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How to calculate consumed gas volume correctly: in kilowatt-hours or cubic meters?
As early as last year, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Amendments to Certain Laws of Ukraine Regarding the Introduction of Accounting and Settlements for the Volume of Gas in Energy Units on the Natural Gas Market.” According to this Law, starting from 01 May 2022, in accordance with the existing European practice, accounting, acceptance and transmission of natural gas should be carried out in kilowatt-hours rather than cubic meters. However, due to the start of the direct Russian invasion of Ukraine, plans to implement the provisions of this law had to be postponed.
In general, the accounting system in cubic meters of natural gas has been operating since the Soviet era and is obviously outdated, as it operated in the absence of a competitive market.
At the same time, the adopted law is aimed at the transition to European standards for accounting for gas in energy units. According to the document, settlements on the natural gas market during acceptance and transmission to/from the gas transportation or distribution system, purchase, sale, supply, consumption of natural gas, providing services for transportation, distribution, storage (injection, selection) of natural gas or LNG installation services will be carried out based on the volume of natural gas in kilowatt-hours (kWh).
As the initiators of the law in the Verkhovna Rada explain, this will also allow to eliminate problems related to accounting metrics: lack of consumer awareness about the real cost of consumed energy; disproportions on the gas market related to different gas quality and conversions; stagnation of the wholesale gas market in Ukraine, and low quality of natural gas produced in Ukraine.
Just imagine the disproportion that arises when converting gas to another measurement unit. Natural gas extracted from different deposits differs in physical and chemical composition, and hence, in quality. Therefore, conversion ratios are used to convert gas measurement units from energy to metric and vice versa. The energy value of gas (calorific value) is determined periodically at a certain point, usually at the entry and exit points of the gas station or gas distribution manifold.
The calorific value of gas differs depending on the source, such as Ukrainian gas (7.8 – 9.6 Mcal/m3), gas of PJSC Gazprom delivered by transit to the EU (8 – 8.38 Mcal/m3), and European gas (8.19 – 8.4 Mcal/m3).
Such difference in indicators results in discrepancies in calculations, which leads to imbalances. The harmonization of accounting between Ukraine and Europe could significantly reduce the percentage of error that occurs when converting due to a floating ratio.
In particular, the transition to energy units should put an end to disputes about insufficient gas quality once and for all. After all, accounting in kWh, unlike cubic meters, considers the calorific value of gas. That is, consumers will know exactly how much heat they will obtain from one cubic meter of gas and will pay for it rather than a formal cubic meter.
It should be added that in recent years, European companies have shown interest in using Ukrainian infrastructure and the Ukrainian gas market in general.
At the same time, the use of fixed ratios when crossing the border can lead to losses due to different energy utility of gas.
Ukrainian consumers will feel the changes from the introduction of energy units, as it will allow them to settle for consumed energy objectively.
Another advantage is the fact that it will be easier to compare gas and electricity prices, which will allow both small and medium businesses, and industrial consumers to use their funds more efficiently.