Energy

Gas, if Ukraine bars the way to Gazprom the only alternative is LNG

At midnight on 31 December, the transit contract expires and from one day to the next Europe risks losing 15 billion cubic metres of supplies that there is no way to replace except at higher cost, by importing (primarily from the US) more liquefied gas

31 December 2024

3' min read

Trump after all does not need to threaten duties to push Europe to buy more gas from the US. If Russian supplies via Ukraine really stop, the Old Continent will lose up to 15 billion cubic metres per year of cheap fuel that will be impossible to replace except with more imports of liquefied natural gas (LNG). And these will largely come - as is already the case - from overseas.

The first LNG ship sailed to Germany from the new Plaquemines Lng terminal, the eighth in the US, recently opened by Venture Global. And this week Kiev also bought a cargo of LNG from the US for the first time.

Analysts - while excluding the risk of fuel shortages, particularly for Italy, which has a high degree of diversification of supply routes - see no alternative to greater recourse to liquefied gas. And this will inevitably lead to an increase in costs, which could be very accentuated for countries far from the sea and therefore without regasifiers.

As the Oxford Institute for Energy Studies (Oies) explains, 'with domestic production in decline and no significant increase expected in non-Russian pipeline supplies, the two parameters by which to measure the economic impact of the cessation of transit (of Russian gas to Ukraine, ed.) will be the availability of LNG and the cost to transport it to the affected countries'.

Transport rates increased by 40 per cent in three years

Acer, which brings together Europe's energy market regulators, in October reported that in three years, tariffs for cross-border gas transport in the EU have risen by around 40 per cent and there is a risk that they will rise further as declining demand reduces the use of pipelines.

The possible stop of Russian gas via Ukraine and the higher cost of alternatives are issues the market has been grappling with for months. And it is in view of these scenarios that the price of fuel is set to close 2024 with an increase of around 45%, close to this year's highs and to the psychological threshold of 50 euros per Megawatt-hour: values far removed from the records reached at the height of the energy crisis (in the summer of 2022 they went over 340 euros), but more than double what was the norm last decade.

The session of Monday 30, characterised by strong fluctuations, closed with a modest rise, considering that Gazprom's contract for transit in Ukraine will expire at midnight on 31 December: +0.5% to €47.95/MWh at Ttf. On the other hand, European CO2 permits hit a four-month high (with a peak on the day of 71.82 €/MWh): tensions also partly related to uncertainties over the coming days.

Weather forecasts indicate colder-than-average temperatures in many parts of Europe, which will increase the need for gas, which does not help as Gazprom's supplies could almost halve overnight. It is possible that there will be further heavy withdrawals from stocks (which are already falling much faster than last year). And it is not excluded that more coal will have to be burned.

No alternative for Gazprom

Gazprom itself has no possibility of diverting the gas it currently exports via Ukraine to other routes: the TurkStream does not have sufficient capacity and it is unrealistic to imagine the even partial reactivation of the Nord Stream to Germany or of the Yamal-Europe pipeline through Poland, even though Putin also relaunched this provocation, noting on 26 December how time had now run out for new agreements with Kiev.

Barring a breakthrough in extremis, the market will have to find a new equilibrium quickly. And while Moscow is no longer the dominant supplier in Europe, its contribution is still not entirely insignificant. Moreover, it has regained weight since last year.

Gazprom sent some 32 billion cubic metres of gas to the EU in 2024, Reuters estimates, 13% more than in 2023 (although about one-sixth of the record levels of 2018-19). And then there is LNG: Russian exports increased by 3% this year and half of them - around 16 million tonnes - reached the EU.

Sissi Bellomocaposervizio
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Luogo: Milano
Lingue parlate: italiano, inglese, francese, spagnolo
Argomenti: commodities, oil, gas, energia, agribusiness, mercati, Opec
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