How termination of Russian gas transit through Ukraine will affect prices in Europe
Photo: Gas prices in Europe will not rise after transit is stopped (Getty Images)
The countries that were the main buyers of Russian gas via the land route have already made it clear that they can do without it if transit through Ukraine is stopped. Gas prices have already risen, according to the RBC-Ukraine article Ukraine to halt gas transit from Russia: Is Europe ready, and what are risks for Moldova.
According to Volodymyr Omelchenko, Director of Energy Programs at the Razumkov Center, expectations of rising gas prices due to the termination of transit are somewhat exaggerated, as this risk has already been realized. After all, the possibility of stopping gas supplies through Ukraine has been discussed for at least several months.
“Gas prices in Europe already account for the risks of Ukrainian transit cessation. There are no problems with diversifying supplies and filling EU storage facilities (which were 95% full as of November 1 - ed.). Therefore, a significant further increase in prices is unlikely,” he says in a comment.
The US sanctions against Gazprombank have also reduced the likelihood of not only gas purchases but also any other cooperation with Russia in the energy sector. They were imposed in early November and almost immediately provoked a reaction from countries that work closely with Moscow in the energy sector, including Hungary, Slovakia, and Türkiye.
Hungarian Foreign Minister Péter Szijjártó called the sanctions an attempt on Hungary's sovereignty. Türkiye is asking for the lifting of sanctions against Gazprombank, fearing that it will not be able to pay for Russian gas, which accounts for almost 42% of its imports.
US sanctions limit direct payments for energy supplies. But Russia will probably look for workarounds to continue trade.
As Omelchenko notes, the negative impact of the sanctions is inevitable, especially for gas buyers. They will harm pipeline gas sales to Hungary, Türkiye, Serbia, and Slovakia through the Turkish Stream, as well as on LNG sales in Europe. Russian companies will have to look for other banks and other payment schemes in hard currency (dollar, euro).
Naftogaz of Ukraine received the last tranche of payment for gas transit from Gazprom in December under a contract signed in 2019. Ukraine is categorically not going to extend the contract, and the proposed alternative option of storing gas in Ukrainian underground storage facilities did not interest other participants in the process.
As of November 28, gas prices at the TTF hub were at $530 per thousand cubic meters, roughly the same level as exactly one year ago. In the spring, prices fell to $300 but then rose.
