Serbia's president says agrees to new 3-year gas deal with Russia

Serbian President Aleksandar Vucic said May 29 that a new three-year natural gas supply deal has been agreed with Russia, Serbia's Beta news agency reported.

The deal comes at a time when many European customers are shying away from Russian imports in response to the invasion of Ukraine and sanctions.

Vucic said that Serbia will discuss volumes in the next few days, and will sign a three-year contract.

"Serbia needs larger quantities of gas, but if I may say so, we will have a safe winter, and further talks will determine how much gas will cost us," Vucic said, according to the report.

He added that Serbia will continue to buy Russian gas at a price determined by a similar formula to the existing one, which is linked to global oil prices.

He added that the price is expected to be $340-$350 per 1,000 cubic meters of gas.

"That is not the final price because it will depend on the quantity that will be delivered," said Vucic.

Serbia currently imports gas under a six-month contract signed in November last year, that is due to expire May 31. Prior to November, Serbia imported gas under a 10-year supply contract.

Vucic announced the agreement after a telephone call with Russian President Vladimir Putin May 29.

The Kremlin said in a statement May 29 that during the call Russia agreed to continue uninterrupted supplies of natural gas to Serbia.

Since the start of 2021, Russian gas supplies to Serbia have been delivered via the TurkStream pipeline to Turkey and onshore pipeline infrastructure in Bulgaria.

European supply concerns

Serbia's commitment to continuing Russian gas imports contrasts with the position of the EU and some member states since Russia invaded Ukraine.

In response to asset seizures abroad, Putin on March 31 signed a decree requiring EU buyers to pay in rubles for Russian gas via a new currency conversion mechanism, or risk having supplies suspended.

The changes to the payment terms have added to supply concerns since Russia invaded Ukraine, and impacted European gas prices.

The TTF month-ahead price was Eur86.75/MWh on May 27, according to Platts assessments by S&P Global Commodity Insights. This is 248% higher than May 27, 2021, when it was Eur24.95/Mwh.

Bulgaria, Poland and Finland refused to comply with the new mechanism and have been cut off from Russian supplies. Cutoffs to other European countries are possible if they refuse to pay in rubles.

Companies from other key EU markets have indicated that they will comply.

In recent days, Putin said that Russia will continue to supply gas to Italy and Austria in line with contract obligations, after phone calls with the countries' leaders.

The EU Commission is targeting complete independence from Russian gas imports by 2027.

S&P Global Commodity Insights said in a five-year forecast published May 11 that it assumes the most likely scenarios will see Russian flows to Western Europe, excluding Turkey, at or below 15 Bcm/year by 2030.