Slovakia's Fico makes urgent plea to EU over Ukraine transit

Slovakia's Prime Minister Robert Fico published Dec. 29 an open letter to EU leaders calling for them to urgently re-evaluate Ukraine's intention to end the transit of Russian gas from Jan. 1.

Fico's latest move to try and salvage east-west gas transit via Ukraine follows an escalation in the war of words between Bratislava and Kyiv over Ukraine's stance.

On Dec. 27, Fico posted a video on his Facebook page in which he said that Slovakia would have to consider measures against Ukraine if gas supplies ended, including the suspension of electricity deliveries from Slovakia if it proved "unavoidable."

Ukrainian President Volodomyr Zelensky then accused Fico of opening up "a second energy front" against Ukraine on the orders of Russian President Vladimir Putin.

Ukrainian energy minister German Galushchenko also called on the EU's new energy commissioner, Dan Jorgensen, and other European authorities to intervene over Fico's threat to limit power supplies from Slovakia to Ukraine.

Fico's open letter described Ukraine's decision to end Russian gas transit as "a unilateral measure" with no EU rules or sanctions currently preventing contracts for the supply or transport of Russian gas.

Ukraine was offered the possibility of shipping non-Russian gas in the future, but this was also refused by Zelensky, Fico said.

The five-year gas transit agreement between Russia and Ukraine is due to expire at the end of 2024, with deliveries set to end on Jan. 1 if no new arrangements are put in place.

Russia currently supplies some 42 million cu m/d of gas to Europe via the Sudzha interconnection point on the border with Ukraine, supplying Slovakia, Austria, Moldova and Italy.

Fico said Slovakia was currently in a "complicated economic situation" having been forced to take painful measures to restore public finances.

"I regard it as absolutely necessary that the economic impact of this significant decision [on transit] be analyzed and that a standpoint be taken [by the EU] on the basis of the following known facts," Fico said.

Price impact

Fico outlined analysis undertaken by Slovakia's dominant gas supplier, SPP, of the impact of an end to Russian gas transit on gas prices "in the absence of objective findings from the European Commission."

Russian gas transit through Ukraine represents just 3.5% of demand from the EU 27 and the UK, Fico said.

But, he said, in a tense market situation traders estimate that the difference between maintaining and cutting Russian gas transit represented a price increase of at least Eur10-12/MWh on key Dutch and German hubs.

"This difference is evidenced by the increase in gas prices from the level of around Eur35/MWh to the current levels of around Eur45/MWh which can be only explained by the negative impact of the decision taken by the Ukraine president," Fico said.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at a recent low of Eur32.79/MWh on Sept. 19.

It has risen steadily since then, mostly due to concerns over the remaining Russian gas supplies to Europe, and was last assessed on Dec. 27 at Eur47.44/MWh.

In his open letter, Fico said there would also be a secondary impact on European power markets, with increased electricity production costs.

Ukraine itself stands to lose around Eur800 million/year in gas transit fees with Slovakia losing around Eur400 million/year, Fico said.

He said the rise in gas prices for Slovakia would be even higher than those estimated for Dutch and German markets, at "significantly above Eur1 billion/year in higher commodity costs."

"For Russia, income from the continuation of gas transit through Ukraine represents around Eur2 billion [a year]," he added. If the Russian gas can be placed on other markets, the loss would be zero, Fico said.

"A silent acceptance of the Ukrainian president's unilateral decision is absolutely irrational and unjust and will lead to tension and reciprocal action," Fico concluded, calling for rapid EU action to deal with the "unprecedented situation."