On January 1, 2025, the five-year contract for the transit of Russian gas through Ukraine ended, and the supply of Russian gas to Europe via this route was halted. The cessation of Russian gas transit through Ukraine affected the interests of all parties: Russia, Ukraine, and Europe. This event is accompanied by significant economic losses and the creation of new challenges for the region's energy infrastructure. Now the only remaining route for gas exports from Russia to the EU is TurkStream.
Gazprom and gas to Europe: the end of the 5-year contract
The agreement, which had been in force for five years, regulated the transit of Russian gas through Ukraine to the European Union. Despite existing long-term agreements between Gazprom and European consumers, the expectation of extending the transit contract with Naftogaz (Ukraine) was not fulfilled.
"In connection with the repeatedly and explicitly expressed refusal of the Ukrainian side to extend these agreements, Gazprom was deprived of the technical and legal possibility to supply gas for transit through the territory of Ukraine from January 1, 2025. From 8:00 Moscow time, the supply of Russian gas for its transportation across the territory of Ukraine has not been carried out," - it is said in the official statement of the company.
The halt of transit occurred exactly at 8:00 on January 1.
Russia and Ukraine: halting gas transit and losses
The halt of transit carries serious financial losses for both sides. Ukraine loses about $800mn a year, which previously came in the form of transit fees. For Russia, the losses are even greater - about $6bn due to a reduction in gas sales volumes.
Cessation of gas transit through Ukraine: prospects and limitations
Russian President Vladimir Putin stated that the possibility of transferring transit through Ukraine to the control of third countries is excluded. In his words:
"Gazprom has long-term contracts, until 2035, until 2049. To change this scheme, it is necessary to adjust contracts, and this is a very difficult or impossible procedure."
Experts believe that the current situation is temporary and the issue of transit will become part of larger-scale negotiations on the settlement of the conflict in Ukraine.
Losses of Russia: lost revenue and export restrictions
When the gas transit ended, the volume of Russian gas supplies through Ukraine was about 15bn cubic meters per year, worth approximately $6bn based on an average price of $400 per 1,000 cubic meters in the European market. It will be difficult to quickly replace these volumes without establishing new gas supply routes to Central and South Asia, as well as China.
Main directions of Russian gas supplies through Ukraine:
- Slovakia: Gas was supplied directly and then transported to Austria to the largest gas hub Baumgarten. From there, gas was distributed to Italy, Hungary and the Czech Republic.
- Moldova: The main consumer was Transnistria. Gas volumes for Moldova amounted to up to 2bn cubic meters per year, and the total volume of transit could reach 5bn cubic meters through the TurkStream.
For Russia, this means the need to find new markets and transportation routes. Without expanding gas transport infrastructure in Asia, it is impossible to quickly make up for losses.
Losses of Ukraine: income and infrastructure
Ukraine annually received from Russia about $700-800mn for gas transit, as previously stated by Russian President Vladimir Putin. The cessation of transit entails the following consequences:
- Loss of transit income: These funds were used to maintain the gas transportation system (GTS) and the network of underground gas storage facilities (UGS).
- Risks of GTS degradation: Without loading with Russian gas, the network loses its strategic importance, which can lead to its degradation.
- Loss of transit status: Ukraine will no longer be able to play the role of a key energy hub, ensuring the supply of gas to Europe.
The war between Russia and Ukraine: the impact on gas supplies
The halt in gas transit through Ukraine took place amidst the ongoing conflict that began in February 2022. Ukraine initially refused to extend the agreement, citing its conflicting interests. Meanwhile, Russia had been preparing for the end of supplies through Ukraine, and by 2023, the Ukrainian route accounted for only around 15bn cubic meters of gas—significantly lower than in previous years.
Volumes of Russian gas supplies to Europe
At its peak in 2018, Russia supplied a record 201 billion cubic meters of gas to Europe. However, in 2023, the volume of supplies through Ukraine decreased from 65bn cubic meters in 2020 to 15bn in 2023.
Cessation of gas supply to Europe: losses of the European market
Russia and the Soviet Union for half a century created a significant share of the European gas market, which reached 35% at its peak. However, the consequences of the war have virtually destroyed this business for Gazprom. Other key gas export routes were also unavailable:
- Nord Stream through the Baltic Sea was damaged as a result of an explosion in 2022.
- Yamal-Europe, passing through Belarus, was closed due to geopolitical disagreements.
Ukraine: cessation of gas transit - official position
The Ukrainian side confirmed the fact of the cessation of gas transit. The country's Ministry of Energy called this event "historical" and emphasized that such a decision was made solely "in the interests of national security." Kyiv has long stated its position on this issue, excluding the possibility of concluding a new agreement.
"We have stopped the transit of Russian gas. This is a historical event. Russia is losing markets, it will incur financial losses. Europe has already decided to abandon Russian gas," said Ukrainian Energy Minister Herman Galushchenko.
At a press conference on December 19, 2024, Russian President Vladimir Putin also confirmed the end of contractual relations with Ukraine:
"This [transit] contract will no longer exist, everything is clear. But, well, we will survive, Gazprom will survive."
Gazprom and the Turkish Stream - the only route
After the suspension of gas transit through Ukraine, Gazprom now relies on the TurkStream pipeline to export gas to Europe. This is the only remaining route, with two lines: one for Turkey’s domestic use and the other supplying gas to Central Europe, including Hungary and Serbia. However, TurkStream cannot replace the large volumes that were previously transported through Ukraine.
This route is becoming key for ensuring the supply of Russian gas to the European market, which is changing the overall balance of energy infrastructure in the region.
Five-year contract Gazprom (Russia) and Naftogaz (Ukraine): completion and results
The five-year contract between Gazprom and Naftogaz Ukrainy, signed at the end of 2019, has now expired. This agreement was crucial for transporting large volumes of gas and resolving disputes, marking a significant phase in their relationship. However, its end signals the close of a cooperation era and brings new challenges to the energy sector.
Conditions of the contract Gazprom (Russia) and Naftogaz (Ukraine): volumes and guarantees
According to the terms of the contract concluded in December 2019, the parties agreed on:
- Pumping 225bn cubic meters of gas over five years:
- 65 bn cubic meters in 2020.
- 40 bn cubic meters annually in 2021-2024.
- Application of the ship-or-pay rule, which obliged Gazprom to pay for transit, even if the declared volumes were not pumped.
- Booking of appropriate capacities at the company "Operator GTS Ukraine".
The size of the transit tariff was not officially disclosed, however, Ukrainian President Volodymyr Zelensky estimated the total income at a minimum of $7bn for the entire duration of the contract, which is equivalent to approximately $31 per 1000 cubic meters of gas.
Dynamics of Russian gas transit to Europe: what has changed in five years
The volumes of gas transit through Ukraine decreased significantly during the term of the contract:
- 2020: 55.8bn cubic meters of gas pumped.
- 2021: The volume decreased to 41.6bn cubic meters.
- 2022: After the start of the military conflict, the introduction of payment for gas by Russia in rubles and the reduction of imports by Europe, transit amounted to only 19bn cubic meters. In addition, Ukraine blocked the entry point into its GTS through the GIS "Sokhranovka".
- 2023: Transit fell to 14bn cubic meters, which was the minimum value for the entire duration of the agreement.
Transit of Russian gas: how much did Ukraine earn?
According to Ukrainian President Volodymyr Zelensky, the country's income for the entire duration of the contract amounted to $7bn. These funds came from transit fees, which, according to experts, helped Ukraine maintain the operation of its gas transportation system.
Reasons for the reduction in gas transit volumes to Europe
- Changing conditions of international cooperation:After the start of the military operation in February 2022, Russia introduced payment for gas in rubles, which became unacceptable for a number of consumers. European countries intensified the diversification of gas sources, switching to alternative supplies from the USA, Qatar and other countries.
- Closure of key routes: In 2022, Ukraine closed one of the entry points into its gas transmission system - GIS "Sokhranovka".
- Reduced demand for Russian gas in Europe: European consumers began to switch to renewable energy sources and seek new supply routes.
Completion of the five-year contract: lessons for the energy market
The five-year contract was an important historical stage in the gas industry, but its completion emphasizes:
- The vulnerability of Europe's energy dependence on a single supplier.
- The need to diversify routes and sources of gas.
- The difficulty of maintaining stable transit agreements in conditions of geopolitical tension.
Europe and the energy market: consequences of the cessation of gas transit through Ukraine
The cessation of Russian gas transit through Ukraine has significant consequences for both Russia and Europe:
- Diversification of gas supplies in the EU. European countries will strive to increase gas imports from alternative sources, such as the USA, the Middle East and North Africa.
- Potential losses for Gazprom. The reduction of transit routes may reduce the company's export volumes and revenues.
- Energy security of the region. The cessation of transit through Ukraine strengthens the need to revise energy supply strategies for EU countries.
Europe's losses: restructuring of routes
For European countries, the cessation of transit through Ukraine is associated with additional costs and the search for alternative supply schemes:
- Slovakia: Able to meet needs for two to three months through gas reserves in UGS.
- Austria: Despite the termination of the contract with Gazprom, it continues to receive gas through traders. Small supplies are possible from Germany and Italy.
- Moldova: Faced a critical situation, as it is extremely difficult to provide the domestic market with gas without Ukrainian transit.
Europe and gas: energy balance and alternatives
With the start of the conflict in 2022, the European Union accelerated efforts to reduce dependence on Russian gas, which led to the diversification of supply sources. Former major buyers of Russian gas, such as Slovakia and Austria, organized alternative supplies. Moldova, which suffered the most from the halt of transit, has already announced the need to reduce gas consumption by a third.
Alternative for the supply of Russian gas to Europe
As an alternative, Europe is considering increasing gas supplies from Azerbaijan. However, this scheme has limitations:
- Limited capacity of Azerbaijan: Azerbaijani President Ilham Aliyev said that the country will not increase gas production if Europe does not invest in infrastructure.
- Swap deals: Hungary and Slovakia are close to concluding a contract with Azerbaijan for 12-14 billion cubic meters per year, but the implementation of such supplies requires the use of swaps with Russia.
- Hungary's Gas diplomacy: Hungarian Prime Minister Viktor Orban proposed a scheme for transferring gas to Hungary's ownership at the Russian-Ukrainian border, but no agreements have been reached.
Gazprom's gas supply routes to Europe
The map above shows the main routes for transporting Russian gas to Europe, and also indicates the capacity of each of the pipelines. It clearly illustrates how the cessation of transit through Ukraine and the events of recent years have changed the energy map of the region.
Main routes of Russian gas pipelines to Europe and their status
- TurkStream: This is the only operating route for gas supplies to Europe remaining for Gazprom after the cessation of transit through Ukraine. Its capacity is 31.5bn cubic meters of gas per year. This route connects Russia with Turkey and then with Europe, which makes it key for Gazprom's current strategy.
- Route through Ukraine ("Urengoy - Pomary - Uzhgorod" and "Progress"):Before the cessation of transit through Ukraine, this route was the most important channel for gas supplies to Europe. Its total capacity was 58 billion cubic meters of gas per year, of which 32bn fell on "Urengoy - Pomary - Uzhgorod", and 26bn - on "Progress". The cessation of operation of this route sharply reduced Russia's opportunities for gas exports to Europe.
- Nord Stream-1 and Nord Stream-2: These two pipelines had a total capacity of 110bn cubic meters of gas per year, but they were out of order due to an explosion in the Bornholm area. This was one of the key factors in the reduction of gas supplies.
Nord Stream-2 was never commissioned, and the operator of the company is in the process of bankruptcy. - Yamal - Europe: This route with a capacity of 32.9bn cubic meters of gas per year is actually unavailable due to the termination of the agreement by Warsaw with Moscow in May 2022.
- Blue Stream: The capacity of this pipeline, connecting Russia with Turkey, is 16bn cubic meters of gas per year. It continues to operate, but its volumes are insufficient to fully compensate for lost routes.
- Soyuz route: The capacity is 26bn cubic meters of gas per year, but its use is limited due to decisions by the Ukrainian side related to the declaration of force majeure in 2022.
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