In this sense, the EU could import more LNG from the US, to reduce the trade deficit that worries Trump.
Thus, these additional gases that could reach the EU from the USA are the ones that can replace the gases that will no longer come from the Russian Federation, via Ukraine. Thus, Ukraine’s position to oppose the extension of the transit contract in Ukraine can be used by the EU to improve relations with the US. The possible slaughter of Ukraine by the EU comes down the aisle in which it is assumed that the USA will no longer support it anyway after Donald Trump reaches the White House, the cited analysis shows.
Until the victory of Donald Trump, the discussion on gas transit in Ukraine was a simple one, the current Russian gas transit agreement will not be extended, but Russian gas molecules will transit Ukraine, following a transport contract that will be signed with Azerbaijan and the Azerbaijani – Russian gas swap (a financial arrangement for gas exchange). Ukraine has not confirmed this deal, presumably to put pressure on the EU for military talks. The maintenance of this uncertainty was one of the causes that determined the increase in gas prices on the Dutch stock market by 21% in the last 3 months, according to an analysis carried out by the Smart Romania Association.
What is natural gas swapping?
Natural gas swapping can be defined as a commercial arrangement whereby a supplier that buys gas from a gas producer located in country A and has gas sales contracts in country B swaps gas with another supplier that buys gas from a gas producer located in country B and has gas sales contracts in country A. Thus, the gas of the first supplier no longer has to travel the distance from country A to country B and the gas of the second supplier no longer has to travel the distance from country B to country A. They are physically consumed locally, but billed by another supplier.
Risk of price increases
The stoppage of gas transit through Ukraine creates energy security risk and a possible price escalation looming over the EU, in the absence of obtaining other sources of gas. This situation will increase Europe’s dependence on the supply of gas from a single country, to a level that has never existed before in Europe, around 60%. Before the outbreak of the war in Ukraine in February 2022, Russia supplied about 40% of the natural gas that Europe needed, which was supplied through pipelines under the Baltic Sea (Nord Stream), Belarus and Poland, Ukraine and Turk Stream under the Sea Black, through Turkey, to Bulgaria.
What dependence on Russian gas looks like
Ukraine has announced that it will no longer extend the transit contract for Russian gas on its territory, the last pipeline through which Russian gas reached Europe (the only one that still works after years of conflict and the only one that is in the conflict zone!). This means that from January 1, the transit of Russian gas through Ukraine stops. But the gas transiting Ukraine is necessary for Europe’s energy security, and for this the solution was found: swapping between Russian gas and Azerbaijani gas. The current gas transit agreement between Gazprom and Naftogaz (the state-owned company for gas transportation on the territory of Ukraine) was signed on December 30, 2019, following negotiations involving Russia, Ukraine, Germany, France and the European Commission. According to the agreement, Gazprom committed to transit 65 billion cubic meters of gas through Ukraine in 2020 and 40 billion cubic meters per year in 2021-2024. Russian gas transit through Ukraine to Europe fell 28.5% to 14.65 billion cubic meters last year from 20.5 billion cubic meters in 2022, according to the Ukrainian gas pipeline operator, but remains essential in ensuring Europe’s energy security. The main recipients of gas passing through Ukraine were Austria, Slovakia, Italy, Hungary, Croatia and Slovenia. Imports of Russian gas for Croatia and Slovenia are currently at a minimum. Hungary relies on Russian gas, but currently from an alternative route: the Turk Stream pipeline, via Bulgaria and Romania. Italy managed to supplement its gas needs through alternative routes, increasing imports of Azeri gas and from Algeria.
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Since Saturday, Gazprom has cut gas to the Austrians
Austria was the main recipient of Russian gas in the EU, most of its gas coming from Ukraine. However, Russia stopped deliveries to this country on Saturday morning, November 16. Gazprom, the Russian energy giant, is unhappy that it was forced to pay fines of 230 million euros for non-compliance with contractual provisions. The announcement was made by the Austrian company OMV, which manages the gas transport network, but its representatives gave assurances that it has alternative import sources.
Romania has gas import contracts from Azerbaijan (signed by Romgaz) and from Turkey (OMV Petrom).
What does the Ukrainian route mean?
The Soviet-era Urengoy-Pomary-Uzhgorod pipeline brings gas from Siberia through the city of Sudzha, currently under the control of Ukrainian military forces, in Russia’s Kursk region. It then flows through Ukraine to Slovakia. In Slovakia, the pipeline splits into branches going to the Czech Republic and Austria. Austria received most of its gas through Ukraine, while Russia accounted for about two-thirds of Hungary’s gas imports. Slovakia receives about 3 billion cubic meters of gas per year from Gazprom, which is about two-thirds of its needs. The Czech Republic almost completely cut gas imports from the east last year, but will start taking gas from Russia in 2024. Most other Russian gas routes to Europe are closed, including Yamal-Europe via Belarus and Nord Stream under the Baltic Sea.
The context in which the EU would turn to American LNG
The LNG glut looming this winter shows that US LNG producers face significant financial risks, as they risk selling the product at prices too low to ensure an economic return on their investment.
Natural gas prices in the US market have fallen in recent days, marking the first time in history since the start of the heating season that gas prices have fallen in the US. In fact such low levels of the spot price on Henry Hub have not existed since 1993.
The increase in demand for liquefied natural gas (LNG) in the main importing regions of Asia and Europe was not enough to trigger an increase in spot prices, which continue to remain relatively flat. Thus, the spot LNG price for delivery to North Asia fell from USD 17/MMBTU to USD 16.5/MMBTU between November 3 – 15, 2024. It should be noted that the price has fallen for three consecutive weeks, but it is still higher than the recent low of $13.5/MMBTU on October 6, 2024.
However, prices have so far failed to reach the usual seasonal increase as demand remains relatively tight and supply is in excess, particularly from the United States. Japan, the world’s largest LNG importer, is expected to import the same amount of natural gas in November 2024 as in October 2024, down slightly from November last year.
India, Asia’s fourth-largest LNG buyer, is expected to import less LNG in November 2024 than in October 2024. India is a price-sensitive buyer, and the increase in the spot price from early October 2024 to a high of $17.9/MMBTU most likely dampened appetite for India’s spot commodities.
Slovakia and Austria set the tone
A colder-than-usual winter may deplete Europe’s stockpiles, but even in this scenario it is unlikely that Europe will need to demand additional LNG until February 2025. That is only if the EU’s gas supply via Ukraine is maintained.
In this context, the sacrifice of Ukraine, which unjustifiably prolonged the signing of the gas transit contract with Azerbaijan, probably to obtain military advantages from the EU, represents an important signal that can be given to the new American administration, to increase gas exports gas and even bailing out some US LNG producers, all to convince the incoming US president not to raise tariffs for Europe. The haste with which, in the last week, two of the 5 countries that imported gas from the Russian Federation via Ukraine, Slovakia and Austria, declared that they will no longer import gas via Ukraine, reinforces the hypothesis expressed above.
Gas imports from the US will come at higher prices than gas imported from the Russian Federation, but will likely save the collapse of some EU industries that would reduce their exports of products to the US if higher tariffs were imposed on products from the EU. The same imports have the possibility of diminishing the upward trends in gas market prices.
Source: jurnalul.ro
