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End of Russian Gas Supply Marks New Era for Europe
As 2023 comes to a close, Europe prepares for a significant shift in its energy landscape with the final Russian gas shipments flowing through Ukrainian pipelines expected to arrive in the early hours of New Year’s Day. This cut comes as the continent braces for plunging temperatures that threaten to accelerate the depletion of gas reserves.
The state-owned Russian energy giant, Gazprom, is poised to halt its remaining gas exports to Europe via Ukraine when the existing transit agreement expires. This deal, established five years ago, has been a crucial conduit for gas supplies to central Europe.
Without last-minute negotiations to extend this agreement, the cessation of these gas flows underscores a historic turning point following Russia’s invasion of Ukraine in February 2022. Once a dominant supplier, Russia has seen a dramatic decline in its European customer base, with many countries pivoting to alternatives like U.S. liquefied natural gas (LNG), Norwegian supplies, and gas from Qatar.
“The geopolitical implications are significant,” noted Tom Marzec-Manser, a gas market analyst. “The end of this transit route effectively closes a key artery for Russian gas, which may compel eastern European nations to seek increased imports from northern and western European markets.”
This disruption comes as Ukraine continues to face mounting military pressures on its eastern front and increasing concerns about potential shifts in U.S. support once Donald Trump assumes the presidency on January 20.
While Ukraine has the capacity to meet its gas needs through domestic production and storage under typical weather conditions, the International Energy Agency (IEA) has cautioned that an unusually cold winter may heighten the demand for imports from Europe.
A cold front forecasted for later this week is anticipated to test Europe’s gas markets, which have already seen one of the most rapid depletions of reserves since the onset of the energy crisis. Major European cities, including London, Paris, and Berlin, are bracing for temperatures that could drop below zero, well below seasonal norms.
This anticipated cold snap is expected to increase gas demand for heating and accelerate the drawdown from reserve supplies. Official data from Gas Infrastructure Europe indicates that EU gas reserves have plummeted nearly 20% since September, far steeper than reductions observed during the previous two winters, which were milder and featured less industrial gas demand.
Market reactions have reflected these concerns, with the benchmark European gas price surging nearly 5% since the start of the week, approaching €49 (£41) per megawatt-hour. Analysts predict ongoing pressure on the market as forecasts suggest colder weather and reduced wind conditions for January, which could further intensify gas utilization across residential and industrial sectors.
“The two previous winters were relatively mild, so this is the first real test for the gas market since it has been weaponized amidst ongoing geopolitical tensions in Europe,” Marzec-Manser added.
The depletion of gas supplies has already forced Europe to rely more heavily on gas during periods of low wind and daylight due to a condition known as dunkelflaute, which means a lack of wind power in German. This scenario has compelled many countries to convert to gas-generated electricity to meet their energy demands.
Despite these challenges, Russia remains committed to supplying countries such as Hungary and Serbia via the TurkStream pipeline and increasing its LNG exports. Meanwhile, Ukraine faces diplomatic pressure from nations like Slovakia, which continues to purchase Russian gas, to negotiate a new gas agreement with Moscow. President Volodymyr Zelenskyy has firmly stated that Ukraine will not enter any deals that would financially sustain Russia.
The ramifications of the expiration of this agreement are significant for both countries. Ukraine could lose approximately $800 million (£640 million) annually in transit fees, whereas Gazprom could potentially forfeit close to $5 billion in sales revenue due to the loss of its European client base. This decline in sales has already resulted in Gazprom reporting an annual loss of $7 billion for 2023, marking its first deficit in over two decades.
Concerns about energy security have heightened in Slovakia, where Prime Minister Robert Fico has threatened to cut backup electricity supplies to Ukraine if it allows the agreement to lapse. In response, Zelenskyy accused Fico of acting in Moscow’s interest by opening what he described as a “second energy front” against Ukraine.
Source
www.theguardian.com