The EU May Receive Less Russian Gas After Ukraine Signals Its Intention Not to Extend the Natural Gas Supply Agreement Beyond Its Expiry on December 31, 2024

In 2019, Russia and Ukraine signed a five-year agreement to supply natural gas to European Union (EU) countries through a pipeline system.

Both countries have continued to honor this agreement despite two years of conflict in Ukraine.

However, now the EU may receive less Russian gas after Ukraine signaled its intention not to extend the agreement when it expires on December 31, 2024.

Nevertheless, EU Energy Commissioner Kadri Simson pointed out that the bloc is also not "interested" in pushing to extend this agreement.

The EU is warning member states to prepare for the worst-case scenario. Ukraine's gas accounts for 5% of the EU's total gas imports.

Aura Sabadus, a senior analyst at market intelligence firm ICIS, told Politico that Austria, Hungary, and Slovakia could be the hardest hit by the import cuts.

Such a scenario could trigger another gas price spike, following record highs immediately after Russia launched its special military operation in Ukraine.

The situation is further exacerbated by Germany's recent decision to unilaterally tax gas exports, making it more difficult for these countries to replace Russian imports with supplies through Germany, Italy, or Turkey.

Brussels has called on EU countries to phase out Russian fossil fuels by 2027. So far, the bloc has managed to eliminate about 70% of Russian gas imports and increase imports from the US and Norway.

The European Commission said the loss of Russian supplies via Ukraine could lead to higher transportation costs, while storage fees imposed between bloc countries could "make this diversification more difficult and costly."

Fortunately, Europe currently has gas reserves at historical highs. Commodity analysts at Standard Chartered predict that EU gas reserves will be at record highs, setting the stage for a low-priced summer.

EU gas demand in the first 16 days of February 2024 was 12.4% lower than the same period last year and 18.4% lower than in February 2022. However, StanChart has warned that some demand will not return regardless of how low prices fall.

Meanwhile, weakening demand continues to pressure the US gas market, with gas prices at the Henry Hub distribution center down nearly 30% year-to-date.

However, the market started the week on a positive note when natural gas giant EQT Corp. announced it would cut production to cope with low prices.

On March 4, EQT announced it would reduce natural gas production by about 1 billion cubic feet per day through the end of March 2024, after which they will reassess market conditions to determine the next steps.

Source: Vietstock