European energy markets brace as Russia-Ukraine gas transit deal expiry imminent, 1 January nominations at zero

Additional reporting by Jamie Stewart and Alex Froley 

No day-ahead gas pipeline capacity was offered for transit at Ukraine’s Sudzha border point with Russia and no flows were nominated for 1 January 2025,  data published by capacity booking platform RBP and Ukraine’s gas grid operator GTSOU on 31 December 2024 showed.

Although final nomination data will be expected later on 31 December 2024, the indication was that  Russian gas transit through Ukraine to Europe would cease on 1 January 2025 at 05:00 UTC.

Writing to ICIS on 30 December, Ukraine deputy energy minister Mykola Kolysnyk said:

“We have prepared for a potential unilateral transit termination by Gazprom at any moment, disregarding contractual obligations to European customers, as such actions have occurred before as a typical form of blackmail.”

Although transit may be temporarily halted Ukraine and interested buyers in Slovakia and Hungary may strike a compromise later this month.

But at least for now, the Ukrainian gas system is prepared for the unilateral termination of the transit.

Polish gas grid operator Gaz-System will offer 5.1 million cubic meters (mcm)/day from 1 January in addition to an existing 6.4mcm/day interruptible capacity. Ukraine also has firm import capacity of 9.8mcm/day at the Bereg virtual interconnection point until the end of March 2025. Both can be extended.

There are also expectations of increased reverse capacity at the Romanian border.

Meanwhile, global LNG supplies are improving. The US, the world’s largest exporter, has all its plants running normally at present and is bringing new capacity online.

Venture Global’s Plaquemines plant, which will build up to 13.3 million tonnes per annum (mtpa) in its initial phase, loaded its first cargo on 26 December.

Meanwhile Cheniere announced first LNG production from its Corpus Christi stage III project on 30 December. Stage III will add seven 1.5mtpa trains, the first of which is now working.

These plants will continue to build up output across 2025, and be added by further new facilities, including the 14.0mtpa LNG Canada.

WHAT HAPPENED?

• As of late-afternoon London time on Tuesday 31 December, a five-year deal to transit Russian pipeline gas through Ukraine into Europe was set to expire within hours on 1 January, with no announcement of a new deal having materialised.
• Ukrainian grid operator TSOUA data, published at 16:22 local time, showed gas nominations at multiple Ukrainian border entry and exit points as zero for 1 January, including at the Sudzha border point with Russia.
• Earlier, nominations at the Sudzha point for 31 December stood at 40.4 million cubic meters/day, only marginally down from 30 December, the TSOUA data showed, meaning the 1 January figures were highly unlikely to be a data error.

WHY DOES IT MATTER?

• The five-year Ukraine transit deal has kept a significant volume of Russian pipeline gas flowing into Europe since the start of 2020, including throughout the almost three-year long war between the two countries.
• More than 15 billion cubic meters of gas was transited from Russia to Europe via Ukraine in 2024. A similar volume will need to be replaced by alternative sources, mainly LNG.
• European energy markets have for weeks been positioning around expectations of a new transit deal being reached or, as has seemed increasingly likely as the year-end deadline has neared – not being reached.
• In the first half of December, the benchmark ICIS TTF Q1 ’25 lost 18% of its value to be assessed at €39.90/MWh, down from €48.30/MWh, but has since 16 December regained almost all of that value.
• At 11:00 London time on Tuesday morning, trade on the component months indicated a Q1 ’25 valuation at around €48.70/MWh, narrowly below its high for the year seen in late November.
• The ICIS midday close on 31 December had TTF Q1 ’25 priced just over €48.50/MWh, a modest day on day increase of 1.6%. These movements suggest the recent late-December positioning had all but priced in the end of the transit deal.
• TTF Winter ’25 was up nearly 2%, the largest forward-curve move on the day.

WHAT NEXT?

• Recent European gas price movements, although still volatile compared with the rest of the year, pale in comparison to the extreme volatility seen during the late-2021 price crisis and the aftermath of Russia’s early-2022 invasion of Ukraine.
• While this means the full magnitude of any Russia-related supply shock is behind Europe, significant uncertainty will still be priced in over coming weeks and months as European traders get used to another new normal.
• Pricing movements indicate the market sees Europe’s expanded LNG import infrastructure as ample to meet demand spikes, but the continent must compete with Asian LNG buyers to secure what going forwards will be a larger overall share of marginal supply.