World
End of transit deal with Ukraine halts Russian gas flows to Europe
By Li Wenhan  ·  2025-01-13  ·   Source: NO.3 JANUARY 16, 2025
The logo of Russia's energy giant Gazprom in Moscow, Russia, on April 28, 2022 (XINHUA)

Russian natural gas exports to and via Ukraine ceased on New Year's Day, after the expiration of a five-year agreement signed in 2019. The key source of gas for Europe had remained open despite nearly three years of conflict between the two countries.

Both Russia and Ukraine announced the stoppage on January 1, sparking fears of supply shortages, particularly in Slovakia and Austria, and pushing European Union (EU) nations to resort to costlier energy alternatives.

Only one left

Ukraine had publicly maintained for months that the deal would not be extended. Its energy ministry said in a statement on January 1 that the transportation of Russian natural gas through the territory of Ukraine was stopped "in the interests of national security," and Ukraine had notified its international partners of the termination of the gas transit in line with established procedures.

The Ukrainian gas transportation system has been prepared in advance to operate in a zero-transit mode, ensuring reliable gas supply to Ukrainian consumers, the statement said.

Russian energy giant Gazprom confirmed on the same day that it has already halted gas supplies through Ukraine, noting that it "was deprived of technical and legal opportunity" to keep up the gas flow "due to the repeated and clear refusal" of Kiev to extend the transit deal.

The natural gas destined for Europe is usually transported via a Soviet-era pipeline originating in Siberia and passing through Sudzha, a town in Russia's Kursk region. From there, it flows through Ukraine into Slovakia, where the pipeline branches out to supply gas to utilities in Austria, Slovakia and Hungary. This gas serves many purposes, including generating electricity, powering industrial operations and heating homes.

Ukraine will lose up to $1 billion a year in transit fees from Russia. To help offset the impact, it has increased domestic gas transmission tariffs to about $11.95 for 1,000 cubic meters from some $2.95 previously from the New Year's Day. The hike could cost the country's industry more than $38 million a year, international news agency Reuters reported.

Gazprom will lose close to $5 billion in gas sales a year, the news agency added.

According to Belgian economic think tank Bruegel AISBL, the risk for Ukraine now is its gas infrastructure, which so far remains largely undamaged, could become "a military target if Russian gas is no longer in Ukraine's pipelines."

Prior to the outbreak of Russia-Ukraine conflict in February 2022, Russian gas flowed to Europe through four pipeline systems: the Ukrainian corridor; Nord Stream under the Baltic Sea, which sent gas to Germany; Yamal-Europe through Belarus and Poland; and TurkStream under the Black Sea through Türkiye to Bulgaria.

Following the onset of the conflict, the Nord Stream pipeline was sabotaged in an act of unknown origin, while the Yamal-Europe pipeline was also shut down. With the expiration of the Russia-Ukraine gas transit deal, the TurkStream pipeline remains the sole operational route. TurkStream has two lines, one of which supplies the domestic market in Türkiye and the other supplies central European customers including Hungary and Serbia.

Who gets hurt?

Since the Russia-Ukraine conflict began, European countries have been working to reduce their reliance on Russian gas. Russia's share in the EU's total pipeline gas imports dropped from over 40 percent to about 8 percent in 2023, and for pipeline gas and liquefied natural gas (LNG) combined, Russia accounted for less than 15 percent of total EU imports, according to data from the EU.

The European Commission, the primary executive branch of the EU, said the bloc had prepared for the cutoff. "The European gas infrastructure is flexible enough to provide gas of non-Russian origin," a spokesperson for the commission said. "It has been reinforced with significant new LNG import capacities since 2022."

European Commission President Ursula von der Leyen speaks at a press conference after an informal European Council meeting in Budapest, Hungary, on November 8, 2024. She said the European Union could consider replacing Russian liquefied natural gas imports with those from the United States (XINHUA)

Prior to the cut-off the EU had begun buying more piped gas from Norway and LNG from Qatar and the U.S. However, some of its members continued to receive their Russian gas imports via Ukraine. In 2023 and 2024, these countries were Slovakia, Austria (via Slovakia), Hungary (via Slovakia and Austria), Italy (via Slovakia and Austria) and the Czech Republic (via Slovakia).

Italy will be least impacted as it has reduced its imports of Russian gas to the lowest levels. By virtue of being a coastal country with several LNG terminals, it has been able to import from the global LNG market. Normally, natural gas is cooled to a liquid state before being shipped to terminals around the world.

The Czech Republic and Hungry also have potential to tap more supplies from alternative sources. The Czech Republic, which received Russian gas via Nord Stream, switched to the Ukrainian pipeline after the Nord Stream explosions in 2022 and also imports non-Russian alternatives via Germany.

Hungary had worked to diversify its import routes for Russian gas, beginning receiving supplies from TurkStream in 2024 in addition to those via the Ukrainian corridor.

Slovakia and Austria are likely to be the most affected. Austria's average dependence on Russian gas was around 70 percent in 2022 and 2023 and increased in 2024.

Slovakia was obtaining around 3 billion cubic meters of gas through the route annually, amounting to two thirds of its demand. The end of the transit deal has caused serious concerns in Slovakia, a landlocked country that is far away from LNG import terminals in coastal European countries. Moreover, the country stands to lose $513 million annually in transit fees after Ukrainian President Volodymyr Zelensky decided to stop Russian gas transiting through Ukraine.

Slovak Prime Minister Robert Fico on January 1 called the situation "extremely serious and deserving of a sovereign response from Slovakia." 

SPP, Slovakia's state-owned gas utility, on that day assured continued gas supply but acknowledged the increased costs of alternatives.

Among the hardest-hit is also EU candidate country, Moldova, which was receiving approximately 2 billion cubic meters of gas annually from Russia via Ukraine. It has enacted measures to cut electricity usage by at least 30 percent.

Moldovan Government spokesperson Daniel Voda said on January 1 that the country's central authorities were "looking for alternative solutions to provide [residents] with heat and energy."

Stopping gas transit through Ukraine to Europe will have "severe consequences for all of us in the EU, but will not harm Russia," Fico said.

(Print Edition Title: Out of Gas; Now What?)

Copyedited by G.P. Wilson

Comments to liwenhan@cicgamericas.com

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