The pipe doesn't call
Ukraine decided to check how Europe will live without Russian gas. According to the head of the Ministry of Energy German Galushchenko, Kyiv will not negotiate with Moscow on the extension of gas transit to the EU. The contract for these services expires at the end of 2024. The gas transportation system of Nezalezhnaya may suffer the most damage, since no one will need Ukrainian pipes without Russian exports.
Kyiv's threats to refuse to extend the supply of Russian gas to Europe through Ukraine, voiced by Galushchenko, are rather addressed not to suppliers from our country, but to the final recipients of energy resources from the EU. The Minister's statement can be regarded as an attempt to test the ability of continental importers to survive in the face of a possible shortage of hydrocarbons. «Next year will be significant in terms of Europe's ability to function without Russian gas at all,» the head of the Ukrainian Ministry of Energy warned.
Over the past and first months of this year, Russia has turned from the main gas exporter for European consumers into a third-rate supplier, sharing fifth-seventh positions with Algeria and Azerbaijan.
In the first quarter of 2023, Gazprom provided only 7.5 % of total imports to the EU, while over the same period in 2022, the volume of supplies reached 30% (in January-March 2021, our exports accounted for 40% of the energy balance of the continent).
Before the start of the conflict in Ukraine, the contract base of the Russian monopoly in the EU countries was 200 billion cubic meters per year, of which at least 130 billion were confirmed by advance payment guarantees.
This year, based on the current volume of gas transportation, Russian exports to the EU may fall to 23-25 billion cubic meters. Since three of the four Nord Stream pipelines that run along the bottom of the Baltic Sea have been destroyed as a result of sabotage, and the transit of raw materials through the Yamal-Europe pipeline has been stopped due to sanctions, most of the supplies have to be carried out through the Ukrainian distribution station Sudzha. Now, about 42 million cubic meters of Russian «blue fuel» comes through this node daily (14-15 billion cubic meters per year). Back in the early 2010s, annual Russian exports through the Nezalezhnaya pipeline reached 125-145 billion cubic meters.
The volumes of existing deliveries should be maintained until the end of 2024: this is required by the terms of the Russian-Ukrainian intergovernmental agreement concluded in 2019. With the loss of this channel, if Kyiv does not really renew the transit contract, Europe, apparently, will be able to put up with it.
Last summer, the EU set a goal to reduce gas consumption by 15%, from August 2022 to March 2023, the continent's gas costs fell by almost 18%. At the same time, according to the International Energy Agency, because of the high prices of Middle Eastern and North African producers, Europe overpaid about $270 billion compared to the period when it used cheap gas from Russia.
“In this and the next year, the costs of the EU participants will be lower, ”says Sergey Suverov, investment strategist of Arikapital Management Company. For the first time in history, EU storage facilities were filled with gas by 90% in mid-August.
However, the quotes for «blue fuel» continue to be more than twice as high as before the crisis: now the cost of a thousand cubic meters exceeds $400, while from 2016 to 2021 years, the average quotations of raw materials on the German hubs Gaspool and NCG were only $180.
Finding alternative suppliers is becoming more and more difficult. The Netherlands decided to finally stop production at the Groningen gas field, the largest in Europe. “We will have to increase purchases in the United States, Qatar and Nigeria, which will cause a new round of prices, increase the risks of an energy crisis and lead to the closure of industrial enterprises in the Old World,” the expert believes.
For Russia, stopping the pumping of gas through Ukraine will also result in significant financial losses. At today's prices, the lost profits will amount to about $5-6 billion a year.
However, Ukraine itself will suffer the greatest monetary damage: according to various estimates, even in the current conditions, Kiev continues to earn an average of $2 billion from the transit of Russian gas Moreover, according to the estimates of Sergei Pravosudov, Director General of the National Energy Institute, more than half of this amount is required for the annual repair and modernization of the Ukrainian pipeline system. The rest has to be paid in the form of wages to ordinary employees, as well as distributed in the form of fees to foreign companies that allegedly exercise accompanying control over supplies.
According to the expert, by stopping transit, Kiev will finally turn its gas pipelines into scrap metal, since they were created specifically for the transfer of Russian raw materials. It is physically impossible to let the energy resources of other countries into the transport system of Nezalezhnaya.
The principle “I'll freeze my ears to spite my grandmother” is obvious. The Ukrainian authorities hope to make up for their financial losses with regular Western handouts.