Traders Turn Optimistic That Gas Will Keep Flowing Via Ukraine
Commercial agreements could be drawn up to allow gas to flow, even after the current deal lapses at the end of the year.
(Bloomberg) -- Traders are selling European gas for next winter in a sign of optimism that the region will continue to receive Russian shipments via Ukraine after the current transit deal expires.
Contracts for the first quarter of 2025 have slumped by about 20% since the start of the year. The move indicates confidence that there will be a mechanism in place to allow the flows to continue, according to several market participants who spoke on the sidelines of the E-World conference in Essen, Germany.
Commercial agreements could be drawn up to allow gas to flow, even after the current deal lapses at the end of the year. One possibility would be for Russia to offer supply at the border of Ukraine, one of the people said.
The European Union has been clear it’s unlikely to negotiate with Russia over extending the existing transit agreement. Ukraine, which receives transit fees under the current deal, has also said it won’t renegotiate the contract.
Actual Russian flows on the transit pipeline have been less than 40% of the contracted volumes, after Moscow drastically curbed supplies to the EU in the wake of its invasion of Ukraine.
Still, Russian gas remains vital to the EU, flowing in via other routes, including Turkey. Russia is also the second-biggest supplier of liquefied natural gas to Western Europe after the US. EU officials have been clear that the bloc should reduce its dependence on Moscow for gas, though they have stopped short of sanctions.
Russian Energy Minister Nikolai Shulginov last month signaled that gas transit to Europe may continue as other ways to ship gas via Ukraine could be explored after 2024, Interfax reported at the time. Slovakia, the first EU nation on the Ukrainian transit route, has also suggested that shipments can be maintained.
Analysts at Energy Aspects Ltd. earlier this month said they restored 11.5 billion cubic meters a year of Russian pipeline supply to the EU to their balance for the next three years “on the expectation that alternative flow arrangements are made following the end of the current transit agreement in end-2024.”
EU Supplies
The European Commission, the EU’s executive arm, believes that even the member states most reliant on Russian gas can survive a full shutdown of supplies from the country — though there would be challenges, according to people familiar with the matter. A key concern is the low number of alternative supply routes. Around 14 billion cubic meters came through the Ukraine route last year, almost half of which went to Austria.
Still, there are other ways the bloc would be able to receive gas. It could import as much as four billion cubic meters via the Turkstream link from Russia to Turkey, while the rest would come from LNG imports. In addition, Slovakia could receive gas from Poland, while the Netherlands, Italy and Germany could support Austria and the Czech Republic, the people said.
The EU is still looking to extend measures to reduce demand through next winter, according to one of the people.
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