Exports of Russian gas through pipelines running across Ukraine came to a halt on New Year’s Day, marking the end of Russia’s long-standing dominance over Europe’s energy markets. Russia’s state-owned gas company, Gazprom, confirmed that it stopped supplying gas at 05:00 GMT on Wednesday after Ukraine declined to renew a transit agreement. Ukraine stands to lose up to $1 billion annually in transit fees, which it aims to offset by raising domestic gas transmission tariffs for consumers. Meanwhile, Gazprom is expected to lose nearly $5 billion in gas sales. Ukrainian gas supplies accounted for about 5% of the European Union’s total gas imports.
Despite the disruption, natural gas prices have not seen significant changes compared to the previous year. This is largely due to Europe’s success in securing alternative gas supplies. Energy experts had predicted that Austria, Hungary, and Slovakia would be most affected by the loss of Russian gas. However, Slovakia has already found new sources of gas. Azerbaijan’s state oil company, SOCAR, has started supplying natural gas to Slovenský plynárenský priemysel (SPP), Slovakia’s largest state-owned energy operator. This supply agreement follows a short-term contract SPP signed with Azerbaijan just a month earlier in preparation for potential supply disruptions. Slovakia plans to meet its energy needs through pipelines from Germany and Hungary, although these routes will come with additional transit costs.
In response to the gas cut-off, European natural gas futures briefly surged to €51 per megawatt-hour, the highest since October 2023, before easing to €50. However, the rally could continue as inventories are being depleted at the fastest rate since 2021. With parts of Europe experiencing sub-zero temperatures, heating demand could further drive up prices in the coming weeks.
Meanwhile, U.S. natural gas futures dropped 5.7% to $3.71 per MMBtu after a surge to a two-year high, as traders took profits. Still, U.S. gas prices saw their largest annual gain since 2016, fueled by rising exports to meet growing overseas LNG demand and expectations of higher domestic consumption this winter.
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