MOSCOW, August 17, Nadezhda Sarapina.Ukraine's actions are making Europeans nervous. The risk of losing the remnants of Russian pipeline gas is pushing up prices for blue fuel — in one day quotes soared to their highest since December. Read about what to expect next.
Panic moods
The attack on the Kursk region called into question the transit of fuel — in the battle area there is the only artery to the Central and Western Europe. Slovakia and Austria primarily depend on it.
Despite the uninterrupted supply via the Sudzha gas metering station (GIS), prices began to creep up: on Monday alone they added six percent and reached a record high of $480 per thousand cubic meters for the year. A small decrease was enough to sow panic: from 42.4 million cubic meters on August 6 to 37.3 on the eighth. This happened after the pumping was restored on August 13.
The reaction is largely emotional, notes independent industrial expert Leonid Khazanov. «A complete shutdown is fraught with a shortage of fuel in the cold season,» he explains.
When the market calms down, prices may drop to $400 per thousand cubic meters, says Igor Yushkov, an expert at the National Energy Security Foundation and the Financial University. But if supply is interrupted, they could soar to 600.
“As long as there is dependence on Russian gas supplies, there is a huge risk of failure with far-reaching consequences,” Bloomberg quotes the Austrian Energy Ministry. According to a government report, if transit is stopped, the occupancy of Austrian storage facilities in 2026 will not exceed 15 percent.
The tension is also fueled by the imminent end of the transit contract. The agreement between Russia and Ukraine is valid until the end of 2024, and there is no talk of extension. “We will not initiate a continuation,” said the head of the board of Naftogaz, Alexey Chernyshev.
At the same time, the agreement between Gazprom and the Austrian energy company OMV is valid until 2040. Although Vienna promises to stop supplies by 2027.
Ripple Effect
Experts considered the market reaction to be natural. Despite low demand and the desire to no longer buy from Russia, replacing even 42.4 million cubic meters per day is not so easy.
«Other pipeline suppliers — Norway, Algeria, Azerbaijan — are already pumping to the maximum, they will have to take LNG, transport it to the coastal country, regasify it and deliver it to themselves via the same gas pipelines. This is complex and expensive logistics,» Yushkov notes.
In their June report, the Austrian authorities indicate that supplies are planned through Italy and Germany.
«At the same time, we will still have to fight for the raw material, because the liquefied gas market is in short supply and the balance on it is quite fragile. Additional demand will give rise to a new wave of the race for the resource, so we are talking about reselling at exorbitant prices,» the expert clarifies.
According to the Gas Exporting Countries Forum (GECF) report, European LNG supplies fell by 26 percent year-on-year in July, reaching their lowest level since September 2021 at 6.34 million tons. From January to July, 60.63 million tons of LNG were delivered to the continent (down 21 percent). Among other things, the significantly higher price in Asia played a role. There, imports increased by 14 percent to 23.4 million tons.
Under such conditions, abandoning the pipeline is not profitable. According to the GECF, despite the overall reduction in consumption in the EU (down 4.5 percent year-on-year from January to July), fuel imports from Russia increased by 3.1 billion cubic meters.
Unreliable storage
Europeans are concerned about another problem: where to store it. The unstable situation is forcing states to increase their reserves. However, the EU's own capacities allow it to accumulate up to 100 billion cubic meters of gas, although annual consumption is 350-500.
Last year, Kyiv offered its partners its infrastructure with a capacity of up to ten billion cubic meters. Prices were low, the service was in demand. According to the independent agency Argus, in June-July 2023, 102.7 and 586.6 million cubic meters of gas were sent to Ukrainian storage facilities.
However, the European Union is concerned about the security situation. In the spring, Naftogaz reported damage to Lviv infrastructure, and in the first summer months, the occupancy rate of storage facilities fell to a tenth of last year's figures — 15.4 and 51.9 million cubic meters.
Traders are afraid of losing access at any moment. «The constant attacks on Ukrainian storage facilities increase the risk. The main problem is not the loss of gas, but the inability to withdraw it when it is needed and in demand,» explained Marco Saalfrank, head of trading at energy group Axpo, the Financial Times (FT) reports. According to the publication, Ukraine is losing about 200 million euros a year because of this.
At the same time, gas is still important. According to analysts interviewed by the FT, all efforts to develop green energy allowed demand for blue fuel to be cut by only seven percent year-on-year in July.
Therefore, Russian experts believe that European politicians will push Ukraine to extend the transit contract. Deputy Head of the National Energy Security Fund Alexey Grivach believes that geopolitical changes are needed for this. «Recently, supplies from Russia have been growing, not decreasing,» he emphasizes. «Economically, the EU is seriously losing out in global competition without our gas. Therefore, if conditions improve, we cannot rule out attempts on their part to at least partially restore trade.» And prices, Yushkov argues, will remain at the average level of 2024 next year — $350-400 per thousand cubic meters. But with a caveat: if there are no new emergencies.