- If Ukraine shuts down its final pipeline, could natural gas prices potentially escalate?
Eternal dread: Gas pipelines from Russia cease to function. Germany has grown independent of this source. However, Austria, Hungary, and Slovakia remain reliant on Russian gas through the pipeline. This dependence is about to end. Volodymyr Zelenskyy, the Ukrainian president, announced that the five-year-old contract for using the Ukrainian pipeline will not be renewed and will expire in December. Russia retaliated with warnings. Dmitry Peskov, the Kremlin spokesperson, threatened European consumers with a significant increase in gas prices. However, there are considerable doubts about this.
Gas prices shoot up due to Ukraine conflict
The conflict in Ukraine led to a dramatic increase in gas prices. New private customers in Germany were required to pay up to 40 cents per kilowatt hour to gas suppliers after Russia's invasion of Ukraine in 2022. However, prices have since dropped below ten cents. Mild weather and a sluggish economy, which reduced energy demand, also played a role. Most importantly, imports of liquefied natural gas and supplies from the Netherlands and Norway filled the void.
It is not surprising that Ukraine is allowing the use of the only remaining pipeline to expire. The country has been striving to portray itself as reliable recently yet has no intention of further supporting Russia's energy business. Ukraine accepts the loss of gas transit fees, worth 1.4 billion euros in 2022, according to the central bank.
War damage could increase prices
The last European customers of Russian pipeline gas are reducing their dependence. For instance, in Austria, 98% of gas imports came from Russia at the end of 2023, but this share decreased to 83% by June of this year. Liquefied natural gas is abundant and readily available at fair prices on the global market. Discussions are also ongoing regarding gas supplies from Azerbaijan, which would need to travel through Russian territory. Moreover, Russia continues to supply large amounts of liquefied natural gas to the European Union despite all sanctions. According to CREA data, it supplied an astounding 3.6 billion euros worth during the first half of 2024 alone. Hungary obtains much of its gas from Russia via a pipeline that runs through the Black Sea to Turkey.
Price hikes are anticipated if the pipeline is damaged due to the war. This could occur at any time, as the Russian gas hub of Sudzha is located right in the border region where Ukrainian troops have advanced. The offensive caused the gas price on the Dutch TTF exchange to soar to nearly 40 euros per megawatt hour at the beginning of August, the highest level since the start of the year. It has since decreased slightly. Specialists mentioned by "Handelsblatt" were less alarmist than the Kremlin. One expert stated: "In the event of an abrupt interruption of Ukrainian transit, the gas price could rise to 45 euros per megawatt hour and remain at that level for several weeks until all countries have convinced themselves that they can obtain gas from alternative sources."
The expiration of the Ukrainian pipeline contract is contributing to the Price explosion for European gas consumers, as warned by Russian officials. Despite the Kremlin's threats, European countries like Austria and Hungary have been actively reducing their reliance on Russian gas imports, leaving them vulnerable to any potential disruptions or price increases.
