Ukraine has stopped Russian gas from reaching Europe. Who is most at risk?

Ukraine cut off supplies of Russian gas to several European countries on New Year’s Day, ending Russia’s decades-long domination of Europe’s energy market.

Russian state energy giant Gazprom confirmed that gas exports to Europe via Ukraine had been suspended at around 8am local time (5am London time) on Wednesday.

The widely expected move marks the end of a five-year transit agreement between Russia and Ukraine, with neither side intending to strike a new deal as the war continues.

Ukrainian President Volodymyr Zelensky said last month that Kiev was not prepared to extend the shipment of Russian gas, adding: “We will not give the possibility of earning billions more with our blood.”

Russia, which has been transporting gas to Europe via Ukrainian pipelines since 1991, says European Union countries will be the most affected by changes in supply. Russia can still send gas through the TurkStream pipeline, which connects Russia with Hungary, Serbia and Turkey.

The suspension will cost Ukraine up to $1 billion a year in transit fees from Russia, while Gazprom is expected to lose nearly $5 billion in gas sales, according to Reuters.

The European Commission, the EU’s executive arm, said it was working with EU member states most affected by the end of the gas transport agreement to ensure the entire 27-nation bloc was prepared for such a scenario. said.

Slovakia, Austria and Moldova are among the countries most at risk of suspension. According to Rystad Energy, these are the European countries most dependent on Russian gas shipments in 2023, with Slovakia importing around 3.2 billion cubic meters in the same year, Austria 5.7 billion cubic meters and Moldova 2 billion cubic meters. It was.

Austria insisted it was well prepared for the suspension, but other countries were more concerned.

Slovakia’s Prime Minister Roberto Fico has warned that Ukraine’s termination of the gas transport agreement will have a “dramatic” impact on the EU without harming Russia. Fico also threatened to cut off electricity supplies to neighboring Ukraine.

The Prime Minister, who has been a vocal critic of the EU’s support for Ukraine in the ongoing war, made a surprise visit to Moscow just before Christmas for talks with Russian President Vladimir Putin.

Moldova, which is not an EU member, declared a 60-day state of emergency last month over energy security concerns.

A total of 56 members of Moldova’s parliament (constituent number 101) voted in favor of declaring a nationwide state of emergency, which the government at the time announced would allow the country to implement a series of measures to prevent and reduce the threat of energy resource shortages. He said it was applicable.

Ukraine’s Energy Minister Herman Galushchenko described the suspension of Russian gas supplies via Ukraine as a “historic event.”

“Russia will lose markets and suffer economic losses,” Galushchenko said via Telegram on January 1, according to Google Translate.

“Europe has already decided to abandon Russian gas,” he added, “and the European initiative Repower EU offers exactly the same thing that Ukraine did today.” .

Separately, Polish Foreign Minister Radek Sikorski hailed the development as a political victory and accused Russian President Vladimir Putin of trying to “blackmail Eastern Europe by threatening to cut off gas supplies.”

The EU’s gas storage facilities are about 73% full, according to the latest data compiled by industry group Gas Infrastructure Europe. In Germany, Europe’s largest economy and largest consumer of gas, inventories are currently close to 80%.

Christoph Halser, gas and LNG analyst at Rystad Energy, said: “Following the swap deal with Russia, the EU will transfer around 7.2 billion cubic meters of gas to LNG if Azerbaijan and other third parties do not go through the gas route. We will have to procure it from the market.” said in a research note.

“Terminals in Poland, Germany, Lithuania and Italy could potentially transfer these volumes to the most affected counties such as Slovakia and Austria.”

Henning Gloystein, practice director of Eurasia Group’s Energy, Climate and Resources team, said Russia’s commitment to the EU is significant, given that both Kiev and Russia have long said they have no intention of renewing the agreement. He said Ukraine’s decision to cut off gas supplies was not surprising. Deal with the current war situation.

In a research note, Gloystein cited steps taken by EU importers to prepare for the warmer winter weather and supply cuts seen in most parts of Europe, adding that the expiration of the agreement could occur in the EU winter. He said there was no threat to the nation’s energy security.

Gloystein said gas price trends in the coming months will likely depend on political developments in the Russia-Ukraine war and remaining winter weather conditions.

“On the political front, talks continue between some EU member states (e.g. Slovakia, where many of Ukraine’s pipelines are in the EU), Russia and Ukraine to find a compromise that would allow supplies to resume. However, there was no progress in negotiations around the beginning of the year,” Gloystein said.

“Weather-wise, above-average temperatures are currently expected for the remainder of Europe’s winter, suggesting that the impact of production cuts will be limited,” he added.

Last month gas prices at the Dutch TTF hub, the benchmark for European natural gas trading, rose 1.2% on Thursday to 49.49 euros ($50.78) per megawatt hour, according to New York’s Intercontinental Exchange.