By Asif Aydinli
For the first time since the beginning of the crisis around the Sudzha gas metering station (GMS) on the border between Russia and Ukraine, Gazprom’s official representative Sergey Kupriyanov made a comment published on the company’s Telegram channel on August 9, 2024. This situation has sparked widespread discussion among analysts and market participants, as it has a significant impact on gas prices on the European market.
The events surrounding Sudzha have led to a sharp rise in prices for natural gas and liquefied natural gas (LNG). According to Sergey Kupriyanov, gas prices were at their highest for the year on August 9, although it was still summer. The question naturally arises: who benefits from this? Analysts suggest that the situation may be caused not only by the actions of the Ukrainian side, but also by planned maintenance work at Norwegian gas facilities. Last year, similar work led to delays, which triggered another rise in prices.
The Sudzha gas transit network is an extremely important facility for the transit of Russian gas to Europe via Ukraine. It is currently the only remaining route through which Russian gas is delivered to Slovakia, Austria, Italy and Transnistria. The alternative route through the Sokhranovka gas transit network was blocked by the Ukrainian side on May 11, 2022. Gazprom called this decision unjustified, but refused to transfer transit to Sudzha due to technological limitations.
The situation is further complicated by the fact that the transit contract between Russia and Ukraine expires at the end of 2024. Ukraine has already stated that it does not plan to extend it, but is interested in maintaining transit to protect the interests of its European partners. At the same time, Ukraine wants to switch to an auction-based system for booking capacity in its Gas Transportation System (GTS), which would allow it to significantly increase the transit fees paid by European buyers.
After the invasion of Ukrainian forces into the Kursk region on August 6, 2024, the transit of Russian gas through the Sudzha gas transportation system began to decline significantly. On August 7, transit volumes fell by 7.08 percent, and on August 8 – by another 5.33 percent. On August 9, there was a slight recovery in transit, but it did not reach the previous level.
Gazprom made its first official statement on the situation and indirectly confirmed that there were problems at the plant. However, the increase in transit on August 9 is unlikely to be seen as a sign of normalization.
As the situation around Sudzha and the possible capture of the plant by Ukrainian forces escalates, gas prices in Europe rose to over $460 per 1,000 cubic meters. At the TTF hub in the Netherlands, gas futures for September reached 40.36 euros per megawatt hour, equivalent to $462.8 per 1,000 cubic meters, an increase of 0.66 percent compared to the previous day’s settlement price.
The developments around Sudzha could have long-term implications for gas supplies to Europe. As the only remaining route for the transit of Russian gas through Ukraine, Sudzha plays a key role in the energy security of several European countries, including Slovakia, Austria and Italy. If transit via this route were to be further restricted or stopped altogether, this would lead to a significant reduction in gas supplies to these countries.
Of particular concern is the potential prolongation of the crisis, especially given the planned maintenance work at Norwegian facilities. If Norwegian supplies are also curtailed, Europe could face a gas shortage, especially in the run-up to winter when energy demand traditionally increases. This could lead to further increases in gas and LNG prices and have a negative impact on the economies of countries dependent on energy imports.
In addition, current events may encourage Europe to accelerate the diversification of its gas supply sources. Given the uncertainty surrounding Russian transit, EU countries may intensify their efforts to sign new contracts with alternative suppliers such as the US, Qatar or Australia, which would lead to increased LNG imports. However, building the necessary infrastructure to receive and process LNG requires time and significant investments, which will not fully compensate for the potential loss of Russian gas in the short term.
The political consequences for Europe must also be considered. The escalation of the situation on the Russian-Ukrainian border could increase political pressure on European governments, forcing them to reconsider their energy strategy and possibly even impose additional sanctions against Russia. This, in turn, could provoke retaliation from Moscow and further aggravate the already difficult situation on the gas market.
Thus, the current situation around Sudzha has a significant impact not only on the immediate gas supply, but also on the strategic prospects of the European energy market. The developments are being closely monitored by analysts and market participants, and any new decision or change could have far-reaching consequences for the entire European energy system.
News.Az
