(Bloomberg) — European natural gas prices soared to €50 for the first time in more than a year on signs that Russian flows to the region across Ukraine will halt on Wednesday, after a transit deal expires.
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Initial orders for gas at the Sudzha intake station on the Russia-Ukraine border are set for zero on Jan. 1, according to data published by Ukraine’s gas-transit network operator. The so-called nominations, which could still update, represent customer requests for gas, not physical supplies of the fuel.
It’s the first tangible sign that Russian flows to the European Union via Ukraine — a major transit route for decades — will cease at 6 a.m. Central European Time on New Year’s Day. A five-year transit agreement between Moscow and Kyiv lapses once the clock runs out on 2024, with no alternative in place despite months of political wrangling.
The question now is whether the interruption will be permanent — and what the effect will be on Europe as it faces a tighter global gas market. While the lost shipments from Russia account for only about 5% of the continent’s gas needs, it’s still feeling the aftershocks of an energy crisis triggered by the Kremlin’s full-scale invasion of Ukraine. Europe has also been depleting its stockpiles more quickly than usual.
European benchmark gas prices are now up 55% this year and are set for the biggest annual gain since 2021. Futures for February delivery advanced 4.5% to €50.04 per megawatt-hour by 5:07 p.m. in Amsterdam. The front-month contract rose to the highest since October 2023.
In a last-ditch effort over the weekend, Slovak Prime Minister Robert Fico urged the EU’s executive to address the looming halt of the supplies via Ukraine, saying the economic effect on the bloc would outweigh the impact on Russia. He estimated that European consumers could face as much as €50 billion ($52 billion) in extra gas prices per year and another €70 billion in higher electricity costs.
EU officials have previously said the bloc’s energy security isn’t at risk when the transit deal ends, and have emphasized a political commitment to phase out reliance on Russian fossil fuels. The bloc has diversified its supplies since 2022, turning increasingly to imports of liquefied natural gas, notably from the US.
“The stop of flow via Ukraine on 1 January is the expected situation and the EU is prepared for it,” a European Commission spokesperson said in a statement.
Still, Slovakia and some other Central European states have favored discounted gas from the east while it’s available. In recent months, key companies from the region have raced to build support for an alternative to the Russia-Ukraine deal.
Slovakia has said it can handle the loss of Russian gas, but other supplies would likely be costly to bring into the landlocked nation. Russian gas also used to flow from Slovakia into Austria and the Czech Republic, though the latter two nations no longer buy the fuel directly from Gazprom PJSC.
Unlikely Solution
The nominations show only supplies for Jan. 1. Separately, some gas will be flowing via Ukraine to Moldova via one interconnection point.
Rows between Moscow and Kyiv have previously disrupted gas shipments to European customers in early January.
In 2009, Russian gas flows via Ukraine to Europe stopped for almost two weeks, with more than 20 nations affected during freezing temperatures, until the two nations signed a gas deal ending their dispute. A shorter disruption occurred in 2006. The expiring agreement, set in 2019, was also a result of last-minute negotiations.
However, the nearly three-year-old war makes a quick resolution unlikely this time. Ukrainian President Volodymyr Zelenskiy, earlier this month rejected any arrangement that would ultimately send money to Russian coffers while the conflict continues.
Russian President Vladimir Putin, last week indicated there was no time left to conclude an agreement before the end of the year. Separately, he said a lawsuit from Ukraine’s Naftogaz — alleging that Gazprom hasn’t fully paid for transit services — is another barrier.
Some European nations have also warned against ideas that would brand Gazprom’s fuel as non-Russian. Energy companies in the region have previously floated options such as taking ownership of the fuel when it enters Ukraine, or resorting to a complex swap involving Azerbaijan’s energy company Socar as a mediator.
Russia still supplies gas to nations such as Serbia and Hungary via another pipeline, TurkStream, which bypasses Ukraine. But that link isn’t sufficient to fully compensate for the entire loss of the Ukraine route. Another pathway, across Poland, is now closed. The Nord Stream pipeline linking Germany to Russia was damaged in explosions in 2022, and the newer Nord Stream 2 link has never been authorized by Berlin.
–With assistance from Daryna Krasnolutska, Daniel Hornak and Ewa Krukowska.
(Updates with prices details and flows to Moldova.)
