WRAPUP 2-Russian gas flows to Europe via Ukraine fall after Kyiv shuts one route

The Ukraine corridor mostly sends gas to Austria, Italy, Slovakia and other east European states. Kremlin-controlled Gazprom, which has a monopoly on Russian gas exports by pipeline, said it was still shipping gas to Europe via Ukraine, but volumes were seen at 72 million cubic metres (mcm) on Wednesday, down from 95.8 mcm on Tuesday.

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 occupying Russian forces, the first time exports via Ukraine have been disrupted since the invasion.

Ukraine has remained a major transit route for Russian gas to Europe even after Moscow launched what it calls a "special military operation" on Feb. 24. The transit point Ukraine shut usually handles about 8% of Russian gas flows to Europe, although European states said they were still receiving supplies. The Ukraine corridor mostly sends gas to Austria, Italy, Slovakia and other east European states.

Kremlin-controlled Gazprom, which has a monopoly on Russian gas exports by pipeline, said it was still shipping gas to Europe via Ukraine, but volumes were seen at 72 million cubic metres (mcm) on Wednesday, down from 95.8 mcm on Tuesday. GTSOU, which operates Ukraine's gas system, said on Tuesday it would suspend flows through the Sokhranovka transit point, which it said delivered almost a third of fuel piped from Russia to Europe via Ukraine.

GTSOU said it was declaring "force majeure", invoked when a business is hit by something beyond its control, and proposed diverting deliveries for Europe to another route, the Sudzha entry point, the biggest of Ukraine's two crossing points. GTSOU Chief Executive Sergiy Makogon said Russian occupying forces had started taking gas and sending it to Russia-backed separatist regions in east Ukraine. He did not cite evidence.

The gas pipeline via the Sokhranovka point runs through Ukraine's Luhansk region, part of which has been under control of pro-Russian separatists. Sudzha lies further north-west. Kremlin spokesman Dmitry Peskov said Russia remained committed to deals to supply gas, when asked to comment on the row with Ukraine over the transit route. He said gas supplier Gazprom had not received advance notice of Ukraine's move.

Russia's Gazprom said the security of gas supplies has been undermined by Ukraine shutting one entry point for Russian gas transit to Europe. Last month, Bulgaria and Poland refused to pay for Russian gas via a new payment mechanism and had their supplies stopped. With the Sokhranovka point now closed, up to a third of Europe's gas supplies could be disrupted, analysts said.

REPLACING RUSSIAN FLOWS Wednesday's disruption drove Europe's benchmark gas price for the third quarter up to 100 euros per megawatt hour at the market open before slipping back. The price is more than 250% above its level a year ago.

Gazprom said on Tuesday it was not technically possible to shift all volumes to the Sudzha route, as GTSOU proposed. GTSOU said volumes had been diverted to Sudzha in October 2020 when repairs were carried out on the Sokhranovka route. At that time, it said Sudzha handled 165.1 mcm a day - much more than Tuesday's total flows through Ukraine of 95.8 mcm.

"Consequently, claims that it is impossible to carry out the transfer of flows from Sokhranovka to Sudzha point are untrue," GTSOU said in a statement on Facebook. Daily gas flows via Sokhranovka have averaged 23 mcm so far this month, 20% lower than the previous month, according to consultancy Rystad Energy, while daily flows via Sudzha have averaged around 70 mcm this month, near its transit capacity of 77 mcm/day.

Another 6 mcm/day on top of that could potentially be added but that leaves 10 mcm/day of gas flow which needs to be re-directed via other routes, where capacity seems to be full. Most European countries have cut reliance on Russian gas in recent years but it remains the EU's top supplier. Some countries have alternative sources of supply, although replacing all Russian flows presents a challenge given the global gas market was tight even before the Ukraine war.

Italy, which last year consumed 76 billion cubic metres (bcm) of gas, imported about 40% from Russia via Ukraine. Besides Russian flows, Italy also has pipeline connections for gas from Algeria, Libya, Azerbaijan and the North Sea. Slovak Economy Minister Richard Sulik said the flow of gas to Slovakia from Ukraine was stable and there were no signs of a supply problem.

Austrian energy group OMV said its gas deliveries were running according to requests. Alongside the Ukraine transit corridor, Europe also receives gas via Poland through the Yamal-Europe pipeline and via the Nord Stream 1 pipeline under the Baltic Sea to Germany.

Germany's energy regulator said gas imports overall were stable despite a 25% drop on the German-Czech border in Waidhaus, compensated by higher volumes from Norway and the Netherlands. Europe is racing to build a buffer of stored gas ahead of winter to help cope with potential supply disruptions and reduce Russia's leverage.

EU gas stocks are about 37% full, according to Gas Infrastructure Europe data, an improvement on a couple of months ago but still below normal for the time of year. "The knock-on effect of removing a further pipeline from Europe's gas grid...will make it harder for countries to meet their storage targets and hasten Europe's plans to move away from imports of Russian gas," said Rystad Energy analyst Zongqiang Luo.

"As the European gas grid is well integrated, no one country is likely to suffer any immediate impact, but this will put further strain on the system and place a floor on downside price movement," he added.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)