Ukraine Slashes Gas Flows to Europe From Russia

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Pipeline operator halts gas through border point that accounts for a third of Russian exports to Europe via Ukraine

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Natural-gas prices in Europe jumped before falling back. An increase in flows of Russian gas through a separate section of pipeline in Ukraine-controlled territory near the city of Sumy partially offset the stoppage, limiting the rise in prices.

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Europe has been shoring up its energy supplies ahead of a planned European Union-wide embargo on Russian oil, being hashed out this week. Some member states, especially Germany, have also scrambled to find alternative supplies of gas amid the threat of a potential severing of exports by Moscow. Despite these moves, Europe is still heavily reliant on Russian gas, a slug of which flows through Ukraine. That gas had kept moving since the Feb. 24 invasion despite the ragging conflict.

Ukrainian energy officials say Russia appears to have avoided deliberate strikes on pipelines that bring revenue into Russia’s bruised economy, though extensive damage to Ukraine’s domestic gas network left millions of residents without fuel. Ukraine, for its part, earns transit fees from Moscow for shuttling Russian gas to customers in Europe.

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Wednesday’s cutoff at the Sokhranivka entry point on the border between the Luhansk region of Donbas and Russia marked the biggest interruption to date. It came as Russia continued to pursue its campaign to seize the Donbas area of ​​eastern Ukraine, which includes Luhansk.

For now, sufficient gas is flowing through Ukraine for companies in Europe to import the fuel they are on contract to buy from Russian state giant Gazprom PJSC, analysts said. “To get a big market reaction you’re going to need to see a contract holder confirming that deliveries aren’t being made,” said James Huckstepp, head of EMEA gas analysis at S&P Global Commodity Insights.

If the Ukraine route were cut off entirely, it would pose a huge challenge to a European economy that has grown accustomed to running on cheap Russian energy.

Moscow has sought over the past two decades to bypass Ukraine, building, with the help of Berlin, the Nord Stream pipeline under the Baltic Sea to Germany. That subsea pipe is now the main route for Russian gas into the EU. Another option is Yamal, a pipeline that threads through Belarus and Poland. Nevertheless, almost a third of Russian gas-pipeline exports to the EU still ran through Ukraine in the final quarter of 2021. The EU buys about 40% of the gas it burns to heat homes, fire factories and generate electricity from Russia.

The stoppage in Luhansk adds to nervousness among energy traders who were rattled in late April when Moscow halted gas exports to Poland and Bulgaria. Gazprom said it hadn’t received payment in rubles from the two countries as required by a decree by President Vladimir Putin.

Ukraine’s pipeline operator said Tuesday it was stopping the flow of gas through Sokhranivka because it had lost control of Novopskov, a gas-compressor station close to the Russian border. Russian forces had interfered in the pipeline network, including by siphoning off gas, in a way that endangered the stability of the broader system, the TSO said.

A spokeswoman for Gazprom didn’t respond to a request for comment. In a statement Tuesday, a said to Ukrainian gas specialists had continued work at Sokhranivka and Novopskov. He said it was impossible for the gas to travel through the Sudzha entry point near Sumy instead, as proposed by Ukraine.

Ukraine’s gas-pipeline operator said such a transfer had taken place in the fall of 2020 when repairs were being carried out, illustrating the feasibility of its proposal.

Gas flows appeared to switch around Wednesday, analysts and traders said. The fuel moved in greater quantities through the Sudzha part of the network, though not enough to make up for lost flows through Luhansk.

The EU is in the process of banning Russian coal and is working on a deal that would also phase out imports of oil. Natural gas, however, hasn’t been targeted as it is the hardest fuel for Europe to source from elsewhere.

The EU and the US have pledged to expand liquefied-natural-gas exports to Europe through 2030. But the US is already sending all it can to Europe, and industry officials say expanding volumes will require new, multibillion-dollar export terminals. In Europe itself, LNG import capacity that was unused last year could replace just under 29% of Russian pipeline gas supply, according to Natasha Fielding, an analyst at Argus Media.

Write to Joe Wallace at [email protected]

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Credit: www.Businesshala.com /

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