EU officials have recently indicated a reluctance to the extension of the current agreement governing the transit of Russian gas into the EU via Ukraine, which expires at the end of 2024. Notionally, the current deal includes 40 bcm/yr under ship-or-pay terms, although since 2022 actual deliveries have dwindled to just ~40 mcm/day (13.6 bcm/yr in 2023) on average.
For Europe, the prospect of the end of the transit agreement is unlikely to cause alarm:
- Beyond the expiry of the current agreement, European companies can opt to book Ukrainian transit capacity on a short-term basis.
- Even with a partial curtailment, countries dependent on the current deal (e.g. Austria, Italy and Slovakia) are mostly well-equipped to mitigate the impact through expanded LNG import capacity or alternate piped gas options.
While an increased call on alternate supplies may support prices next year, these volumes are unlikely to be large enough to be cause a bullish shock, particularly alongside continued growth in global LNG supply.
