(Bloomberg) -- European gas futures jumped the most in more than a month after the leaders of Ukraine and Russia both ruled out the renewal of a key transit deal for the region.
President Volodymyr Zelenskiy indicated Ukraine won’t transit Russian-origin gas unless he has assurances the Kremlin won’t benefit financially while the war continues. President Vladimir Putin said Kyiv has refused to extend the five-year deal beyond its expiry at year’s end.
“There will be no such contract, it’s clear now,” Putin said during his annual press conference in Moscow. “There is a question of what to do with it now — but that’s not our problem” and Russian gas giant Gazprom PJSC “will survive.”
The comments came as European Union leaders met Zelenskiy in Brussels, with gas among several topics discussed. Nations led by key gas buyer Slovakia have in recent days stepped up efforts to keep fuel flowing from the east, but Kyiv’s stance adds even more complexity to negotiations as the clock ticks down.
With less than two weeks left until the new year, there are challenges for consumers such as Slovakia trying to put together a deal that would work for Ukraine, which has repeatedly refused to continue moving Russian gas and boost Kremlin revenues.
Slovak Prime Minister Robert Fico said he was taken aback by Zelenskiy’s refusal to allow transit after the two leaders had a discussion at the summit in Brussels.
“I was surprised by the bluntness of his response, where he essentially ruled out any possibility of Ukraine transiting practically any gas,” Fico told reporters after the meeting. He added that the discussions covered “various options,” but the Ukrainian leader ruled them out.
Energy firms from the region this week pushed for an arrangement that would allow the continued transit of gas through Ukraine, as alternative sources of supply would be costly for nations in central Europe. But in the end it’ll be a political decision, regardless of what the companies seek to achieve.
Gas Soars
European benchmark gas prices closed up 5.1%, the most since Nov. 14, after falling 3% earlier, highlighting the persistent market volatility.
The result of the protracted talks will be either a last-minute alternative arrangement, or a halt in supplies, closing a decades-long route for Russian gas to Europe.
Various alternatives have been floated, including buying gas at the Russia-Ukraine border or a swap in supplies involving a third party, such as Azerbaijan.
But Zelenskiy said Thursday that proposals where the Russian gas would be bought by another country before crossing Ukraine would still amount to financing Moscow.
“If that’s a different country but it gets gas from Russia and then transit its own gas, it’s the same as getting money from this war and transferring money to Russia,” the Ukrainian leader said.
Ukraine still ships about 15 billion cubic meters a year of Russian gas to a number of European nations, despite the war that’s been going on for almost three years. Gazprom’s remaining clients in the region are seeking to find a solution that would avoid an interruption of supplies this winter.
If there is a country “ready to give us the gas but not pay the money back to Russia until the end of the war, then it’s a possible potentiality,” Zelenskiy said. “We can think about it.”
Should a deal be reached, one potential obstacle has been removed, with America granting an exemption for gas payments from its recent sanctions on Gazprombank, Hungarian Foreign Minister Peter Szijjarto said Thursday. Hungary receives most of its gas from Russia via the TurkStream pipeline.
The US slapped penalties on Gazprombank at the end of November as it stepped up efforts to punish Moscow for its war. The lender is the authorized bank handling ruble payments for Gazprom. Late Thursday, the Kremlin allowed foreign buyers of Russian piped gas to make ruble payments to Gazprom’s account at any Russian bank until April 2025, according to amendments signed by Putin.
Complicated Talks
“Any deal involving companies from Hungary or Slovakia buying gas from Gazprom at the Russian-Ukraine border was already complicated to broker,” said Massimo Di Odoardo, vice president for gas and LNG research at Wood Mackenzie Ltd. “If Ukraine is not prepared to accommodate intermediaries to continue flows, it makes a deal almost impossible.”
Some nations in central Europe are ready to replace the Russian gas they get via Ukraine. Austria is not part of efforts to maintain flows and is prepared to meet all its demand via deliveries through Italy and Germany, a senior government official told reporters Thursday.
Large customers in Austria would value the additional liquidity from further supply routes, but none of them have asked the government to push for a deal with Ukraine, said Juergen Schneider, the head of the energy department at Austria’s Energy Ministry.
--With assistance from Priscila Azevedo Rocha, John Ainger, Jonathan Tirone, Marton Eder, Zoltan Simon, Elena Mazneva, Patrick Donahue and Daniel Hornak.
(Updates with Slovak prime minister’s comments in sixth, seventh paragraphs.)
©2024 Bloomberg L.P.