Bloomberg revealed three possible scenarios with gas transit through Ukraine after January 1

The European gas market is preparing for the possible termination of transit through Ukraine from January 1. Experts consider three options for the development of events: a complete halt of supplies, a delayed deal or an agreement until the end of the year, Bloomberg reported, writes UNN.

Details

“With less than two weeks to go until the transit agreement between Russia and Ukraine expires, the European natural gas market is gearing up for a flurry of trading after the New Year's vacation. Instead of celebrating on Dec. 31, traders will refresh their screens to check headlines and network data for clues about a last-minute decision - if there is one,” the publication writes.

Major banks and the European Commission are indicated to be preparing for pipeline flows through Ukraine to stop on Jan. 1, forcing the continent to turn to other sources to replace them and likely driving up prices. russia supplies about 15 percent of Europe's gas imports, and while only a third of that volume passes through Ukraine, traders remain on high alert.

Moscow and Kiev said this week that the current deal would not be extended because Ukraine does not want Russian gas to pass through its pipelines. But several Central European countries that are still dependent on this fuel are desperately trying to find a workaround. Last-minute discussions caused volatility in the gas markets, and prices fluctuated repeatedly on Thursday as traders tried to guess the consequences of statements by European leaders, the newspaper writes.

“All parties involved are still trying to find a way to get this gas in, and these guys are going to be working until midnight on the 31st,” said Francisco Blanch, a commodities strategist at Bank of America Corp. - It's still very close, and nobody knows what's going to happen.

First scenario: no deal

The European Commission is preparing for a supply halt, which is also the baseline scenario for banks including Goldman Sachs Group Inc, Morgan Stanley, JPMorgan Chase & Co. and HSBC Holdings Plc. The lost volumes would particularly hurt countries such as Slovakia, which has pushed for an agreement in recent weeks, warning of possible financial damage.

Ukraine will not continue transit of Russian gas - ZelenskyyDec 19 2024, 02:46 PM • 16279 views

Some flows also go to Austria, the Czech Republic and Italy, and the search for new supplies could certainly drive regional prices higher in the short term.

“While this volume is not very important for Europe as a whole, it is certainly important for several individual EU member states,” Katja Jafimava, a senior research fellow at the Oxford Institute for Energy Studies, said in the report.

“The price increase will only be significant for a few days in the new year before the market gets used to the new normal and prices stabilize again,” said Florence Schmit, European energy strategist at Rabobank.

Second scenario: pending transaction

There are hopes that a solution can be found, though not by Jan. 1 and possibly with reduced supplies, the publication notes.

The negotiations, as indicated, are complicated. Ukraine insists it does not want to transport Russian gas through its pipelines, and President Volodymyr Zelensky said this week that he also would not support alternatives that would fund russia's war as before. This, as indicated, could delay swap negotiations involving a third party such as Azerbaijan.

If there is a country “ready to supply us with gas but not to return the money to Russia until the war is over, this is a possible possibility, we can think about it,” Zelensky said.

“The negotiations are obviously very complex, there's a lot of politics and a lot of different interests to overcome - so it's very difficult to predict what will happen on Jan. 1,” said Marco Saalfrank, head of continental Europe trade at Swiss utility Axpo Solutions AG.

Some gas traders also speculated that a deal would become more likely after the inauguration of U.S. President-elect Donald Trump on January 20. Throughout his campaign, Trump said he would prioritize starting peace talks between Ukraine and Russia. But the U.S. is one of Europe's leading gas suppliers and has its own ambitions in the region.

Third scenario: deal before December 31

A hasty agreement would likely come as a surprise to most market participants who have watched negotiations drag on for months and trigger at least a temporary “sell-off.” Speculators recently increased their upside bets to a record before lowering them, creating the potential for sharp price moves.

Still, that's the baseline scenario expected by energy research strategist Maggie Xueting Lin of Citigroup Inc. Maggie Xueting Lin. Both she and Saalfrank with Axpo say any price drop in the event of a deal is likely to be short-lived as global gas markets remain tight and Europe still has to compete for LNG cargoes with other global buyers.

In the end, “the only thing you can say for sure is that Europe needs more gas,” said Bank of America's Blanch.