One of many final arteries carrying Russian fuel to Europe may very well be shut off by the tip of subsequent yr when Ukraine’s provide contract with Gazprom expires, the Ukrainian power minister has stated.
In an interview with the Monetary Instances, German Galushchenko stated that the possibilities of Kyiv and Moscow agreeing the renewal of the five-year transit contract first signed in 2019 have been slim — regardless that the route by means of Ukraine accounts for nearly 5 per cent of Europe’s complete fuel imports.
“I actually can’t think about the way it may very well be bilaterally,” Galushchenko stated when requested if Ukraine could be ready to renegotiate the settlement with Moscow following final yr’s invasion.
“I can inform you that we’re getting ready our system for a minimize of provides,” he added.
Moscow’s resolution to slash fuel provide to Europe final yr triggered an power disaster, stoking inflation and elevating the price of dwelling throughout the continent. However whereas a number of routes have been shut off, the Ukrainian pipeline is one among simply two which have continued to provide fuel, albeit at decreased volumes.
In accordance with knowledge from power consultancy ICIS, Austria relied on Russian fuel passing by means of Ukraine for about half of its fuel imports in Might, whereas in Slovakia, the pipeline accounted for 95 per cent.
The power minister stated Europe could be comparatively ready for an extra slowdown in provide, having needed to adapt to related cuts up to now by lowering demand and sourcing various imports akin to liquefied pure fuel.
However that is the primary acknowledgment from Kyiv that the contract underpinning the remaining flows from Russia by means of Ukraine will in all probability be allowed to run out on the finish of subsequent yr.
With out the Ukrainian transit route, the one pipeline from Russia nonetheless delivering fuel into Europe could be TurkStream, which provides nations within the south-east of the continent and accounted for slightly below 3 per cent of Europe’s fuel imports in Might.
Whereas Galushchenko urged that European politicians would possibly want to renegotiate the contract — as occurred in 2019 when an EU delegation brokered trilateral talks with Russia and Ukraine — analysts say that is unlikely given the tough optics of holding talks with Moscow.
The European Fee declined to touch upon whether or not it will attempt to instigate talks with Russia on the contract renewal.
The lack of even a small proportion of provide has the potential to boost costs throughout the continent given the tightness of global gas markets, although provides of LNG are anticipated to rise quickly from 2025 with the launch of main tasks in Qatar and the US.
Earlier this month, Russian deputy overseas minister Mikhail Galuzin stated {that a} resolution to not lengthen the fuel transit settlement would “deal a blow” to the EU, whereas Ukraine would “shoot itself within the foot by shedding the dividends from transit”.
European fuel costs surged to greater than 10 instances their regular stage in 2022, reaching the equal of just about $600 a barrel in oil phrases, however have since fallen sharply. The benchmark TTF contract is again to about €40 per megawatt hour — down virtually 90 per cent from its peak final August.
The present fuel transit contract was signed in December 2019, a last-minute deal that got here simply 24 hours earlier than the earlier settlement expired, securing Russian fuel flows by means of Ukraine till 2024.
Beneath the deal, Russia’s state-owned power firm Gazprom agreed to ship a minimal of 65bn cubic metres of fuel in 2020, and 40 bcm/yr between 2021 and 2024, by means of the Ukrainian pipeline, which might have secured the nation $7bn in transit charges.
Nonetheless Russia is at the moment solely delivery volumes of about 12 bcm/yr, and Kyiv claims Moscow has been underpaying it, regardless of contractual obligation to pay the total transit charge no matter whether or not agreed volumes of fuel are provided.
OMV, one among Austria’s largest power corporations, stated it will be “capable of provide its prospects even with out Russian fuel”, having made preparations for the reason that invasion of Ukraine final yr.
If the contract lapses, Gazprom may technically nonetheless ship fuel by means of Ukraine by reserving capability by means of auctions that its fuel transmission system operator is obliged to carry, beneath European guidelines.
“It’s arduous to see the way you renew a contract that neither aspect believes the opposite has honoured, not to mention in a center of a battle between the 2 events,” stated Laurent Ruseckas, an analyst at S&P World Commodity Insights.
“However in concept the fuel ought to proceed to circulate if European consumers nonetheless need it and Russia is ready to ship it,” he added.
Extra reporting by Alice Hancock in Brussels
