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3 days ago
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Europe will receive the last Russian gas sent via Ukraine’s pipelines in the early hours of the new year as the continent braces for a plunge in temperatures that could hasten the drain on gas reserves.
The Russian state energy company, Gazprom, is expected to cut off its exports to Europe through Ukraine’s pipelines on New Year’s Day after a gas transit deal struck between the countries five years ago comes to an end overnight.
In the absence of an 11th-hour deal, the halt will mark a historic shift after the Kremlin’s full-scale invasion of its neighbour in early 2022. Russia was once the continent’s biggest supplier of gas but it has lost almost all of its EU customers since the war began, as buyers across central Europe have turned to the US, Norway and Qatar for their supplies.
“This is a moment of geopolitical significance,” said Tom Marzec-Manser, an independent gas market analyst. “The end of the transit deal closes a major gas artery connecting Russia’s gas reserves to Europe and could mean that eastern European countries will import more gas from north-western European markets.”
The severing of pipeline flows between Russia and Ukraine comes as Kyiv faces increasing pressure to negotiate an end to hostilities amid military setbacks on the eastern front, where soldiers are fighting in freezing conditions, and growing fears that Donald Trump will withdraw US support once he is inaugurated as president on 20 January.
Ukraine may be able to meet its own gas demand after the cutoff under normal weather conditions by relying on homegrown fossil fuel production and storage, but the International Energy Agency has said a colder-than-average winter could increase the amount of gas Ukraine needs to import from the EU.
The cold snap later this week is already shaping up to be one of the toughest tests for Europe’s gas markets in recent years, coming after a period in which reserves have been burned up at the fastest rate since the energy crisis began.
European cities including London, Paris and Berlin can expect temperatures to plunge below zero by the end of the week, well below the norm for this time of year. The spell of freezing weather is expected to drive up demand for gas for heating and hasten withdrawals from Europe’s backup supplies.
The EU’s gas reserves have fallen by almost 20% since September, according to official data from Gas Infrastructure Europe. That is considerably more than in the last two winters, when the industry group reported single-digit drops over the same period, in part due to milder weather and weaker demand from heavy industry.
The looming cold snap has caused Europe’s benchmark gas price to climb by almost 5% since the start of the week to nearly €49 (£41) a megawatt hour, close to the annual high set in early December.
The market is expected to remain under pressure, with forecasts for a colder than usual January and lower levels of wind to generate electricity, which could drive up gas use for home heating and power plants.
“The last two winters have been very mild,” Marzec-Manser said. “So this is the first time since the recent weaponisation of gas in Europe that we’re facing the kind of conditions which could stress-test the gas market.”
A combination of cold weather, short daylight hours and weak wind speeds in November – known in German as dunkelflaute – has already pushed Europe to use up more of its winter gas supplies than normal for this time of year as homes fire up their heating and power grids seek to replace wind power with electricity from gas generators.
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Russia will continue to supply countries including Hungary and Serbia with gas via the TurkStream pipeline, which runs under the Black Sea. It will also export more gas via liquefied natural gas (LNG) tankers.
Kyiv has come under pressure from countries including Slovakia, which continues to buy Russian gas, to reopen talks for a new gas flow agreement with the Kremlin. But the Ukrainian president, Volodymyr Zelenskyy, has insisted it will not agree to a deal that financially benefits Russia.
By ending the agreement, Ukraine is expected to lose about $800m (£640m) a year in transit fees from Russia, but Gazprom will lose close to $5bn in gas sales to Europe. The collapse in Russia’s gas sales led Gazprom to an annual loss of $7bn in 2023, its first in more than 20 years.
Slovakia’s prime minister, Robert Fico, has said it may cut its backup electricity supplies to Ukraine if Kyiv allows the agreement to expire. In response, Zelenskyy accused Fico of acting on behalf of the Kremlin by opening a “second energy front” with Ukraine.
