As Ukraine’s gas transit contract with Russia is set to expire, significant shifts are taking place in the global energy landscape. One of the most notable developments occurred on December 27, when Ukraine’s largest private energy company, DTEK, received its first delivery of liquefied natural gas (LNG) from the United States. This shift in the energy market brings with it clear winners and losers, with the dynamics of global gas trade and pricing undergoing significant changes.
The biggest beneficiary of the halting of Russian gas deliveries through Ukraine is the United States, particularly its LNG producers. As Russia’s natural gas supplies to Europe via Ukraine come to an end, the U.S. stands to gain a larger share of the European market, reducing competition from Russian pipeline gas. The delivery, which amounted to 100 million cubic meters of LNG (equivalent to 1 TWh of energy, or 3,530,000 MMBtu), was purchased by D.Trading, the pan-European trading subsidiary of DTEK. The LNG shipment arrived at Greece’s Revithoussa LNG terminal, one of the key entry points for LNG in southern Europe. It will then be “re-gasified” and distributed across the EU and Ukrainian gas networks. The gas will travel via the Vertical Corridor, a crucial network that transmits U.S. LNG through Greece, Bulgaria, Romania, Hungary, Slovakia, Moldova, and Ukraine.
While U.S. LNG is at least 30-40% more expensive than Russian pipeline gas, it represents a more reliable alternative in the context of rising geopolitical tensions. The U.S. is poised to benefit from the energy crisis and disruptions in Russian supply, particularly since it became the world’s leading exporter of LNG in December 2022, amid Europe’s energy crisis and the sabotage of Russia’s Nord Stream pipelines.
On the other hand, Ukraine will bear significant losses as a result of this shift. The country stands to lose almost $1 billion annually from Russian gas transit fees, which had been an important source of revenue. Furthermore, Ukraine will likely face higher costs for U.S. LNG, which will be delivered through the Revithoussa LNG terminal. This LNG is considerably more expensive than the Russian pipeline gas that Ukraine had previously imported in the form of a “virtual reverse,” a system that allowed the country to receive gas at a lower cost.
Hungary, Austria, and Slovakia, which have long depended on Russian gas transit through Ukraine, are also facing challenges. These landlocked countries will find it difficult and costly to access LNG delivered to marine terminals. Long-term contracts with Russia’s Gazprom had allowed them to purchase natural gas at prices significantly lower than EU spot prices. For instance, Austria had been receiving Russian gas at a price almost three times cheaper than EU spot prices in 2022, according to Reuters. With the loss of Russian supply, these countries now face higher costs and less reliable access to energy.
The European Union as a whole is feeling the impact of this disruption. After gas prices in Europe slid to $11.79/MMBtu in October, they rose again to almost $15/MMBtu on November 22. On December 27, benchmark futures increased by another 5% following the news of halted Russian gas transit through Ukraine, signaling potential long-term price hikes and volatility in the EU energy market.
