By Nina Chestney, Francois Murphy and Dave Graham
LONDON/VIENNA (Reuters) -Russia told Austria on Friday it will suspend gas deliveries via Ukraine on Saturday, in a development that signals a fast-approaching end of Moscow's last gas flows to Europe.
Russia's oldest gas-export route to Europe, a pipeline dating back to Soviet days via Ukraine, is set to shut at the end of this year.
Ukraine has said it will not extend the transit agreement with Russian state-owned Gazprom (MCX:GAZP) in order to deprive Russia of profits that Kyiv says help to finance the war against it.
Moscow's suspension of gas for Austria, the main receiver of gas via Ukraine, means Russia will now only supply significant gas volumes to Hungary and Slovakia, in Hungary's case via a pipeline running mostly through Turkey. In contrast, Russia met 40% of the European Union's gas needs before Moscow's 2022 invasion of Ukraine.
Austrian Chancellor Karl Nehammer said Gazprom's notice of ending supplies was long expected and Austria has made preparations.
"No home will go cold ... gas-storage facilities are sufficiently full," he told reporters.
Gazprom declined to comment.
Ukrainian Foreign Minister Andrii Sybiha, writing on X, said Russia's action showed it "once again uses energy as a weapon". But Austria, he said, would find a way to ensure energy security and "reject blackmail".
"The era of Europe relying on Russian gas is over," he said. Time to fully cut Russian energy profits -- and war funding."
OMV, Austria's biggest energy supplier, said it has been preparing for the eventual cut-off of Russian gas and can deliver gas to its customers by importing via Germany, Italy and the Netherlands.
Austria's gas imports from Russia will end following a contractual dispute between Gazprom and OMV.
In a notice published on the central European gas hub platform, OMV said Gazprom told it supply would stop on Saturday.
EUROPEAN COUNTRIES ADAPT
Gazprom's move may fan concerns in Austria about heating through the winter and served as Moscow's rebuke to its political class since the Russia-friendly Freedom Party was cut out of coalition talks after winning Austria's election in September, said Ulrich Schmid, a professor of Eastern European studies at the University of St. Gallen.
European and global gas prices spiked following a drop in Russian pipeline supplies in 2022 but some European countries found alternative sources, including liquefied natural gas from the United States. The U.S. has become the world's top gas producer and is expected to expand production.
Austria was one of the first western European countries to buy Russian gas when the Soviet Union signed a gas contract in 1968, months before the Soviet invasion of Czechoslovakia.
Germany was also heavily reliant on Russian gas before the war, but shipments ceased when the Nord Stream pipelines under the Baltic Sea were blown up in 2022.
Russia's notice of ending gas supplies to Austria came as Russian President Vladimir Putin and Chancellor Olaf Scholz of Germany held their first phone conversation since December 2022.
Russia was ready to look at energy deals if Berlin was interested, the Kremlin said.
"It was emphasized that Russia has always strictly fulfilled its treaty and contractual obligations in the energy sector and is ready for mutually beneficial cooperation if the German side shows interest in this," the Kremlin said.
Russia shipped some 15 billion cubic metres of gas via Ukraine in 2023, about 8% of peak Russian gas flows to Europe via various routes in 2018-2019, according to data compiled by Reuters.
In 2023, the Ukraine transit route met 65% of gas demand in Austria and its eastern neighbours Hungary and Slovakia, according to the International Energy Agency. Ukraine has said it doesn't plan to extend the transit agreement into 2025.
Hungary no longer receives much gas via Ukraine and imports volumes via the TurkStream pipeline that runs along the bed of the Black Sea. Slovakia still receives Russian gas via Ukraine.
Gazprom's move showed Russia flexing its muscles at the West as pressure builds for a ceasefire in Ukraine, said Schmid at the University of St. Gallen. Russia likely felt emboldened after Donald Trump won the U.S. presidency this month pledging to quickly end the Ukraine war, he added.
EU energy commissioner Kadri Simson told Reuters on the sidelines of a UN climate conference in Azerbaijan that all EU countries receiving gas via the Ukraine route have access to other supply sources that could fill the gap.
"We have been very clear that alternative supply is available and there is no need for the continuation of Russian gas transiting via Ukraine to Europe," Simson said.
The European benchmark price for gas edged down 0.63 euro to 45.72 euros per megawatt hour at the trading close.