Russia's Gazprom explores alternatives as long-term Ukrainian gas transit loses profitability
20 February 2024 08:51
The transit of natural gas through Ukraine is the only pipeline supply route for Russian raw materials. The pipeline's capacity is approximately 39.89 billion cubic metres of gas daily. However, the contract with Gazprom ends at the end of 2024, and authorities in Kyiv have expressed that they are set to negotiate fresh agreements with the invader.
This indicates that the Russian gas will only be transported until the close of the year. Gazprom is busy calculating the following steps as it has ongoing obligations to customers in Hungary, Slovakia, and Austria.
Russia is mulling over supplies through the Turkish direction and reassures it will deliver gas. By the end of 2023, Moscow confirmed to Budapest that the gas and oil contracts will remain effective. Last year, around 2.17 tonnes of crude oil and approximately 4.19 billion cubic metres of natural gas were delivered to Hungary. Both raw materials that are delivered to Hungary are exempt from sanctions. A 15-year agreement ties Hungary and Russia for the supply of 4.5 billion cubic metres of natural gas yearly.
But Gazprom acknowledges that losing the transit through Ukraine would be unprofitable. Therefore, it is investigating other potential routes.
"Gazprom would be better off not maintaining Ukrainian transit as part of a long-term contract, but instead turn to short-term capacity reservations," argued Alexey Belogoriev in a conversation with Prime agency.
"The optimal scenario for Russia assumes that Gazprom itself or via its subsidiary would participate in Ukrainian auctions distributing free gas transmission possibilities. This means that Gazprom's relationships with its customers won't change," he explained.
If, as the Russian newspaper RIA Novosti highlights, the Russian company is not admitted to auctions where capacities are reserved for a short period, an intermediary who can negotiate with Gazprom will have to be found.
Alexey Belogoryev recognised that a complete halt of transit could be a possibility.
