Russia gas flows through Ukraine could stop next year, Kyiv says

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One of many final arteries carrying Russian gasoline to Europe might be shut off by the tip of subsequent 12 months when Ukraine’s provide contract with Gazprom expires, the Ukrainian power minister has stated.

In an interview with the Monetary Occasions, German Galushchenko stated that the possibilities of Kyiv and Moscow agreeing the renewal of the five-year transit contract first signed in 2019 have been slim — though the route by Ukraine accounts for nearly 5 per cent of Europe’s whole gasoline imports.

“I actually can’t think about the way it might be bilaterally,” Galushchenko stated when requested if Ukraine could be ready to renegotiate the settlement with Moscow following final 12 months’s invasion.

“I can inform you that we’re getting ready our system for a minimize of provides,” he added.

Moscow’s choice to slash gasoline provide to Europe final 12 months triggered an power disaster, stoking inflation and elevating the price of dwelling throughout the continent. However whereas a number of routes have been shut off, the Ukrainian pipeline is certainly one of simply two which have continued to provide gasoline, albeit at decreased volumes.

In keeping with knowledge from power consultancy ICIS, Austria relied on Russian gasoline passing by Ukraine for about half of its gasoline imports in Could, whereas in Slovakia, the pipeline accounted for 95 per cent.

The power minister stated Europe could be comparatively ready for an additional slowdown in provide, having needed to adapt to related cuts up to now by lowering demand and sourcing different imports equivalent to liquefied pure gasoline.

However that is the primary acknowledgment from Kyiv that the contract underpinning the remaining flows from Russia by Ukraine will most likely be allowed to run out on the finish of subsequent 12 months.

With out the Ukrainian transit route, the one pipeline from Russia nonetheless delivering gasoline into Europe could be TurkStream, which provides nations within the south-east of the continent and accounted for just below 3 per cent of Europe’s gasoline imports in Could.

Whereas Galushchenko urged that European politicians may want to renegotiate the contract — as occurred in 2019 when an EU delegation brokered trilateral talks with Russia and Ukraine — analysts say that is unlikely given the tough optics of holding talks with Moscow.

The European Fee declined to touch upon whether or not it could attempt to instigate talks with Russia on the contract renewal.

The lack of even a small share of provide has the potential to boost costs throughout the continent given the tightness of global gas markets, although provides of LNG are anticipated to rise quickly from 2025 with the launch of main tasks in Qatar and the US.

Earlier this month, Russian deputy overseas minister Mikhail Galuzin stated {that a} choice to not lengthen the gasoline transit settlement would “deal a blow” to the EU, whereas Ukraine would “shoot itself within the foot by dropping the dividends from transit”.

European gasoline costs surged to greater than 10 instances their regular degree in 2022, reaching the equal of virtually $600 a barrel in oil phrases, however have since fallen sharply. The benchmark TTF contract is again to about €40 per megawatt hour — down virtually 90 per cent from its peak final August.

The present gasoline transit contract was signed in December 2019, a last-minute deal that got here simply 24 hours earlier than the earlier settlement expired, securing Russian gasoline flows by Ukraine till 2024.

Below the deal, Russia’s state-owned power firm Gazprom agreed to ship a minimal of 65bn cubic metres of gasoline in 2020, and 40 bcm/12 months between 2021 and 2024, by the Ukrainian pipeline, which might have secured the nation $7bn in transit charges.

Nevertheless Russia is at present solely transport volumes of about 12 bcm/12 months, and Kyiv claims Moscow has been underpaying it, regardless of contractual obligation to pay the complete transit price no matter whether or not agreed volumes of gasoline are equipped.

OMV, certainly one of Austria’s largest power firms, stated it could be “capable of provide its prospects even with out Russian gasoline”, having made preparations because the invasion of Ukraine final 12 months.

If the contract lapses, Gazprom may technically nonetheless ship gasoline by Ukraine by reserving capability by auctions that its gasoline transmission system operator is obliged to carry, beneath European guidelines.

“It’s laborious to see the way you renew a contract that neither facet believes the opposite has honoured, not to mention in a center of a warfare between the 2 events,” stated Laurent Ruseckas, an analyst at S&P World Commodity Insights.

“However in principle the gasoline ought to proceed to move if European consumers nonetheless need it and Russia is ready to ship it,” he added.

Further reporting by Alice Hancock in Brussels