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May 11, 2022: Russian gas flows to Europe via Ukraine fell by a quarter on Wednesday after kyiv halted use of a major transit route blaming interference by Russian occupation forces, the first time that exports via Ukraine have been interrupted since the invasion.

Ukraine remained a major transit route for Russian gas to Europe even after Moscow launched what it calls a “special military operation” in the country on February 24.

The closed Ukraine transit point typically handles around 8% of Russian gas flows to Europe, although European states have said they are still receiving supplies. The Ukrainian corridor mainly sends gas to Austria, Italy, Slovakia and other Eastern European states.

Gazprom GAZP.MM, controlled by the Kremlin, which has a monopoly on Russian gas exports via pipeline, said it was still shipping gas to Europe via Ukraine, but volumes were estimated at 72 million cubic meters (mcm) on Wednesday, against 95.8 mcm. Tuesday.

GTSOU, which operates Ukraine’s gas system, said on Tuesday it would suspend flows through the Sokhranovka transit point, which it said carried almost a third of the fuel flowing from Russia to Europe via the Ukraine. Read the full story

GTSOU said it declares “force majeure”, invoked when a company is affected by something beyond its control, and offered to divert deliveries for Europe to the Sudzha entry point, the larger of Ukraine’s two crossing points.

The head of Ukraine’s gas transit system said that Russia had closed two gas network valves in occupied Ukrainian territory and the value of lost gas could amount to around $1 billion per month. Read the full story

The gas pipeline via the Sokhranovka point crosses the Ukrainian region of Lugansk, part of which is under the control of pro-Russian separatists. Sudzha lies further to the northwest.

Kremlin spokesman Dmitry Peskov said Russia remained committed to gas supply deals, when asked to comment on the dispute with Ukraine over the transit route. Read the full story

Russia’s Gazprom said the security of gas supplies had been compromised by Ukraine’s closure of an entry point for transiting Russian gas to Europe.

Last month, Bulgaria and Poland refused to pay for Russian gas through a new payment mechanism and saw their supply cut off. With the Sokhranovka point now closed, up to a third of Europe’s gas supply could be disrupted, analysts say.

REPLACE RUSSIAN STREAMS

Wednesday’s disruption pushed Europe’s benchmark third-quarter gas price TRNLLTTFQc1 as high as 100 euros per megawatt-hour at market open before falling back. The price is more than 250% higher than its level a year ago.

The Ukrainian gas transit operator said it offered Gazprom to shift transit volumes to Sudzha at no additional cost, but Gazprom says it is technically not possible to shift all volumes to the road.

Daily gas flows through Sokhranovka have averaged 23 million cubic meters so far this month, 20% less than the previous month, according to consultancy Rystad Energy. Last year, the EU imported about 155 billion cubic meters (bcm) of gas from Russia in total.

Daily flows through Sudzha have averaged around 70 million m3 this month, close to its capacity of 77 million m3/day. While another 6 million m3/day could potentially be added to this, 10 million m3/day of gas flow would need to be redirected via other routes, where capacity appears to be full, Rystad Energy said.

Ukraine’s gas transit operator, however, said Sudzha’s daily capacity could reach up to 244 million cubic meters (mcm).

Most European countries have reduced their dependence on Russian gas in recent years, but it remains the EU’s main supplier. Some countries have alternative sources of supply, although replacing all Russian flows presents a challenge given that the global gas market was already tight before the war in Ukraine.

Slovakian Economy Minister Richard Sulik said gas flow to Slovakia from Ukraine was stable and there were no signs of a supply problem, while the Austrian energy group OMV OMVV.VI said its gas deliveries were working as requested.

Europe also receives Russian gas via Poland via the Yamal-Europe gas pipeline and via the Nord Stream 1 gas pipeline under the Baltic Sea to Germany.

German Economy Minister Robert Habeck said gas supplies to Germany were stable, seeing no reason to move to the next phase of a contingency plan after the first phase was triggered in March.

In Italy – which last year consumed 76 billion cubic meters (bcm) of gas, around 40% of which was imported from Russia via Ukraine – Energy Transition Minister Roberto Cingolani said measures to finding alternative supplies would end the country’s dependence on Moscow by the second half of 2024.

But the measures needed to be phased in and he warned that a halt in Russian flows this month would create a serious problem of filling storage sites before winter.

Europe is rushing to build a buffer of stored gas to help deal with possible supply disruptions and reduce Russia’s influence.

EU gas stocks are about 37% full, according to data from Gas Infrastructure Europe, an improvement from a few months ago but still below normal for the time of year.

“The knock-on effect of removing another gas pipeline from Europe’s gas network…will make it harder for countries to meet their storage targets and accelerate Europe’s plans to move away from imports of Russian gas,” said Zongqiang Luo, analyst at Rystad Energy.

“As the European gas network is well integrated, no country is likely to suffer an immediate impact, but it will put additional pressure on the system and put a floor on the downward price movement,” he said. added.

Reuters


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