European gas prices have jumped after Vladimir Putin abandoned a key pipeline transporting the fuel through Ukraine.
The benchmark gas price for the Continent rose by more than 2pc to around €47 (£39) per megawatt hour on Friday, the highest level seen for three weeks.
It followed remarks by Putin that there was no longer enough time to strike a new contract for moving gas through Ukraine before the year’s end, when a current agreement expires.
In a televised briefing on Thursday, the Russian president said: “They announced that they would not renew the contract. There is no contract and it is impossible to conclude it in three to four days.”
Despite the two countries being at war, Russia has continued to export supplies to various European countries via the Urengoy–Pomary-Uzhhorod pipeline – also known as the Brotherhood pipeline – under long-standing deals that predated the conflict.
The pipeline’s route crosses Ukraine’s northeastern border near Sudzha, before running south-west across the Dnipro River and then westward over the border near Uzhhorod.
From there, supplies head to countries including Slovakia, Hungary and Austria, which have retained closer ties with Moscow than many other European Union states.
Sales of gas via the Ukrainian pipeline have continued to generate billions of dollars of annual revenue for Moscow, as well as around $1bn (£800m) in transit fees for Ukraine.
Russia is likely to have earned about $5bn on sales via Ukraine in 2024, according to an analysis by Reuters based on an average price forecast by Moscow.
But Kyiv has repeatedly warned that it has no intention of renewing the five-year deal, leaving Russia’s remaining customers in Europe more dependent on alternative routes that are already constrained, such as a pipeline that passes through Turkey.
Volodymyr Zelenskyy, Ukraine’s president, has said his country would only consider a new transit deal if Russia is blocked from receiving any payments until after the war is over – a condition Moscow is unwilling to accept.
He has also criticised Slovakia for continuing to rely on Russian gas supplies, branding it a “big security issue”.
Slovakia relied on Russian gas via Ukraine for 60pc of its supplies in 2023 but has insisted the imminent collapse of the pipeline deal will not affect consumption.
Still, the country has been leading an effort backed by Hungarian, Austrian and Italian companies to extend the arrangement.
Likewise, Hungary depends on Russian oil, gas and coal for 80pc of its energy needs and Austria was getting more than 90pc of its gas from Russia before a contract dispute in November prompted Gazprom to cut off supplies.
By comparison, the rest of the European Union has dramatically reduced its dependence on Moscow.
Before the Ukraine war, almost half, or about 150bn cubic metres, of the Continent’s supplies came from Russia; in 2023 this had fallen to 15pc, or about 43bn cubic metres.
Previously much of the Russian gas came in via pipelines but other routes have since been closed off, such as the Yamal-Europe route via Belarus and the Nord Stream pipeline that runs under the Baltic.
The only other available route to Europe is via the Blue Stream and TurkStream pipelines to Turkey under the Black Sea. Turkey sends some Russian gas volumes onward to Europe, including to Hungary. However, increasing exports via these routes is difficult due to limited capacity.
Gazprom lost $7bn in 2023, its first annual loss since 1999, because of the collapse of its EU gas markets.
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Publish date : 2024-12-27 06:22:00
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