What happens when Russian gas to Europe via Ukraine stops?

Ukraine has announced it will not renew its gas transit agreement with Russia when it expires on December 31, 2024.

Ukrainian Prime Minister Denys Shmyhal confirmed this decision in a conversation with Slovak Prime Minister Robert Fico. If gas flows cease, it will have significant implications for European energy supply, Caliber.Az reports citing foreign media.

Russian gas exports to Europe via Ukraine are relatively small in comparison to previous years. In 2023, Russia exported approximately 15 billion cubic meters (bcm) of gas via Ukraine, which is only about 8 per cent of the peak Russian gas exports to Europe in 2018-2019. Russia's share of Europe's gas market, once at 35 per cent, has drastically decreased since the invasion of Ukraine in 2022, as European countries have diversified their sources of supply. As a result, the European Union has significantly reduced its reliance on Russian gas.

The reduction in supply in 2022 led to a sharp rise in EU gas prices, but this spike is unlikely to repeat, as the remaining volumes are limited and only serve a few countries.

The gas transported via Ukraine flows through the Soviet-era Urengoy-Pomary-Uzhgorod pipeline, which brings gas from Siberia via Russia's Kursk region to the Ukrainian town of Sudzha. From there, the gas moves through Ukraine to Slovakia, where it is distributed to Austria and the Czech Republic.

Austria still receives most of its gas from this route, while Hungary depends on Russian gas for about two-thirds of its needs.

Slovakia imports about 3 bcm of Russian gas annually, which meets roughly two-thirds of its demand.

Czech Republic, which previously cut Russian gas imports, resumed limited Russian gas imports in 2024.

Most other Russian gas routes to Europe, such as the Yamal-Europe pipeline through Belarus and the Nord Stream pipeline under the Baltic Sea, are now non-operational. The only other active Russian gas routes to Europe are through the Blue Stream and TurkStream pipelines to Türkiye, with some volumes sent on to Hungary.

Despite the reduced volumes, the Ukrainian gas transit route remains a point of contention within the EU. Many member states, including Germany and France, have committed to not purchasing Russian gas. However, countries like Slovakia, Hungary, and Austria, which have closer ties to Russia, continue to receive gas through Ukraine. These nations argue that Russian gas remains the most affordable option and criticize the high transit fees imposed by neighboring EU countries for alternative supplies.

For Ukraine, the gas transit agreement is financially significant, generating around $0.8-$1 billion in fees. Russia, on the other hand, still earns over $3 billion from gas exports via Ukraine, based on an average price of $200 per 1,000 cubic metres. However, Russia’s state-run gas giant, Gazprom, faced a $7 billion net loss in 2023, the company’s first annual loss since 1999, due to the decline in EU gas market share.

While Russia has expressed willingness to extend the transit agreement, Ukraine has repeatedly stated it will not renew the deal. One alternative for Russia is to route some of its gas through the TurkStream, Bulgaria, Serbia, or Hungary, but these routes have limited capacity.

Both the EU and Ukraine have reportedly approached Azerbaijan to mediate in discussions with Russia regarding gas transit, though details of these talks have not been publicly disclosed.

The end of the gas transit deal via Ukraine would force European countries to further adjust their energy strategies, with some nations potentially facing higher costs or supply uncertainties depending on the outcome of these discussions.

By Vafa Guliyeva