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What happens if Russian gas to Europe via Ukraine is fully cut off?

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December 23, 2024
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What happens if Russian gas to Europe via Ukraine is fully cut off?
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A major contract governing the transit of Russian gas through Ukraine will come to end on January 1, with significant implications for Moscow’s exports to some European Union countries. 

“The end of the transit contract will mark an important shift because gas via Ukraine governed by the contract currently accounts for half of Russia’s remaining pipeline gas exports to the EU and a third of total Russian gas exports, including LNG,” Bruegel, global think-tank, said in a report. 

The impact of this will especially be felt in EU countries such as Austria, Hungary and Slovakia. According to Bruegel, the Ukrainian transit route met 65% of gas demand for these countries in 2023. 

Overall, the share of Ukrainian transit in EU gas imports has dropped from 11% in 2021 to about 5%, the think-tank agency said.

The EU has a non-binding goal of stopping all Russian energy imports by 2027. 

“The end of Ukraine transit could speed up this decoupling, and would also imply a loss of $6.5 billion annually for Russia, unless it can redirect these flows to other pipelines or LNG terminals,” Bruegel said. 

Source: Bruegel

Meanwhile, Ukraine’s President Volodymyr Zelenskiy on Thursday said that the country could consider continued transit of Russian gas, but only on one condition that Moscow does not receive payment until after the war. 

Putin said that day that it was clear there would be no new deal with Kyiv to send Russian gas through Ukraine to Europe, Reuters reported. 

Volumes

According to Reuters, Russian gas supplies to Europe through Ukraine are relatively small. 

Russia shipped only 8% of its peak gas exports to Europe via Ukraine in 2023. 

This translated to about 15 billion cubic metres (bcm).

At its peak, Russia’s European gas market share stood at 35%, according to Reuters. 

According to Bruegel, Ukraine’s gas pipeline system connects Russia, Poland, Slovakia, Hungary, Romania and Moldova.

Gas flows via Ukraine into Poland and Romania have stopped. 

Slovakia is now the main entry point into the EU.

Along with Slovakia, Austria, Hungary and Moldova are now the main gas flow recipients via Ukraine. 

Source: Bruegel

In 2024, gas flows via Ukraine averaged 44 million cubic metres per day, which is equivalent to 16 bcm a year, Bruegel’s data showed. 

This is significantly below the 40 bcm per year contracted amount. 

Bruegel added:

Transit fee revenues for Ukraine amounted to $1.2 billion in 2022 and $0.8 billion in 2023, or around 0.5 percent of Ukraine’s GDP.

Replacing Russian gas with LNG

The expiration of the current transit agreement between Russia and Ukraine would mean that the EU would have to import an additional 140 terawatt per hour annually of gas from other sources. 

Most Russian gas deliveries to Austria, Hungary and Slovakia are under long-term contracts between their major gas companies and Gazprom; these are set to expire years into the future.

“However, the stopping of Ukrainian transit would not pose an immediate supply security risk to Austria, Hungary or Slovakia, for three reasons,” according to Bruegel.

Bruegel said LNG terminals in Germany, Poland, Lithuania, Italy, Croatia and Greece could replace the lost flows from Russia. Regasification units in Germany and Italy, and the potential expansion of the capacity of the Turkstream pipeline could also be an option.  

“Second, there is enough infrastructure for transmission system operators to transport replacement gas to Austria, Hungary, and Slovakia,” Bruegel said. 

Third, Austria has enough gas stored to cover its entire domestic consumption. In addition, Germany’s decision to not charge a high gas storage fee on transits would help avoid a significant rise in regional gas prices, Bruegel said.

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