Russian Gas Flows to Europe via Ukraine Decrease After Kyiv Shuts Down One Route, According to Reuters

By Nina Chestney

LONDON (Reuters) – Russian gas flows to Europe through Ukraine decreased by 25% on Wednesday, as Kyiv suspended operations on a key transit route, citing disruption caused by occupying Russian forces. This marked the first significant interruption in exports via Ukraine since the invasion began.

Despite the ongoing conflict, Ukraine has remained a crucial transit route for Russian gas to Europe since the onset of the “special military operation” on February 24.

The transit route that Ukraine shut down typically accounts for approximately 8% of Russian gas exports to Europe, although European nations reported they were still receiving gas supplies. This corridor predominantly directs gas to Austria, Italy, Slovakia, and other Eastern European countries.

Russian gas monopoly Gazprom stated that it continued to deliver gas to Europe via Ukraine, although the volumes dropped to 72 million cubic meters (mcm) on Wednesday, down from 95.8 mcm the day before.

Ukraine’s gas system operator, GTSOU, announced its decision to halt flows through the Sokhranovka transit point, which is responsible for nearly one-third of the fuel piped from Russia to Europe via Ukraine. GTSOU cited “force majeure” in declaring the suspension and suggested rerouting deliveries to the Sudzha entry point, the largest of Ukraine’s two transit points.

The head of Ukraine’s gas transit system indicated that the closure of two valves in the gas network in areas occupied by Russian forces could result in a loss of gas valued at approximately $1 billion each month.

The Sokhranovka point runs through the Luhansk region of Ukraine, where pro-Russian separatists hold part of the territory. In contrast, Sudzha is located further northwest.

Kremlin spokesman Dmitry Peskov expressed that Russia remains committed to its gas supply agreements, despite the dispute over the transit route with Ukraine. Gazprom claimed the security of gas supplies has been jeopardized by Ukraine’s closure of one transit entry point.

Following a refusal by Bulgaria and Poland to comply with a new Russian payment mechanism for gas, their supplies were halted last month. Analysts warned that the closure of Sokhranovka could potentially disrupt up to one-third of Europe’s overall gas supplies.

Wednesday’s disruption led to an initial surge in Europe’s benchmark gas prices for the third quarter, reaching 100 euros per megawatt-hour before easing back. This price is over 250% higher than levels seen a year ago.

Ukraine’s gas transit operator suggested to Gazprom that they could transfer transit volumes to Sudzha without additional costs, but Gazprom stated it was technically unfeasible to shift all volumes to that route.

For the current month, daily gas flows via Sokhranovka have averaged 23 mcm, a 20% decrease compared to the previous month, according to energy consultancy Rystad Energy. In the previous year, the EU imported roughly 155 billion cubic meters (bcm) of gas from Russia.

In contrast, daily flows through Sudzha have averaged around 70 mcm this month, close to its maximum capacity of 77 mcm. While an additional 6 mcm per day could potentially be accommodated, any need to redirect 10 mcm per day through other routes would likely hit capacity limits, Rystad Energy noted.

However, Ukraine’s gas transit operator claimed Sudzha’s daily capacity could rise to as much as 244 mcm.

While many European nations have significantly reduced their dependence on Russian gas in recent years, it still remains the EU’s primary supplier. Some countries have identified alternative supply sources, but completely replacing Russian imports is challenging, especially since the global gas market was already tight prior to the Ukraine conflict.

Slovak Economy Minister Richard Sulik reported that gas flows from Ukraine to Slovakia were stable, with no signs of supply issues, while Austrian energy firm OMV confirmed that its gas deliveries were proceeding as requested.

Europe also receives Russian gas through Poland via the Yamal-Europe pipeline and via the Nord Stream 1 pipeline under the Baltic Sea to Germany.

German Economy Minister Robert Habeck noted that gas deliveries to Germany remained stable, and there was no current need to escalate actions in their emergency response plan, having already initiated a first phase in March.

In Italy, which relied on 76 bcm of gas last year—40% of which came from Russia via Ukraine—Energy Transition Minister Roberto Cingolani stated that efforts to seek alternative supplies could fully eliminate the country’s reliance on Russian gas by the second half of 2024. However, he cautioned that a sudden halt in Russian gas flows this month could create serious challenges in filling storage ahead of winter.

Europe is hurriedly working to build up gas reserves to manage potential supply disruptions and diminish Russia’s influence. Currently, EU gas storage levels are around 37% full, which is an improvement from a few months ago but still below seasonal norms.

An analyst from Rystad Energy warned that the removal of another pipeline from Europe’s gas network would complicate efforts to meet storage targets and accelerate the continent’s transition away from Russian gas imports. Nonetheless, it was noted that the integrated nature of the European gas grid means no single country is likely to face immediate shortages, though the overall system would experience increased strain, limiting price declines.