Russia-Ukraine fallout won’t threaten security of EU gas supply

Even if Russia and Ukraine were to fail to reach an agreement on the natural gas transit through Ukraine onto Europe, the security of gas supply in the European Union (EU) will not be materially threatened.

The current ten-year gas transit agreement between Russia and Ukraine expires on December 31, 2019. The parties need to reach a new agreement by that date to set the terms of deliveries of Russian gas to Europe via Ukraine’s territory.

Russia has been building pipelines to Europe and Turkey that bypass Ukraine—TurkStream and Nord Stream 2. Ukraine, for its part, is a key transit country for Russian gas westwards to Europe and relies on the gas transit fees.

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The talks between Ukraine and Gazprom on the gas transit to Europe have been complicated by the tense relationship between Ukraine and Russia.  

Several rounds of trilateral talks on a new transit agreement between Russia, Ukraine, and the European Commission have been held since mid-2018, but “neither side is under much pressure to conclude a deal fast,” says a study by the Institute of Energy Economics (EWI) at the University of Cologne, published this week.

Even if talks fail to reach an agreement and gas supply via Ukraine is interrupted, as it was in 2009, the EU will not see its gas supply security threatened because of sufficient infrastructure, good market integration, storage inventories high enough to handle additional withdrawals, and liquefied natural gas (LNG) imports, according to the study. Gas storage in Europe is full, as low LNG spot prices amid abundant supply and weaker Asian spot demand have helped Europe to fill its storage tanks to more than average levels this summer.

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A possible interruption of supply via Ukraine “would not lead to gas shortfalls (unserved demand) in any of the EU’s member states. Hence, the EU gas market is well prepared for an interruption in terms of security of supply,” the authors of the EWI study said.

In the worst-case scenario with a cold snap and a three-month gas supply interruption, gas prices in EU members will rise, especially in Greece, Bulgaria, and Romania in southeast Europe.

“However, security of supply would not be threatened in any of the EU states, this applies to all scenarios considered,” EWI manager Dr. Simon Schulte said in a statement.

This article was originally published on Oilprice.com