Business news from Ukraine

Business news from Ukraine

As Russia-Ukraine gas deal ends, worries mount in EU’s east

The current gas transit deal between Russia and Ukraine expires at the end of 2024, with Vladimir Putin having already said there was no time left to renew the contract. Will eastern EU members be hit the hardest?

Currently, Russian gas is still flowing through Ukraine’s pipeline network to the European Union (EU), generating revenue for Kremlin leader Vladimir Putin and funding his war against Ukraine. The Russian has claimed without Russian gas the bloc won’t be able to meet its energy needs.

For Ukraine, by contrast, the gas transit deal has always meant first and foremost filling Putin’s war chest, even though some of the revenue Russia gains from its exports via Ukraine stay in Kyiv as transit fees.

Now, as the year 2024 ends, Ukraine will not renew the gas transit agreement with Russia, as announced by President Volodymyr Zelenskyy on December 19 in Brussels. Ukraine will no longer allow Moscow to “earn additional billions” while continuing its aggression against the country.

Russian President Putin also confirmed the contract’s termination, telling reporters in a televised briefing on December 26 that a new contract was “impossible to conclude in 3-4 days.”

Putin laid the blame firmly on Ukraine for refusing to extend the agreement.

The end of the agreement, however, raises questions about gas supply in landlocked eastern EU countries, which cannot import liquefied natural gas (LNG) by sea. Austria, Hungary, and Slovakia still rely on Russian gas via Ukraine which is why the governments there are eager to continue purchasing Russian gas.

Russian gas: Mutually beneficial even during the Cold War

Before the Ukraine war, Russia was the world’s largest exporter of natural and Europe was Moscow’s most important market. European governments prioritized access to cheap energy over concerns about doing business with Putin.

The mutually beneficial relationship began more than 50 years ago, when the former Soviet Union needed funds and equipment to develop its Siberian gas fields. At the time, the western part of then still divided Germany sought affordable energy for its growing economy, and signed the so-called pipes-for-gas deal with Moscow, under which West German manufacturers supplied thousands of kilometers of pipes to transport Russian gas to Western Europe.

This energy relationship persists, as European importers are often locked into long-term contracts that are difficult to exit.

According to the Brussels-based think tank Bruegel

, EU fossil fuel imports from Russia amounted to about $1 billion (€958 million) per month at the end of 2023, down from $16 billion per month in early 2022. In 2023, Russia accounted for 15% of the EU’s total gas imports, trailing Norway (30%) and the US (19%), but ahead of North African countries (14%). Much of this Russian gas flows through pipelines via Ukraine and Turkey.

Major consumers include Austria, Slovakia, and Hungary. Additionally, countries like Spain, France, Belgium, and the Netherlands still import Russian LNG by tanker, some of which mixes with other gas sources in Europe’s pipeline network. As a result, it may even reach Germany, despite its efforts to forgo Russian gas.

Gas market upheaval triggers price spikes

Following Russia’s invasion of Ukraine in 2022, gas prices surged dramatically — at times by more than 20 times — forcing some European factories to cut production and many small businesses to close. Prices have since dropped but remain above pre-crisis levels, making energy-intensive industries, particularly in Germany, less competitive.

European consumers are also suffering from high energy prices, prompting many to reduce consumption amid a severe cost of living crisis. The additional expenses are a significant burden: Nearly 11% of EU citizens struggled to adequately heat their homes in 2023, according to the EU Commission.

The termination of the Ukraine-Russia agreement is already factored into European gas market forecasts, according to an EU Commission analysis reported about by Bloomberg in mid-December.

EU isn’t desperate to keep gas route open

The EU is confident in its ability to secure alternative supplies.

“With more than 500 billion cubic meters of LNG produced each year globally, the replacement of around 14 billion cubic meters of Russian gas transiting via Ukraine should have a marginal impact on EU natural gas prices,” Bloomberg cites from the commission’s document, which is not yet public. “It can be considered that the end of the transit agreement has been internalized in the winter gas prices.”

The EU has long argued that member states still importing Russian gas via the Ukraine route — particularly Austria and Slovakia — could manage without these deliveries. Therefore, the EU commission said it would not enter negotiations to keep the route open.

According to the Commission, member states have been able to reduce their gas consumption by 18% since August 2022 compared to the five-year average. Moreover, the United States is expected to create new LNG capacities over the next two years, and these supplies could help the EU address potential disruptions.

“The most realistic scenario is that no Russian gas will flow through Ukraine anymore,” the EU commission said, adding the bloc was “well-prepared” for this outcome.

Mounting oncerns in Eastern Europe

Despite EU assurances, Hungary and Slovakia remain anxious about their gas supplies and their ongoing close ties to Russia. Hungarian Prime Minister Viktor Orban, for example, is seeking ways to maintain gas deliveries through Ukraine, even though the country’s current imports largely rely on the TurkStream pipeline.

Orban has floated unconventional ideas, such as purchasing Russian gas before it crosses into Ukraine. “We are now trying the trick … that what if the gas, by the time it enters the territory of Ukraine, would no longer be Russian but would be already in the ownership of the buyers,” Orban told a briefing, according to the Reuters news agency. “So the gas that enters Ukraine would no longer be Russian gas but it would be Hungarian gas.”

Hungarian Prime Minister Orban is a staunch supporter of Russian gas and wants flows via Ukraine to continueImage: Denes Erdos/AP/picture alliance

Slovakia has taken a more confrontational approach, threatening countermeasures against Ukraine. Prime Minister Robert Fico suggested halting emergency electricity supplies to Ukraine after January 1 if no agreement is reached. “If necessary, we will stop the electricity shipments that Ukraine needs during outages,” Fico said in a Facebook video.

In respons to the threat, Ukrainian President Volodymyr Zelenskyy accused Fico of acting under Russian orders, stating on social media platform X that it appears Putin directed him to “open a second energy front against Ukraine.”

Fico remains one of the EU’s strongest opponents of military aid to Ukraine. During a surprise December visit to Moscow, Fico claimed Putin reaffirmed Russia’s willingness to continue supplying gas to Slovakia.

Source: https://www.dw.com/en/as-russia-ukraine-gas-deal-ends-energy-worries-mount-in-europes-east/a-71186893

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“Naftogaz” launches new well with daily flow rate of 150 thousand cubic meters of gas

“Naftogaz has put into operation a new exploration well with a daily flow rate of 150 thousand cubic meters of gas, the group’s press service reports.
According to it, the well depth is 5400 meters. Construction of a site for the next exploration well has also begun at the field.
“Increasing gas production is of strategic importance for the energy security of our country in times of war. I thank my colleagues for their consistent and effective work in this direction,” said Roman Chumak, acting CEO of Naftogaz.
As reported, Naftogaz Group companies Ukrgasvydobuvannya and Ukrnafta produced more than 13.5 bcm of natural gas in January-November 2024.

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Zelenskyy says Ukraine will not continue to transit Russian gas

President Volodymyr Zelenskyy says Ukraine will not continue to transit Russian gas.

“We will not continue the transit of Russian gas, we will not allow them to earn additional billions on our blood. Any country in the world that can get something cheap from Russia will eventually become dependent on the Russian Federation, whether tomorrow or in a month or a year. This is their policy. Therefore, we will not transit Russian gas,” Zelenskyy said at a press conference in Brussels on Thursday.

Zelenskyy noted that in a conversation with the Prime Minister of Slovakia, he said that if there is not Russian gas, but gas from another country, and there is no payment to Russia until the end of the war, Ukraine is ready to consider this option.

At the same time, Zelenskyy emphasized that Ukraine would not allow additional earnings for Russia.

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Slovakia plans talks on gas supplies and transit through Ukraine

Slovakia will hold a series of talks starting next week to secure gas supplies from Russia after its current transit contract, which involves Ukraine, expires at the end of this year, Reuters reported on Friday, citing government officials.

“In the coming days, in particular during the Christmas holidays, you can witness extremely intense negotiations at different levels and in different countries, which will begin next week,” Slovak Prime Minister Robert Fico said at a press conference.

Denisa Sakova, Deputy Prime Minister and Minister of Economy of Slovakia, said that the talks would involve the European Commission, Ukraine and EU member states.

Fico said that he sought to ensure the continuation of supplies from the east to avoid additional fees for gas transit from other directions. “We see no reason to pay more for gas than necessary for geopolitical reasons… I believe that even if there is a short-term interruption of supplies from the east, we have enough reserves to find a common solution for several EU countries, and we will keep gas transit through Slovakia, as well as gas transit through Ukraine,” he said.

Reuters notes that Slovak officials have been looking for alternative gas transit schemes through Ukraine that would not require a direct agreement between Ukraine and Russia, but have not reached any agreement.

Slovakia reportedly has a long-term contract with Russia’s Gazprom and would like to keep importing Russian gas through Ukraine, but it will end at the end of 2024, as Ukraine does not plan to extend the transit contract with Gazprom.

Earlier, Hungarian Foreign Minister Péter Szijjártó said that Hungary and Bulgaria had found a legal and financial solution acceptable to the parties to continue the transit of Russian gas through their countries in the face of US sanctions against Gazprombank.

Hungary receives Russian gas through the Turkish Stream pipeline from Russia to Turkey and then transits through Bulgaria to Hungary. Hungary has received the bulk of its gas consumption through this route – this year, more than 7 billion cubic meters.

At the same time, Bloomberg, citing the Bulgarian Ministry of Energy, reports that “only a ‘solution’ to the problem was discussed, which would include Hungary and allow Bulgaria to continue receiving transit fees after the arrival of Russian gas.” Bulgaria has previously warned that it may stop transiting Russian gas to Central Europe if Gazprom does not find a payment solution, the agency reminds.

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“Ukrgasvydobuvannya” plans to increase gas production through new wells

Ukrgasvydobuvannya JSC (UGV) has launched a new well with a depth of 4202 m and a flow rate of 170 thousand cubic meters of gas per day, the press service of Naftogaz Group reports.

According to the press service, this is the 15th well at the field since the beginning of 2024. Another one is planned to be drilled by the end of the year.

“The new well was drilled in the central part of the field. We plan to drill another one by the end of the year and four more next year. Thanks to the professional and well-coordinated work of all UGV specialists, we have been able to increase production for the second year in a row,” said Naftogaz CEO Oleksiy Chernyshov, as quoted by the press service.

According to Serhiy Lagno, the head of Ukrgasvydobuvannya, this result was achieved due to the successful choice of the well site.

“This was preceded by earlier 3D seismic surveys and their qualitative analysis, preliminary identification of promising horizons, as well as clarification of their capacity,” he explained.

As reported, in January-October 2024, Ukrgasvydobuvannya increased commercial gas production by 6% compared to the same period in 2023 – up to 11.6 bcm. At the end of 2023, commercial gas production amounted to 13.224 bcm, which is 0.679 bcm more than in 2022.

NJSC Naftogaz of Ukraine owns 100% of Ukrgasvydobuvannya shares.

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Russian gas flow to EU via Ukraine stable, nominations to Austria up

Russian gas producer Gazprom (GAZP.MM), opens new tab said it would send 42.4 million cubic metres of gas to Europe via Ukraine on Tuesday, the same volume as on Monday, while nominations for gas flows to Austria from Slovakia edged up.

The European energy markets have been on edge over a contractual row between Gazprom and Austria’s OMV (OMVV.VI), opens new tab, which led to the Kremlin-controlled firm halting supply to the Vienna-based company on Saturday.

The flows to OMV were stopped after it threatened to impound some of Gazprom’s gas as compensation for an arbitration it had won over the contractual dispute.

Daily flows to Europe via Ukraine have remained around normal levels, however, and gas has continued to flow into Austria.

Nominations, or requests from customers, for flows to Austria from Slovakia were up 6% on Tuesday versus Monday but remained about 12% below levels seen before Gazprom halted supply to OMV.

It was not clear who was buying gas previously intended for OMV.

Nominations to the Czech Republic from Slovakia were roughly in line with levels seen in previous days this month.

Nominations for flows into Slovakia from Ukraine were also little changed while nominations for flows leaving Slovakia were mostly stable, data from transmission system operator Eustream showed.

Source: https://www.reuters.com/business/energy/russian-gas-flow-eu-via-ukraine-stable-nominations-austria-up-2024-11-19/

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