Europe faces gas supply crunch as Russia-Ukraine transit deal nears expiry

Europe is facing a significant disruption to its gas supplies as the transit agreement between Moscow and Kyiv is set to expire on December 31.

With no alternative arrangement yet in place, the halt of Russian gas flows via Ukraine could exacerbate an already tight energy market and pose serious challenges across the region, Caliber.Az reports, citing foreign media.

One of the primary concerns is the accelerated depletion of Europe’s gas storage reserves. Inventories are currently at about 75% capacity—reaching this level a full month earlier than last winter. This leaves traders and policymakers worried not only about the remaining months of the heating season but also about replenishment efforts for 2025.

Moreover, gas market volatility is expected to persist, with summer 2025 contracts recently trading higher than those for winter 2025-26. This unusual pricing dynamic will make it costlier to rebuild storage levels for the next heating season.

If the Ukraine transit route is lost, Russia’s remaining delivery options to Europe include the Türkiye route, though its capacity cannot fully offset the shortfall.

Meanwhile, Russia’s liquefied natural gas (LNG) shipments remain a contentious topic. The EU imported record volumes of Russian LNG this year, despite some officials advocating for a full embargo. However, a new rule effective in March 2025 will bar Russian LNG vessels from using EU ports for ship-to-ship transfers, potentially keeping more Russian LNG within Europe.

Europe will face stiffer competition from Asia for LNG cargoes, especially when prices fall and emerging markets in Asia increase their purchases. To secure more supplies, Europe may turn to flexible US LNG exports, which are not restricted by destination.

US President-elect Donald Trump has already urged the EU to purchase more American gas, warning of potential tariffs if the bloc fails to comply. European Commission President Ursula von der Leyen has also highlighted US LNG as a viable alternative to Russian supplies.

However, delays in global LNG expansion projects, including in the US, could limit supply growth. Cheniere’s new Texas project, for instance, is expected to ramp up slowly through 2025, according to Feygin.

Adding to the uncertainty is the growing influence of hedge funds in Europe’s gas market. Record volumes of long positions—bets that prices will rise—have raised concerns about a potential selloff that could destabilize an already fragile market.

The lingering effects of the 2022 energy crisis continue to weigh on Europe’s economy. Persistent gas-price volatility could further hinder recovery efforts, making it difficult for businesses and households to plan effectively.

By Khagan Isayev