EU says no need to extend Ukrainian gas transit deal

EU says no need to extend Ukrainian gas transit deal
LNG has taken the place of Russian pipeline gas. / bne IntelliNews
By Newsbase February 20, 2024

The European Commission has finally stated its position on the future of Russian natural gas transit via Ukraine, with European Energy Commissioner Kadri Simson stating on February 15 that there is no need to extend the contract between Moscow and Kyiv covering these supplies beyond its expiry at the end of this year.

EU analysis shows that countries that have been receiving supplies via the transit route, including Austria, Italy and Slovakia, will be able to source alternative shipments, Simson said.

"We have no interest in prolonging the trilateral gas transit agreement with Russia, which will expire by the end of this year," Simson told an EU parliamentary committee meeting. "Based on our preliminary analytics, there are alternative solutions to supply these countries [that] still receive some gas through the Ukrainian route.”

This marks the first time that the European Commission has officially stated its position on the topic.

Russian gas flow to Europe is at only 10-15% of the pre-war level, owing to drastic cuts in deliveries by the Kremlin in 2022. But Ukraine remains an important route for remaining supplies, with deliveries currently at around 12bn cubic metres per year. It is one of only two routes left, with the underwater Nord Stream pipelines rendered unusable by sabotage in 2022 and the overland Yamal-Europe pipeline unable to flow gas westwards because of sanctions.

One other remaining route is the TurkStream pipeline system, with one of its two 15.75 bcm per year strings designed for the European market.

Ukraine’s national gas company Naftogaz and grid operator GTSOU signed a five-year gas transit agreement with Russia’s Gazprom in December 2019, with the European Commission playing a major role in brokering the 11th-hour deal. The contract requires Gazprom to pay to transit 40 bcm of gas via Ukraine this year, regardless of how much it actually sends. But since May 2022, the Russian firm has been delivering less gas than that and paying less than it should under the agreement.

Experts say that the expiry of the transit deal could trigger a slight rise in European gas prices but would not pose a serious risk to the EU’s energy security, as the bloc has significant volumes of gas in storage and access to ample supplies of LNG on the international market. Demand has also fallen as a result of increased renewable energy production and a drop in industrial consumption triggered by high prices.

Ukraine has said it has no intention of renewing the transit deal, while Russia has said it is prepared for talks but can find alternative ways of exporting its gas if the contract expires.