(Bloomberg) — European natural gas prices rose to the highest level since November 2023 in anticipation of a halt in Russian flows via Ukraine on New Year’s Day, as a transit agreement between the two nations expires.
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Gas for February advanced as much as 4.5% on Tuesday, hitting €50 a megawatt-hour. A five-year deal between Moscow and Kyiv to move Russian gas to central Europe is set to lapse when the clock runs out on 2024, with no arrangement yet in place to avert a stoppage in supplies.
Ukrainian President Volodymyr Zelenskiy rejected any deal that would keep Russian gas flowing and financially benefit the nation’s war adversary. Uncertainty over these supplies — which meet about 5% of total European gas demand — has caused price volatility, with benchmark futures up more than 50% this year.
Scenarios: Europe Braces for Tense Countdown to Ukraine Gas Flow Halt
The expected halt in supplies serving Slovakia and a group of other central European states comes as the region is set to face freezing weather in January. Inventories are also being depleted faster than usual, making it more challenging to reach storage targets for next heating season.
Slovakia has increased pressure to keep the gas flowing, with Prime Minister Robert Fico threatening to cut power supplies to Ukraine if the shipments stop. The premier in recent days called on the European Commission to urgently address the looming halt, which he said would increase energy prices throughout Europe.
Read: Slovakia Urges EU Action to Head Off Russian Gas Transit Halt
There is “a political layer” to the debate over the expiring agreement, said Dmytro Sakharuk, chief executive officer of Ukraine’s D.Trading, in an interview Tuesday. “But fundamentally, from a commercial point of view, from physical point of view, we don’t expect big problems.”
Europe is prepared to withstand the halt in supplies and termination of the transit deal is already reflected in prices, he said, adding that the volume currently flowing via Ukraine isn’t enough to disturb the regional market and cause a deficit in supplies.
Others have also indicated their readiness. Germany has been saving gas even as consumption has increased, according to Klaus Mueller, president of the nation’s Federal Network Agency, known as BNetzA.
“We are well prepared for the next three months,” he said in an interview with Funke media group. “It is definitely still worth saving gas and thus easing the burden on your wallet.”
