under the terms of the contract, Russia pays for the capacity even if it underuses it.

Meanwhile, daily capacity auctions with Belarus and Russia had stopped, according to a source close to the matter, following the verdict of a Ukrainian court in the final week of October. ICIS has not yet seen details of the court verdict.