Russia is flooding Europe with discounted gas to win back Western buyers

BUSINESS INSIDER:  Russia has unleashed discounted gas onto European markets, working to keep countries hooked on its energy supply, the Center for European Policy Analysis said.

It's a strategy meant to incite support for a key transit deal between Russia and the West, the think tank explained. In under six months, the contract on a major pipeline will expire, ending a historic trade corridor that runs through Ukraine — it's in Kyiv's hands to renew it.

"The stakes are high. The Ukrainian transit decision will affect not just that country's long-term security, but also the whole of Europe's future energy policies and ultimately the fate of the Russian gas business itself," non-resident senior fellow Aura Sabadus wrote.

After Moscow launched its war on Ukraine in 2022, an unexpected pullback of European buyers wreaked havoc on Russia's gas industry. State-run gas giant Gazprom went on to announce its biggest loss in 25 years, and is unlikely to recover lost gas sales for at least a decade, according to an internal estimate.

While alternative markets helped trade recover somewhat, Russia looks poised to try and win back European customers, CEPA said on Wednesday.

Although the Ukrainian route has continued supplying Western markets through the war, its January expiration would likely be enough to risk a Gazprom bankruptcy.

For this reason, gas markdowns of at least 10% are already hitting Central and Eastern European markets, and buyer interest is starting to show. Slovakia, Hungary, and Austria are among examples CEPA cited as customers for Russian gas.

Discounted prices and the availability of different routes is beneficial to European firms, offering potentially bigger profits, Sabadus explained. It could be enough to rebuild Gazprom's lost market share.

Already, Southern European traders are profiting by buying cheap Russian gas pumped through a Turkish pipeline and then selling it at a premium in Western European markets, she suggested.

"Since Turkey's export capacity is limited for now, and the Ukrainian transmission system can transit more than 100billion cubic meters annually, buyers no doubt see a chance to replicate the model on a much larger scale," Sabadus said.

For its part, Ukrainian politicians have asserted they will not renew the contract, though Kyiv's war-battered energy infrastructure has pressured it to lean more towards gas supply ahead of the winter.