Russian gas stopped flowing through Ukraine

Russian gas flowing through Ukraine will stop on Wednesday as a transit agreement between the two countries expires following Moscow’s all-out attack.

The pipeline was one of the last two routes that have been transporting Russian gas to Europe for nearly three years to reach full capacity. war. EU countries will lose about 5 percent of gas imports in the middle of winter.

Although traders expected for a long time that the flow will stop, the end of the pipeline through Ukraine will affect the balance of European gas at a time when the demand for heating is high. Slovakia is the most affected country.

“Even if one can assume that the loss of volumes (is) price, the strong reaction to higher prices is not an issue,” said Aldo Spanjer, senior commodity strategist at BNP Paribas.

The agreement to allow Russian gas to pass through Ukraine was agreed at the end of 2019, signed a day before the 10-year contract between the country’s gas companies expired. At that time, the European Commission strongly promoted this agreement.

After Russia’s 2022 full-scale invasion of Ukraine, however, the commission has urged member states to seek alternative resources as the bloc continues to wean itself off Russian crude oil prices. The Moscow-friendly governments of Hungary and Slovakia rejected the change and sought to extend the pact beyond January 1.

The Ukrainian government had telegraphed months in advance that it was not willing to negotiate an extension of the deal, as it wanted to deprive the Kremlin of its money from gas exports. Ending the flow will result in a loss of $6.5bn for Russia, unless it moves them again, according to the Brussels-based think tank, Bruegel.

But it would also be a financial disaster for Ukraine, which earned about $1bn a year in gas fees, though only a fifth of that was in profits. it’s big. Analysts have suggested that Ukraine’s major gas pipelines could face an increased Russian attack, if there were no Russian gas flowing through them.

Slovak Prime Minister Robert Fico visited Moscow on December 22 to negotiate a gas delivery contract. He criticized Ukraine’s protest against the agreement, asking if the country has “the right to damage the economic interests of a (EU) member state”.

Fico said on Facebook shortly before the expiration of the agreement that “some gas transports options than the Russian gas that was presented to Ukrainian partners, but these were also rejected by the Ukrainian president”. The prime minister of Slovakia also threatened to cut off the supply of electricity from Slovakia to Ukraine as revenge.

Hungarian Prime Minister Viktor Orbán has also sought to find a way to allow the importation of Russian gas through Ukraine. His government has also switched to the last remaining pipeline that carries Russian gas through Turkey and to neighboring Romania to supplement supplies.

Austria, which had been importing Russian gas through 2024, has switched to other sources such as natural gas imports. Its energy company OMV in mid-December terminated its long-term contract with Russia’s Gazprom due to a legal dispute.

The termination of gas will also have a great impact on neighboring Moldova, which in mid-December presented an emergency in the energy sector due to uncertainty surrounding Russian gas.

Stopping the flow of Russian gas through Ukraine is likely to increase Europe’s demand for pricier LNG, which Asia is also competing with.

EU officials have insisted that the bloc can survive without Russian pipelines, even if it means receiving more expensive gas from elsewhere.

The European Commission said on Tuesday that it did not expect any disruption. “European gas infrastructure is able to supply new gas to central and eastern Europe in other ways,” it said. “Boosted with new LNG capacity from 2022.”

The Turkish pipeline that transports Russian gas to Europe contributes 5 percent of the EU’s exports. The US recently imposed sanctions on Gazprombankthe main way of payment of Russian energy.

But to reduce the impact of the sanctions, Russian President Vladimir Putin in early December lowered the requirement for foreign buyers of Russian gas to pay through a bank. Countries such as Turkey and Hungary have also said they have received US sanctions relief.

“Sanctions had previously increased uncertainty about the fate of Russia’s remaining gas supplies as we entered the new year, helping to keep gas prices steady,” said Natasha Fielding, head of prices at European gas in Argus Media, prices. organization. The US withdrawal meant that “consumers of Russian gas delivered through the Turkish Stream pipeline can breathe a sigh of relief,” he 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, which have forced them to cut production, will return to buying Russian gas, which was naturally cheaper than LNG, he said. another great merchant.

“At some point there will be a peace agreement. . . People will want to end the war, so they must sign a peace agreement. One of the things that Russia will get is its ability to restore “Europe with gas, the businessman said.

Although European governments may impose restrictions to prevent the continent from becoming too dependent on Russian gas, the trader said, “you can expect to see some Russian gas coming back to Europe, because if in fact, geography has not changed”.

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