Elena Mazneva, Daryna Krasnolutska, and Anna Shiryaevskaya, Bloomberg News

BERLIN/YIYV/LONDON
EnergiesNet.com 05 12 2022

Ukraine and Russia clashed over natural gas sent via pipelines to Europe in a spat that’s disrupting supplies transiting the war-hit country for the first time since the invasion.

Russian gas flowing via one of two key entry points stopped on Wednesday as occupying forces disrupt operations, according to the Gas Transmission System Operator of Ukraine. The network manager said the fuel could be rerouted to avoid disruptions, but Russian gas giant Gazprom PJSC argued the switch isn’t possible because of how its system works.

Russia has been sending gas via Ukraine normally despite the conflict, but orders show overall transit shipments are set to decline about 18% on Wednesday from a day earlier. Still, flows increased via the second border point, easing concerns about tight supplies. European gas prices jumped as much as 6.8% before erasing gains.

“To get a big market reaction you’re going to need to see a contract holder confirming that deliveries aren’t being made,” said James Huckstepp, an analyst at S&P Global Commodity Insights, adding that shipments appeared to be enough to meet orders for now. “Gazprom’s statement yesterday suggests they could blame Ukraine for a cut in flows, but a lot of risk is already baked into prompt prices.”

Kyiv had already warned Russia that the actions of its troops and occupiers in the Luhansk region of eastern Ukraine could end up halting about a third of the gas it transits to Europe. Ukraine’s gas network manager said it can’t meet contractual obligations via the Sokhranivka border point — also known as Sokhranovka in Russian — but said flows could be rerouted via Sudzha.

“Ukraine doesn’t bear responsibility for gas transit via Russia-occupied territories and Gazprom was properly informed about that,” Ukrainian state-run energy company Naftogaz said in a statement on its website. The firm said it offered to reroute the gas, a switch that it said presents no technical difficulties and doesn’t involve additional costs for Russia.

A Gazprom spokesman said the company was notified by Ukraine of the pending disruption, but didn’t receive any confirmation of force majeure. While the company said switching to Sudzha would be technically impossible, gas orders show an increase through the entry point.

European gas traders remain on edge even though prices have eased recently thanks to a steady stream of liquefied natural gas cargoes arriving in the region and warm weather. Russia supplied about 40% of the European Union’s gas demand last year, and about a third of that was sent via Ukraine, making it a linchpin in the continent’s energy security.

Ukraine’s gas grid said it can no longer accept Russian gas transit via Sokhranivka from 7 a.m. local time. Transit orders via that point for Wednesday have already fallen to zero, but flows via the Sudzha route are set to rise 12% from a day earlier, helping compensate for the halt.

The decline is “not catastrophic, but alarm bells are ringing for what might be in store,” said Bjarne Schieldrop, chief commodities analyst at SEB.

Ukraine can guarantee the safe transportation of gas only via territory it controls, which is why it offered to reroute, Naftogaz said.

Sokhranivka and Sudzha are two key points on the border between Russia and Ukraine that receive flows from Gazprom for transit to Europe. As of Tuesday, 27% of the flows went through Sokhranivka, with the rest passing through Sudzha.

Gazprom said it sees no issue continuing to send gas via Ukraine as usual, and that it’s meeting all obligations to European clients.

bloomberg.com 05 11 2022