EU Sees 'Negligible' Gas Impact From End of Ukraine Transit Deal

The European Commission has conducted an assessment indicating that the end of Russian natural gas flows through Ukraine is expected to have a "negligible" effect on prices in Europe.

As the expiration of the transit agreement approaches at the end of this year, concerns have arisen over the potential cut-off of gas used for heating and power generation. However, the Commission’s analysis, seen by Bloomberg News, suggests that the market has already accounted for this change. It emphasizes that European countries will likely secure alternative supplies if needed.

Market Preparedness

European gas markets have factored in the eventual end of this transit deal, which is set to expire in roughly three weeks. This reassessment aims to alleviate fears among both member states and market participants ahead of the official termination.

As of now, European gas prices remain higher than desired, primarily due to the lingering effects of previous energy crises. With increased imports of liquified natural gas (LNG), Europe has managed to replace much of the gas previously supplied by Russia.

Gas Supply Alternatives

The analysis from the Commission stipulates that globally, over 500 billion cubic meters of LNG are produced each year, meaning that the loss of about 14 billion cubic meters of Russian gas through Ukraine should only have a minimal impact on gas prices within the EU. The Commission believes that the implications of the transit agreement ending have already been included in winter pricing.

Concerns and Future Outlook

While discussions surrounding the transit agreement persist, especially involving Austria and Slovakia, the Commission has made it clear that it does not intend to negotiate to keep the route open. Some gas buyers from Slovakia and Hungary are exploring options, including potential swaps between gas suppliers from Azerbaijan and Russia to maintain supply flows.

Even with concerns regarding Russian gas supplies influencing pricing in the market, the Commission noted that member states have successfully reduced their gas demand by approximately 18% since August 2022 when compared to five-year average usage levels.

Conclusion

The Commission’s outlook is optimistic, stating that the EU is well-prepared for the cessation of Russian gas via Ukraine. It emphasizes the readiness of the bloc to cope with the lack of supply and highlights the efforts underway to secure alternative sources.

EU, Gas, Ukraine