Ukraine, arguably one of the pivotal agents in European energy markets due to its pipelines which transport natural gas from Russia into the EU, may soon lose its comparative advantage should the conflict with Russia drag on.
It is likely that Moscow and Kiev will not be renewing its agreement to move Russian gas to Europe once it is terminated in December. That said, a profound impact on the European market can be observed through the hindered energy consumption.
The transit of natural gas has been a tumultuous issue since the collapse of the Soviet Union. Gas flows have been the indispensable prospect connecting Russia and Ukraine to the rest of Europe – the pipelines account for less than 5% of the current energy supplies, yet suffice to adversely affect European energy security.
Even as Russia loses one of its pipelines to Europe, Ukraine would have lost its strategic advantage including funding for its energy infrastructure as Ukraine can no longer provide its western allies with affordable energy. Should the agreement discontinue, Ukraine would be under the risk of losing over $800 million, suggested Mykhailo Svyshcho, an ExPro analyst.
On the contrary, Ukraine President Volodymyr Zelensky vowed to abolish Russia from the Ukrainian network and procure different supplies to help with its leverages – namely, Azerbaijan. However, Azerbaijan’s production still could not match that of Russia and any deal with the Azerbaijani would probably have to embrace diverted Russian gas, as indicated by Anne-Sophie Corbeau of Columbia University.
Other players have found several substitutes. Germany, for instance, increased the distribution from Norway, as well facilitated more imports of liquified gas from other countries, notwithstanding the manufacturing sector which is still being pressured by business leaders calling for cheaper Russian gas through Ukraine since the destruction of the Nord Stream. Be that as it may, the Kremlin mentioned that Russia is ready to resume its gas transit through Ukraine.
As the energy supply and demand remain tightened and the inevitable loss of Ukrainian route, European markets are at risk of volatility. Any disruption in the Norwegian route could skyrocket the gas prices during the cold snap.
