Gas, will the end of the Russia-Ukraine agreement send the EU into crisis?
In public, the European Union does not appear concerned about the expiration of the gas transit agreement between Russia and Ukraine; Privately, however, he fears an increase in fuel prices. Facts, numbers and analysis
A few days ago, Energy Commissioner Kadri Simson publicly declared that the European Union "has no interest" in promoting the renewal of the gas transit agreement between Ukraine and Russia. The agreement in question, signed in 2019 and lasting five years, will expire on December 31st and in the last two years has continued to guarantee – despite the war – a certain quantity of Russian gas to the community block. Kiev has no intention of renewing it, and Brussels is fine with that.
However, according to an internal Commission document, seen by Politico , the expiration of the transit agreement could cause an increase in energy prices in the European Union during the next winter. In fact, if the loss of 5 percent of the Union's total gas imports – as the Ukraine-Russia agreement is worth – were to be combined with a long cold wave, there could be problems for the member countries most dependent on the Ukrainian route. In the document, however, it is referred to as the worst-case scenario , i.e. the worst case scenario.
THE CONSEQUENCES OF THE END OF THE RUSSIA-UKRAINE GAS TRANSIT AGREEMENT
The European countries most exposed to Ukraine for gas supplies are Austria, Hungary and Slovakia. In theory, they could replace these supplies with flows passing through Italy, Germany or Turkey. In practice, however, the German decision to unilaterally tax gas exports has made this possibility more complicated because – as analyst Aura Sabadus explained to Politico – it has discouraged energy companies from investing in non-Russian gas supplies.
The European Commission has asked the member states of the Union to eliminate imports of fossil fuels from Russia by 2027. In the specific case of natural gas, the gap was notable: compared to 2021, the bloc has reduced its dependence by two thirds from Russian fuel, which before the invasion of Ukraine was worth over 40 percent of community imports and today only 15 percent (8 percent, if only pipe flows are considered). Russia has been replaced by suppliers such as Norway, the United States and Qatar.
The energy relationships, however, have not been closed completely. And in fact the European authorities argue that the loss of Russian gas flows passing through Ukraine could create "higher transportation costs"; furthermore, “storage levies ” imposed among the various members of the bloc could “make this diversification more difficult and costly”. However, the document reiterates the "flexibility" of the European gas system which should avoid the occurrence of critical scenarios.
WHAT AUSTRIA, SLOVAKIA AND HUNGARY SAY
Austria, heavily dependent on Russian gas, said it had taken countermeasures in response to the expiration of the transit agreement for Ukraine, such as stringent storage obligations for energy companies. Slovakia, while saying it will continue to work on supply diversification, admitted that the loss of the Ukrainian route will have an impact on "energy security and price stability". Hungary has not made any comments on the matter, but negotiations with Turkey to increase imports are known (in addition to Ukraine, Russian gas continues to arrive in Europe via the Balkan Stream).
IT'S ITALY?
Before the war, Italy was one of the European countries most dependent on Russia for gas, but it has managed to reorganize its list of suppliers and should therefore not suffer serious repercussions from the failure to renew the Russian-Ukrainian agreement. Italy today receives a lot of gas from Algeria and Azerbaijan and from regasification terminals.
PUBLIC AND PRIVATE
In essence: the European authorities publicly display security; in private, however, they appear worried.
Commissioner Simson flaunts certainty: "based on our preliminary analyses, there are alternative solutions to supply these countries which still receive part of their gas via the Ukrainian route". A Central European official instead told Politico that "if the transit route to Ukraine were cut off, our security of gas supplies could be put in danger."
HOW MUCH IS GAS FROM UKRAINE WORTH THE EU
According to S&P estimates, Europe receives approximately 12 billion cubic meters of gas per year via Ukraine. For comparison, in 2021 it imported 155 billion cubic meters from Russia.
CRISIS AVOIDED? MAYBE YES, BUT…
The most widespread opinion among analysts is that failure to renew the transit agreement could cause a slight increase in European gas prices, but will not compromise the energy security of the Old Continent. European countries have in fact equipped themselves with infrastructure to receive liquefied gas (LNG) and new generation capacity from renewable sources which allows them to replace part of the demand for fossil fuel.
Furthermore, electricity consumption is sluggish mainly due to lower demand from industries. As the International Energy Agency wrote , “weakening consumption in the industrial sector was the main factor reducing electricity demand [in the European Union, ed. ], as energy prices fell but they remained above pre-pandemic levels. Signs of permanent demand destruction also emerged in 2023, especially in the energy-intensive chemical and primary metals production sectors.”
THE IMPACT ON RUSSIA
An analysis in Carnegie Endowment explains that not only Ukraine and the European Union, but also Russia will be affected by the expiry of the transit agreement on Ukrainian territory, given that there are no markets equivalent to the European one for the gas from the field Yamal .
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/europa-scadenza-accordo-transito-gas-ucraina/ on Sun, 10 Mar 2024 07:06:22 +0000.