Russian gas flows through Ukraine stopped early Wednesday after a transit deal between the two countries expired following Moscow’s full-scale invasion.
The pipeline was one of the last two routes still carrying Russian gas to Europe, almost three years after it began large-scale operation. war. EU countries will lose around 5 percent of their gas imports in the middle of winter.
While traders have long expected the flow to stop, the end of the gas pipeline route passing through Ukraine will affect the European market. gas balance at a time when heating demand is high. Slovakia is the most affected country.
“Even if one could assume that the loss of these volumes [is] If prices are taken into account, a strong reaction to rising prices is not excluded at first,” said Aldo Spanjer, senior commodities strategist at BNP Paribas.
The deal allowing Russian gas to transit through Ukraine was reached in late 2019, signed a day before the expiration of the previous 10-year contract between domestic gas companies. At the time, the European Commission strongly encouraged the agreement.
However, after Russia’s full-scale invasion of Ukraine in 2022, the commission encouraged member states to seek alternative supplies as the bloc prepared to wean itself off Russian fossil fuel imports. The pro-Moscow governments of Hungary and Slovakia resisted the change and sought to extend the agreement beyond January 1.
The Ukrainian government had telegraphed months in advance that it was unwilling to negotiate an extension of the deal because it wanted to deprive the Kremlin of its revenue from gas exports. Ending these flows would result in a loss of $6.5 billion for Russia unless it manages to redirect them, according to the Brussels think tank Bruegel.
But it would also be a financial blow to Ukraine, which earns about $1 billion a year in gas transit fees, even though only about a fifth of that represents gross profits. Analysts have suggested that Ukraine’s vast gas pipeline infrastructure could face increasing Russian attacks if no Russian gas passes through it.
Russian company Gazprom said in a post on Telegram on Wednesday that the transit agreement had expired due to Ukraine’s “explicit and repeated refusal” to extend the agreements. “Since 8 a.m. Moscow time, the supply of Russian gas for its transportation through the territory of Ukraine has not been carried out,” the statement said.
Slovak Prime Minister Robert Fico visited Moscow on December 22 to discuss the gas transit contract. He blasted Ukraine’s intransigence on the deal, asking whether the country had “the right to harm a country’s national economic interests.” [EU] Member State”.
Fico said on Facebook shortly before the deal expired that “others choice that Russian gas was presented to Ukrainian partners, but these were also rejected by the Ukrainian president.” The Slovak Prime Minister also threatened to cut Slovakia’s emergency electricity supply to Ukraine in retaliation.
Hungarian Prime Minister Viktor Orbán also sought a solution to allow imports of Russian gas via Ukraine. His government has also turned to the last pipeline carrying Russian gas through Turkey and to neighboring Romania to supplement its supplies.
Austria, which still imported Russian gas throughout 2024, has turned to alternative sources such as liquefied natural gas imports. His energy company OMV ended its long-term contract with Gazprom in mid-December due to a dispute.
The gas cut will also have a significant impact on neighboring Moldova, which introduced a state of emergency in the energy sector in mid-December due to uncertainty surrounding the transit of Russian gas.
The halt to Russian gas flows through Ukraine is likely to increase European demand for more expensive LNG, for which Asia also competes.
EU officials insisted the bloc could live without supplies from Russian pipelines, even if it meant accepting more expensive transported gas from elsewhere.
The European Commission said on Tuesday it did not expect any disruptions. “European gas infrastructure is flexible enough to supply gas of non-Russian origin to Central and Eastern Europe via alternative routes,” it says. “It has been reinforced by significant new LNG import capacities since 2022.”
The Turkish pipeline which still carries Russian gas to Europe accounts for around 5 percent of EU imports. The United States recently imposed sanctions on Gazprombankthe main payment channel for Russian energy.
But to soften the impact of sanctions, Russian President Vladimir Putin in early December abandoned the requirement for foreign buyers of Russian gas to pay through the bank. Countries like Turkey and Hungary have also reported receiving exemptions from U.S. sanctions.
“Sanctions had previously added an extra layer of uncertainty over the fate of remaining Russian gas supplies to Europe heading into the new year, helping to keep gas prices volatile,” said Natasha Fielding, head of European gas pricing at Argus Media, a pricing company. agency. The US waiver means “buyers of Russian gas delivered via the Turkish Stream pipeline could breathe a sigh of relief,” she said.
Traders do not rule out an increase in Russian gas flows to Europe in the future. European companies, reeling from high gas and energy prices forcing them to cut production, would start buying Russian gas again, which is inherently cheaper than LNG, a top trader said.
“At some point there will be a peace agreement. . . People will want to end the war, so they will have to sign a peace agreement. One thing Russia will get is the ability to resupply Europe with gas, the trader said.
While European governments could impose restrictions to prevent the continent from becoming too dependent on Russian gas again, the trader said: “you would expect to see Russian gas coming back to Europe, because fundamentally the geography has not not changed.”
Additional reporting by Andrew Bounds
