European industries have struggled with high energy costs and declining competitiveness.

Ukraine announced recently that it would no longer allow Russia to transport natural gas via its pipeline network to European countries after the five-year transit agreement with Russian energy giant Gazprom expires at the end of the year.

RELATED:

Ukraine Conflict Has a High Economic Impact on Europe: Orban

The concerns are shared not only by European citizens but also by industries, which have struggled with high energy costs and declining competitiveness since the EU sought to reduce its reliance on Russian energy following the outbreak of the Russia-Ukraine conflict.

“If Russian natural gas stops transiting from Ukraine to the EU, European countries including Croatia will feel the impact and maybe a new energy supply crisis could occur in Europe,” Frano Kalac, a Zagreb citizen, voiced his concerns about further increases in gas prices.

Despite the efforts, the EU’s dependence on Russian natural gas will likely persist in the foreseeable future amid challenges such as high energy costs, a sluggish economic recovery, and divisions among member states.

SUPPLY WORRIES

Ukrainian President Volodymyr Zelensky reaffirmed the country’s refusal to extend the transit agreement after meeting with EU leaders in Brussels on Dec. 19, noting that the ban would apply to all gas flows “coming from Russia.” On the same day, Russian President Vladimir Putin confirmed that there would be no new deal with Kiev.

Under the current agreement, gas transiting through Ukraine accounts for about half of Russia’s pipeline exports to the EU. In 2023, roughly 15 billion cubic meters of gas were transported via Ukraine to Europe. Once the deal expires, the Turkish Stream pipeline under the Black Sea will become the sole remaining route for transporting Russian gas to Europe.

European Commissioner for Energy and Housing Dan Jorgensen said recently that Brussels is “preparing for” a shut-off, which “is not something that comes as a surprise.” However, Slovak Prime Minister Robert Fico has warned of a looming gas crisis.

Slovakia imports about 3 billion cubic meters of natural gas from Russia via Ukraine annually, covering nearly two-thirds of its demand. During Fico’s surprise visit to Moscow on Sunday, Putin reportedly expressed willingness to continue supplying gas to Slovakia, but Fico acknowledged this would be “practically impossible” without Ukraine renewing the transit agreement.

Meanwhile, Hungary, which now largely relies on the Turkish Stream for Russian gas imports, also stressed the importance of maintaining the Ukrainian route to ensure supply security. Hungarian Prime Minister Viktor Orban said that the Hungarian authorities are still in talks with Russia and Ukraine to secure the continued flow of Russian gas through Ukraine.

Regarding alternative solutions in the EU’s effort to reduce dependence on Russian energy, Croatian political analyst Robert Frank argued that the EU has long struggled to find “right answers” and is unlikely to do so this time. “Each EU member state will be forced to seek solutions on its own,” Frank said.

ECONOMIC CONCERNS

“The EU has already faltered when it comes to the economy, Germany is facing a historic crisis, and now it will be even more difficult for Europeans to get energy if the transit contract is not renewed,” Frank said. “If there is a crisis in energy supply, Europe will be the most affected and this will weaken its economic power even more.”

“A sudden stop of Russian gas will likely intensify cost pressures for Slovenian industries, and by extension, raise consumer prices,” said Joze P. Damijan, professor of economics at the University of Ljubljana in Slovenia. He highlighted the significant challenges faced by sectors like agriculture and electricity production, which rely heavily on affordable gas supplies, warning that the lack of Russian gas will create a “serious obstacle.”

In a letter to the European Commission president on Dec. 17, gas suppliers, network operators and industrial consumers from Hungary, Slovakia, Austria and Italy expressed concerns that the end of the transit deal could “complicate gas supply” and “lead to higher gas prices for European consumers.”

According to a recent report from Bruegel, a Brussels-based economic think tank, energy prices in the EU are higher than those in most other industrialized economies. The report said in 2024, EU gas wholesale prices averaged nearly five times than those in the United States.

The cessation of Russian pipeline gas will force the EU to rely more heavily on liquefied natural gas (LNG) imports to fill the gap. The imports are more expensive and less reliable, increasing the economic burden on both consumers and industries.

RELIANCE PERSISTS

While the EU has reduced its reliance on Russian pipeline gas since the onset of the Russia-Ukraine conflict, LNG imports from Russia have risen. In fact, despite its goal to completely stop importing fossil energy, including natural gas, from Russia by 2027, the EU remains the largest buyer of Russian pipeline gas and LNG.

According to the European Commission, Russian gas still accounted for roughly 15 percent of the EU’s total energy imports, though this marks a significant decline from around 40 percent before the conflict.

To achieve the 2027 goal, massive capital investments are required, not only in gas infrastructure and renewables but also in upgrading electricity grids, said Mojmir Mrak, a professor at the University of Ljubljana. “The financing question remains partly unanswered, especially for smaller EU economies.”

Data from Kpler, a commodities data provider, shows a rise in the EU’s imports of Russian LNG, making Russia the EU’s second-largest LNG supplier after the United States, the Financial Times reported. As of mid-December, Europe had imported a record 16.5 million tonnes of Russian LNG, surpassing the 15.18 million tonnes imported last year.

A market monitoring report by the EU Agency for the Cooperation of Energy Regulators confirmed this upward trend. Although the EU’s overall LNG imports decreased year-on-year during the first nine months of 2024, Russia’s share climbed to 20 percent, a six-percentage-point increase from the same period last year.

The Czech Republic, which cut Russian gas imports to nearly zero in the summer of 2023, resumed significant imports in 2024. Analysts attributed this shift to the competitive pricing of Russian gas. According to statistics from Czech pipeline operator Net4Gas, Russian gas flowing through Slovakia accounted for more than 95 percent of the country’s supply in November.

teleSUR/ JF Source: Xinhua

EN ESTA NOTA:

Comments

teleSUR comments