Access to Russian gas through Ukraine territory will cease starting the first day of next year. This is creating some supply problems for the EU but the danger seems not to be imminent. There are solutions to this problem, albeit not simple ones, writes eToro analyst for Romania, Bogdan Maioreanu.
Imports from Russia still amount to 18% for natural gas and liquified natural gas. The gas via Ukraine accounts for half of Russia’s remaining pipeline gas exports to the EU and a third of total Russian gas exports, including liquified natural gas (LNG). Despite the ongoing war, this route remains crucial for gas supplies to Europe, mainly for Slovakia, Hungary, and Austria for which the Ukrainian transit route met 65% of gas demand in 2023. Overall, the share of Ukrainian transit in EU gas imports has dropped from 11% in 2021 to about 5% now.
But there is no immediate urgency for replacement. Currently, all three countries have almost full reserves, above 92%, covering around 60% of total yearly consumption for Hungary and Slovakia and over 104% for Austria. Also, according to an analysis by the Bruegel think tank, LNG terminals in Poland, Germany, Lithuania, Italy, Croatia and Greece and new floating storage regasification units in Germany and Italy with the potential expansion of the capacity of the Turkstream pipeline could replace the lost volume. There is also enough infrastructure for transmission system operators to transport replacement gas. For example, Czechia claims it has sufficient gas network capacity to support other countries and mitigate potential disruptions.
However, the end of the gas transit contract implies that from 1 January 2025, the EU would need an additional import of 140 TWh annually from other sources. Most Russian gas deliveries to Austria, Hungary and Slovakia are under long-term contracts between their major gas companies and Gazprom. This scenario in which the currently transited volumes through Ukraine are replaced by LNG imports from other countries might be the most plausible option for the EU.
Another scenario would be the replacement of Russian gas with Azeri one. But such a deal has not yet been confirmed. And the last one might be a new agreement between EU, Ukraine and Russia in which EU traders could buy Russian gas at the Russian-Ukrainian border at Sudzha and book transit capacity through Ukraine’s pipeline network infrastructure to deliver ‘their’ gas to European countries.
According to the Bruegel think tank, by ending the transit contract Ukraine stands to lose fees equivalent to about 0.5 percent of GDP and risks undermining its strategic role as an energy partner for Europe. Moreover, Ukraine’s gas infrastructure, which is so far largely undamaged, could become a military target if Russian gas is no longer in Ukraine’s pipelines.
While Romania most likely will not be directly affected by this situation, the current situation is maintaining pressure on natural gas prices. Our country imported around 19% of the natural gas necessary in the first 8 months of the year, 7% less than last year. But at the European level, starting with February this year the natural gas prices are in an upward trend and 1MW is currently trading around 40 EUR. Futures markets are now quoting prices around this value for the whole Q1 of 2025 while during next year the prices look stable at around 38 EUR per MW.
