Gas prices unlikely to spike as Russian transit through Ukraine ends - EU
Photo: Stopping Russian gas transit through Ukraine will not affect prices (Getty Images)
The European Commission estimates that the termination of Russian natural gas transit through Ukraine on January 1, 2025, will have little impact on European prices, Bloomberg reports.
Only about 3 weeks are left before the transit agreement expires at the end of the year. However, the termination of the contract between Ukraine and Russia has already been priced into European gas markets, and the region will be able to find alternative supplies.
The European Commission's analysis was designed to reassure member states and markets ahead of the contract's expiration.
While European fuel prices are far from the peaks reached during the crisis in 2022 - thanks to increased LNG imports that have replaced much of the Russian flows - they are still high.
“With more than 500 billion cubic meters of LNG produced each year globally, the replacement of around 14 billion cubic meters of Russian gas transiting via Ukraine should have a marginal impact on EU natural gas prices” the commission’s document, which is not yet public, says. “It can be considered that the end of the transit agreement has been internalized in the winter gas prices.”
No supply problems
The EU is confident that member states that still import Russian gas through Ukraine - primarily Austria and Slovakia - can do without supplies. The European Commission has said it will not enter into negotiations to keep the route open.
However, gas buyers from Slovakia and Hungary are continuing negotiations to keep the flow of gas after the transit agreement expires, with a proposal including an exchange agreement between Azerbaijan and Russia.
The European Commission noted that the limited impact on gas markets of Gazprom's decision to cut off supplies to Austrian OMV demonstrated the effectiveness of the precautionary approach in mitigating the effects of reduced supplies from Russia.
The European Commission has stated that member states have been able to reduce their gas demand by 18% since August 2022, compared to the average for the previous five years. The United States also intends to introduce new LNG production capacity over the next two years, and these supplies could help the EU cope with any disruptions.
“The most realistic scenario is that the transit agreement will lapse and no Russian gas will flow through Ukraine,” the assessment says. The EU “is well-prepared.”
End of transit
In November, Naftogaz of Ukraine received the last tranche of payment from Gazprom for December gas transit under the contract. Gazprom was supposed to pay about $70 million for December transit.
The closer we get to December 31, when Naftogaz's contract with Gazprom expires, the less likely it looks to continue gas supplies through Ukraine in 2025.
Gas prices in Europe are currently at $510 per thousand cubic meters. The cost of fuel in the EU is now about 10% higher than a year ago.
