EU Eyes End of Russian Imports on Ukraine Transit Expiry
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The EU plans to launch a new roadmap in early 2025 to permanently wean the bloc off Russian fossil fuels, as piped gas exports via Ukraine to Europe drew to a historic close this week.
EU Energy Commissioner Dan Jorgensen will outline the new plan by the end of February, with the exact date still to be confirmed, say officials familiar with the matter. In November, Jorgensen said he wanted the bloc to end Russian gas imports ahead of the current 2027 target.
Russian gas had continued to flow via Ukraine for almost three years after Russia’s invasion of Ukraine in early 2022, providing transit revenues to Kyiv. However, the gas transit deal between Ukraine and Russia expired on Dec. 31, 2024.
Russia’s Gazprom confirmed this week that gas exports via Ukraine to Europe were halted from 08:00 local time (06:00 CET) on Jan. 1.
The end of Ukrainian gas transit will remove around 40 million cubic meters per day, or 15 billion cubic meters annually, of Russian pipeline gas exports to Europe. That’s around half of the current Russian pipeline exports to the continent, excluding Turkey.
A new transit arrangement looks unlikely for now, despite months of discussions over various potential workarounds ahead of the expiry. It's unclear whether a transit deal could form part of any talks between Russia and Ukraine that US President-elect Donald Trump may seek to broker.
Market Reaction
The February 2025 natural gas contract on the European benchmark Dutch TTF hub was trading at €50.40 per megawatt hour ($15.24 per million Btu) on the Intercontinental Exchange on Thursday afternoon, having dropped briefly to €48.58 MWh earlier in the morning.
This mirrored price activity earlier in the week ahead of the expiration of the Ukraine transit deal on Dec. 31, when the same contract rose to €50.50/MWh.
Expectations of no new transit deal combined with colder temperature forecasts and dipping underground gas storage stocks across Europe have reinforced a bullish mood in the market this week. Spot LNG prices in Southwest Europe have soared by $2.20 over the last fortnight to $14.50/MMBtu.
A reminder that the European gas market is now more vulnerable to shocks came on Thursday as Equinor's Hammerfest LNG plant off northern Norway’s Arctic coast suffered an unexpected outage. A compressor failure will halt the LNG export facility’s output through Jan. 9, according to a statement from Norwegian regulator Gassco.
The EU’s current aggregated gas storage level was around 72% full on Jan. 1, 2025, according to the latest available data, down from 86% on the same day last year.
Slovakia Agitated
The end of Ukraine transit will primarily impact the supply security of EU members Austria and Slovakia, with the latter expected to face the biggest supply hit on the expiry of the transit deal.
In a statement on Jan. 1, Slovakian gas importer SPP underlined that “diversification has its price, and if Russian gas does not flow to our territory in 2025, any other alternative will be significantly more expensive.”
The Slovak firm estimates that if it buys the “entire necessary volumes” from another source and physically transits it to Slovakia this year, it will pay “approximately €90 million more” due to transit fees, “which are constantly increasing.” SPP gave no further details.
The firm said that the end of the transit via Ukraine would result in price increases for gas on the wholesale markets. And in the case of a cold winter, “this situation can cause gas shortages and supply problems throughout Europe.”
Still, SPP insisted that it has prepared for this situation for some time. Its flexible gas contracts with BP, Exxon Mobil, Shell, Eni and RWE, combined with various pipeline route options across Europe and its gas storage levels in the country, will help it cope with any spike in demand, the company said.
SPP currently has “approximately 20% more gas available” in storage compared to last year and aims to fill its storage capacity to 100% in January.
Austria Prepared
Austrian gas regulator E-Control told Energy Intelligence that it had also prepared for the expiry of the Ukraine transit.
Austria’s OMV terminated its long-term contract with Russian state exporter Gazprom earlier this month “due to fundamental breaches of contractual obligations by Gazprom Export.”
OMV has alternative supply options in the form of Norwegian pipeline supplies, as well as LNG, as the company holds long-term regasification capacity of up to 36 terawatt hours per year at the Dutch Gate terminal.
“Beyond that, other international portfolio players with access to the LNG market are active on the Austrian wholesale market and can supply gas volumes to Austrian customers,” E-Control's deputy head of gas, Markus Krug, insisted.