The outlook for the Russian gas deal remains bleak.

Historic agreement

At the end of 2019, when commenting on the signing of the Russian gas transit contract, representatives from Russia and Ukraine could not hide their satisfaction. The head of Gazprom, Alexey Miller, said that "the big deal has restored the balance of interests of the parties."

While President Zelensky stated that the country's gas pipeline system is now certain to be fully loaded, this will increase energy security and the well-being of Ukrainians.

Agreeing on the terms of the deal was very difficult, and ultimately, an agreement was only reached on the night of December 31st, just one day before the previous contract expired.

Ukraine signed an agreement in 2019 for the transit of Russian gas through its territory to Europe, which is set to expire at the end of this year. Photo: AP

At that time, Gazprom was not forced to negotiate with Ukraine, thanks to operating “pipelines”—alternative routes to the European market as quickly as possible. The first was Nord Stream 2, running from Russia to Germany along the Baltic Sea seabed. The second was the Turkish Stream, running along the Black Sea seabed to the European part of Turkey and further along the Balkan Stream through Bulgaria and Serbia to Hungary, with the prospect of extending to Austria.

With Gazprom betting on "pipelines," there are no binding requirements under the agreements with Kyiv. In this situation, the Ukrainian route will serve as a backup option in case of urgent need.

Furthermore, a plan aligned with Gazprom formed the basis for the third energy package adopted by the European Union in 2009. That reform implied that there should be no long-term contracts; instead, the gas system operator should provide people with transparent pricing for requesting fuel pumps on a daily, weekly, monthly, quarterly, or annual basis. Ukraine eventually brought its gas transport system into compliance with these rules, but this only happened in 2020.

Will Ukraine finalize the fate of the gas deal?

In Europe, the trend toward gradually abandoning Russian fuels is becoming increasingly clear. In the summer of 2021, Brussels announced the “Fit for 55” program, aiming to reduce greenhouse gas emissions in EU countries by 55% by 2030, primarily through reduced fuel consumption. The program also includes the need to diversify gas supply sources.

This means that demand for Russian gas in Europe will decrease significantly, and consequently, the demand for Gazprom's transit capacity will also decline. Clearly, in the long term, Gazprom's value in the European market will decrease.

Subsequently, during the 2021-2022 period, Gazprom experimented with a new market strategy. Previously, it was crucial for the company to maintain its market share in Europe, so it sought to sell the maximum volume of gas there, outpacing its competitors – liquefied natural gas (LNG) suppliers. But in 2021, Gazprom began to carefully fulfill its obligations under long-term contracts and nothing more: it did not supply any gas in excess of the contracted volume on the spot market.

There are several explanations for Gazprom's non-market behavior:

Firstly, demand for gas has increased in Russia, and due to legislation requiring the pumping of additional fuel into Russian underground storage facilities, Moscow no longer has surplus quantities to supply Europe.

Secondly, Gazprom realized that they had nothing to lose: the limitations on supply volume were more than offset by higher prices.

Third, this could be a “warning measure” for European buyers, encouraging support for long-term contracts at predictable formula prices. Additionally, we could be talking about preparations for a potential conflict in which gas is expected to play a dividing role between European countries and Ukraine.

The EU may receive less Russian gas after Ukraine signaled it has no intention of renewing the agreement when it expires on December 31, 2024. (Photo: Gazprom)

The gas war did not begin immediately after Russia's special military operation in Ukraine broke out in February 2022. Gas supplies from Russia to Europe had already been gradually decreasing (this occurred between May and September 2022).

First, supplies via Belarus and Poland stopped. Then, some consumers abandoned their orders due to Gazprom's requirement (by decree of the Russian President) to pay in rubles. Subsequently, real or imagined problems began to occur with the Nord Stream 1 pipeline, whose supply had been halted even before the sabotage in September 2022.

However, the hypothesis that in the event of a major conflict, Russia would completely halt supplies through Ukraine while maintaining supplies via the Nord Stream pipeline has not materialized.

From a pragmatic standpoint, extending the contract for another five years could benefit both Russia and Ukraine. However, it is now clear in Moscow, Kyiv, and Brussels that continuing the transit of Russian gas to Europe is highly unlikely. But there is still time to extend the contract.

Recently, Ukraine announced it has no plans to renew its five-year agreement with Russia's Gazprom for the transit of Russian gas to Europe or sign another agreement. The agreement expires at the end of December 2024.

Ukrainian Energy Minister German Galushchenko stated: “ I can confirm that we have no plans to sign any additional agreements or extend this current agreement .”

Galushchenko stated that last year's inspection of Ukraine's gas transmission system and underground gas storage facilities proved that the country's gas system "can operate without transport."

" Having sufficient pressurized gas in the pipeline is a prerequisite for ensuring gas supply, and the inspection aims to ensure that Ukrainian consumers will still receive fuel if there is no longer any gas flow from Russia to Europe ," Galushchenko said.

Meanwhile, Russia has stated that it will use alternative routes and seaborne LNG transport if Ukraine does not renew the gas pipeline agreement.

Source: https://congthuong.vn/trien-vong-mo-mit-cua-thoa-thuan-khi-dot-nga-ukraine-322289.html