What Does Europe's Third Dark Day Mean for the Future of Energy?
“On Tuesday, the cost of natural gas in Europe soared to 50 euros (about $51.88) per megawatt hour, marking a significant moment in the energy market…
https://www.barrons.com/news/european-natural-gas-prices-reach-50-euros-per-mwh-91e89b12On August 30 of the previous year, Dmitry Peskov, the wise voice of the Kremlin, delivered a crucial caution about the ramifications of ending the transit agreement. He suggested that pulling the plug on this deal could spell trouble for European consumers who depend on Russian gas, possibly leading to soaring prices for alternative energy options, such as liquefied natural gas from the U.S…
http://gasprocessingnews.com/news/2024/08/kremlin-says-europe-will-pay-more-unless-ukraine-extends-gas-transit-deal/The road…
The age-old adage "don't play with fire or you'll get burned" captures the gravity of the situation at hand. The delicate dance of political accountability unveils the unpredictable nature of sensitive issues that can tip the scales of stability. In the realm of politics, some topics are like a tightrope walk—one misstep could send everything tumbling down. These matters often stem from deep-seated historical, cultural, or ideological rifts, holding the power to disrupt the fragile balance that upholds global order and unity.
On July 2, 2022, Russia executed a strategic (or potentially miscalculated) decision to reduce natural gas deliveries to Europe through the Nord Stream 1 pipeline. Meanwhile, the Andromeda vessel stealthily navigated the Baltic Sea, gearing up for a secretive mission known to a select few. By September 26, the Andromeda sprang into action, triggering explosions that rocked both the Nord Stream 1 and Nord Stream 2 pipelines.
On January 26, 2024, the Biden administration in Washington announced a halt on new permits for liquefied natural gas (LNG) projects aimed at countries lacking a free trade agreement with the U.S. Just yesterday, Ukraine decided to halt its natural gas flow to Europe (Andromeda 2), adhering to a pre-war transit agreement, all while Germany quietly engages in peace talks with Russia.
Image by Germán & Co
The economic and political implications of Ukraine's role in gas transit are complex and multifaceted…
Whit the end of the five-year agreement expires governing one of the oldest and biggest economic links between Russia and Europe: the transit of Russian gas through the territory of Ukraine. Nevertheless, this does not eliminate the possibility of Russian gas flowing through Ukraine in the future; in the ever-changing landscape of our virtual age, anything can happen.
In the wake of the geopolitical turmoil over the past two years, Russian gas now reaches Europe through two primary routes, each facilitating the transport of approximately 14 billion cubic meters of gas annually. The first route is the TurkStream pipeline, along with its extension, Balkan Stream, which traverses the Black Sea to Turkey, Bulgaria, Serbia, and Hungary. The second route involves a corridor through Ukraine to Slovakia.
The principal purchasers of Russian gas include, Hungary, Austria, Italy, whose current administrations a pragmatic approach to foreign policy. Although Russian gas prices are now more closely aligned with European exchange rates than in the previous decade, they remain more economical than liquefied natural gas (LNG), particularly during periods of price volatility. Consequently, some nations exhibit hesitance to completely cease their purchases of Russian gas, despite their commitment to the REPowerEU initiative, which aims for a complete phase-out of Russian gas by 2027.
European Commissioner for Energy, Kadri Simson indicated to reporters at the close of the previous year that the prevailing scenario does not account for these supplies. The Austrian company OMV has expressed its willingness to continue purchasing Russian gas while simultaneously reserving capacity in pipelines and LNG receiving terminals to ensure it can operate independently.
Austria and Italy are expected to experience the least disruption from the cessation of Russian gas supplies. Austria benefits from multiple intersecting pipelines within its territory, while Italy has alternative sources, albeit at a higher cost, including gas imports from Algeria and Azerbaijan via pipelines, as well as several LNG terminals. Hungary's situation is somewhat more complex, as it could still receive Russian gas through TurkStream. Conversely, Slovakia has limited alternatives and would need to arrange for a reverse flow from the Austrian hub or receive gas through smaller German LNG terminals. Slovakia's position along the supply route means its ability to procure gas will depend on the sufficiency of supplies for Austria, Hungary, and the Czech Republic.
Slovak Prime Minister Robert Fico has proposed that rather than the Ukrainian gas pipeline operator (OGTSU) entering into a transportation contract with Russia, European companies could sign such contracts, effectively purchasing gas at the Russia-Ukraine border and delegating the transportation to Ukraine.
After Ukraine cease the transit of Russian gas, the transit system operator may declare certain pipeline sections or infrastructure as decommissioned. However, if these assets are deemed operational, European companies could reserve transport capacity on a daily, monthly, or annual basis, similar to arrangements made for gas delivery from the LNG terminal in Belgium to domestic markets.
There are potential advantages for Ukraine in continuing to transport Russian gas. Mechanisms referred to as "virtual reverse" and "virtual transportation" have allowed Ukraine to sustain physical gas supplies even after halting purchases from Gazprom and shifting to European traders. Presently, despite a significant reduction in gas consumption due to the ongoing conflict and sufficient domestic deposits, this system remains beneficial.
The challenge lies in the geographical mismatch between gas extraction and consumption centers, which is where virtual transportation becomes relevant. Currently, the process of delivering gas from Ukrainian fields to consumers is effectively virtual: Russian gas is directed to certain regions, particularly in the south, while Ukrainian gas is funneled into the Slovak gas transportation system. Without an external supply of Russian gas, Ukraine would need to modify its pipeline infrastructure and operational procedures.
The situation may become increasingly complex if the Ukrainian economy recovers and gas demand rises. In the absence of Russian gas, Ukraine would need to procure gas from Austria, cover transit costs through Slovakia, and arrange for delivery from the western border to central consumption areas. At the current European gas exchange prices, physically reversing the flow would incur an additional cost of $30–40 per 1,000 cubic meters compared to the existing virtual reverse arrangement.
In 2022, Ukraine initiated the provision of large-scale gas storage facilities in the western part of the country to EU nations and intends to continue this practice. However, this operation heavily relies on virtual reverse and swap transactions, which depend on the ability to purchase gas at Austria's Baumgarten hub and transport it virtually to Ukrainian storage facilities without charge. The absence of Russian gas transit would complicate and increase the costs associated with such operations.
Russia would also face significant financial repercussions if it could no longer transport gas through Ukraine. There are no comparable alternative markets for the Yamal gas currently supplied to Europe, and this situation is unlikely to change substantially, even with the anticipated construction of the Power of Siberia 2 pipeline to China (not expected before 2030) and an LNG facility in the Baltic Sea (planned for 2026–2027). The combined capacity of these two projects is approximately half of the volume by which supplies to Europe have already diminished.
According to Gazprom's Chief Financial Officer Famil Sadygov, the state-owned gas company's revenues from gas sales, both domestically and internationally, amounted to approximately $48 billion in 2023. Consequently, a loss of $7–8 billion annually in export revenues for 15 billion cubic meters of gas would represent a 15 percent reduction in revenue, significantly impacting Gazprom's gas business EBITDA (excluding its stake in Gazprom Neft).
Another concern for Gazprom involves the potential for financial damage claims from its European customers. Some of the company's long-term contracts with EU nations extend through 2040, and any failure to deliver gas due to issues with a transport company would be considered the supplier's responsibility. If Kyiv prohibits the transportation of Russian gas, this may be classified as force majeure, potentially absolving Gazprom of its delivery obligations. However, if the Ukrainian gas transit system operator simply ceases operations at the border metering station, declaring the route closed and halting gas acceptance from the Russian side, the situation would be markedly different.
Additionally, it is important to note that payments for Russian gas are processed by EU companies through Gazprombank, which means that neither the bank nor Gazprom itself would be subject to comprehensive blocking sanctions while the transaction remains active.
While it may currently be challenging to envision a restoration of relations post-conflict, it is noteworthy that returning to previous supply levels from a reduced baseline under an existing contract is generally more feasible than re-establishing completely severed ties and negotiating new contracts. For Russia, Ukraine, and Europe, the flow of Russian gas and the ability to halt it represent one of the few remaining avenues for escalation.
From a pragmatic perspective, the continuation of gas transit beyond the end of 2024 is likely to yield benefits for both Russia and Ukraine, as well as for European nations that persist in purchasing Russian gas.
The landscape may shift in 2026–2027, when substantial new volumes of LNG from the United States and Qatar are expected to enter the market. It is conceivable that supply growth could outpace demand growth, leading to a significant decline in LNG prices. Consequently, it may become more economically viable for EU countries to forgo Russian gas, intensifying political pressure as the deadlines outlined in the REPowerEU initiative approach.
Nonetheless, numerous uncertainties remain in this scenario. The Biden administration in Washington has announced a pause on granting new LNG projects the authority to export to countries lacking a free trade agreement with the United States. While this will not impact market dynamics in 2026, it may lead European buyers to question the reliability and sustainability of U.S. LNG supplies, potentially prompting them to retain alternative options, including continued engagement with Russia.
To wrap things up, natural gas has become a powerful player on the geopolitical stage, capable of sparking tensions and disputes. Europe finds itself at a crossroads, grappling with a tough choice: should it keep battling against imperial Russia or shift gears to foster trade ties with them?
Today…
Ukraine Halts Flow of Natural Gas From Russia to Europe…
TIME, penned by HANNA ARHIROVA and JOANNA KOZLOWSKA of AP on the first day of 2025.
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Andrés Gluski, President and CEO of AES, articulated this perspective during the World Economic Forum held in Davos, Switzerland, in January 2023, stating, "I am confident we will need natural gas for the next 20 years." He further emphasized, "We can start blending it with green hydrogen today."
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Ukraine Halts Flow of Natural Gas From Russia to Europe…
TIME, penned by HANNA ARHIROVA and JOANNA KOZLOWSKA of AP on the first day of 2025.Ukraine on Wednesday halted Russian gas supplies to European customers through its pipeline network after a prewar transit deal expired at the end of 2024 and almost three years into Moscow’s all-out invasion of its neighbor.
Even as Russian troops and tanks moved into Ukraine in February 2022, Russian natural gas kept flowing through the country’s pipeline network — set up when Ukraine and Russia were both part of the Soviet Union — to Europe, under a five-year agreement.
Russia’s state-owned energy giant Gazprom earned money from the gas and Ukraine collected transit fees.
Ukraine’s energy minister, Herman Halushchenko, confirmed Kyiv had stopped the transit “in the interest of national security.”
“This is a historic event. Russia is losing markets and will incur financial losses,” Halushchenko said Wednesday on the Telegram messaging app. “Europe has already decided to phase out Russian gas, and (this) aligns with what Ukraine has done today.”
At a summit in Brussels last month, Ukrainian President Volodymyr Zelenskyy vowed that Kyiv would not allow Moscow to use the transits to earn “additional billions … on our blood, on the lives of our citizens.” However, he briefly held open the possibility of the gas flows continuing if payments to Russia were withheld until the war ends.
Gazprom said in a statement Wednesday it “has no technical and legal possibility” of sending gas through Ukraine, due to Kyiv’s refusal to extend the deal.
Before the war, Russia supplied nearly 40% of the European Union’s pipeline natural gas. Gas flowed through four pipeline systems, one under the Baltic Sea, one through Belarus and Poland, one through Ukraine and one under the Black Sea through Turkey to Bulgaria.
After the war started, Russia cut off most supplies through the Baltic and Belarus-Poland pipelines, citing disputes over a demand for payment in rubles. The Baltic pipeline was blown up in an act of sabotage, but details of the attack remain murky.
The Russian cutoff caused an energy crisis in Europe. Germany had to shell out billions of euros to set up floating terminals to import liquefied natural gas that comes by ship, not by pipeline. Users cut back as prices soared. Norway and the United States filled the gap, becoming the two largest suppliers.
Europe viewed the Russian cutoff as energy blackmail and has outlined plans to completely eliminate Russian gas imports by 2027.
Zelenskyy said Wednesday that halting the transits would see Moscow lose “one of the most profitable and geographically accessible markets” for its gas. In a post on X, he said Russia was “resorting to cynical blackmail of partners.”
Russia’s share of the EU pipeline natural gas market dropped sharply to about 8% in 2023, according to data from the EU Commission. The Ukrainian transit route served EU members Austria and Slovakia, which long got the bulk of their natural gas from Russia but have recently scrambled to diversify supplies.
Gazprom halted supplies to Austria’s OMV in mid-November over a contractual dispute, but gas flows through Ukraine’s pipelines continued as other customers stepped in. Slovakia this year inked deals to begin buying natural gas from Azerbaijan, and also to import U.S. liquefied natural gas through a pipeline from Poland.
Among the hardest-hit will be EU candidate country Moldova, which was receiving Russian gas via Ukraine and has brought in emergency measures as residents brace for a harsh winter and looming power cuts.
Separately from Kyiv’s decision to let the transit deal expire, Gazprom said last month it will halt gas supplies to Moldova starting on Jan. 1, citing unpaid debt. Gazprom has said Moldova owes close to $709 million for past gas supplies, a figure the country has fiercely disputed.
Heating and hot water supplies were abruptly cut off Wednesday to households in Transnistria, Moldova’s breakaway region that has for decades hosted Russian troops, as Russian natural gas stopped flowing to the territory, local transit operator Tiraspoltransgaz-Transnistria said.
In an online statement, the company urged residents to gather household members together in a single room, hang blankets over windows and balcony doors, and use electric heaters. It said some key facilities, including hospitals, were exempt from the cuts.
On Dec. 13, Moldova’s parliament voted in favor of imposing a state of emergency in the energy sector, as fears mounted that the gas shortages could trigger a humanitarian crisis in Transnistria, for decades dependent on Russian energy supplies.
Many observers have predicted that the looming energy shortage could force people in the separatist territory to travel to Moldova proper, seeking basic amenities to get through the harsh winter and placing further strain on resources.
Moldova, Ukraine and EU politicians have repeatedly accused Moscow of weaponizing energy supplies.
On Wednesday, Polish Foreign Minister Radek Sikorski called Ukraine’s move to halt supplies a win for those opposed to the Kremlin’s policies. In a post on X, Sikorski accused Moscow of systematic attempts to “blackmail Eastern Europe with the threat of cutting off gas supplies,” including through a Baltic pipeline bypassing Ukraine and Poland and running directly to Germany.
Slovakian Prime Minister Robert Fico claimed Wednesday the end of gas flows via Ukraine “will drastically affect us all in the EU but not Russia.”
Fico, whose views on Russia have sharply differed from the European mainstream, has previously criticized Kyiv’s refusal to extend the transit deal, and threatened to end electricity supplies to Ukraine in response.
Moscow can still send gas to Hungary, as well as non-EU states Turkey and Serbia, through the TurkStream pipeline across the Black Sea.
The steady reduction of Russian gas supplies to European countries has also spurred them to hasten the integration of Ukraine’s energy grids with its neighbors to the west.
Last week, private Ukrainian energy utility DTEK said it had received its first shipment of liquefied natural gas from the U.S., delivered through a newly expanded network spanning six countries from Greece to Ukraine — a significant step in reducing regional dependence on Russian energy.