Long gas pipelines: Russia and Ukraine do not negotiate to extend transit to Europe
Russia and Ukraine are not negotiating the extension of the agreement on gas transit to Europe. This was reported by Russian Deputy Prime Minister Aleksandr Novak to Izvestiya. Meanwhile, the agreement expires already at the end of December, and it remains unclear whether its termination means a complete cessation of gas supplies through Ukrainian territory. Stopping the transit of pipeline gas threatens the energy security of European countries, mainly Austria and Slovakia, experts believe. The EU states will have to increase their expenditures on purchasing gas from Russia, which is mainly LNG. In addition, according to analysts' estimates, if transit through Ukraine is stopped in early 2025, gas prices in Europe may increase sharply. Izvestia reports on where pipeline gas will be redirected to and whether it is possible to replace Russian fuel with Azerbaijani or Kazakh fuel.
Stopping Ukrainian transit to the EU
At the end of December, the five-year agreement between Moscow and Kiev on gas transit to Europe expires. Despite the strained relations between Russia and the EU, the gas pipeline passing through Ukraine still remains one of the important arteries supplying the EU with gas. The blue fuel mainly reaches Central and Eastern European countries via Ukraine.
Reports that Ukraine might refuse to extend transit agreements with Russia first appeared in 2023. Last summer, the topic was brought up to date by the Ukrainian and Western mass media. In August, Volodymyr Zelenskyy said that Kiev would not prolong the agreement with Russia. This is also evidenced by the fact that the operator of the Ukrainian GTS apparently did not hold auctions for booking transit gas transportation capacities for the next year. And while analysts continue to speculate whether the transit extension is possible, the Russian government notes that there are no contacts between the Russian and Ukrainian sides on this topic.
- "Russia and Ukraine have no such negotiations," Alexander Novak told Izvestia when asked whether Moscow and Kiev are engaged in a dialog on transit extension.
At the same time, there is still no answer to the question whether Russia expects gas supplies to Slovakia and Austria to continue in 2025, despite the fact that these countries remain one of Moscow's main energy partners in the EU.
- "I will not comment on this issue now - it is still of an uncertain nature in terms of whether there will be transit from January 1 through Ukraine or not," the Russian deputy prime minister told Izvestia.
According to the agreements reached in 2019, Ukraine was to pump at least 225 billion cubic meters of gas through its territory over five years. Until May 2022, Russian gas was supplied to the Ukrainian territory and further to Europe through two gas metering stations (GTS) - "Sokhranovka" in Rostov region on the border with the LNR and "Sudzha" in Kursk region on the border with Sumy region. At the moment, transit is carried out only through the Suja GTS - about 42.4 million cubic meters per day. Gas through this route is mainly supplied to Slovakia, Hungary, Austria and the Czech Republic. In addition, Russia exports fuel to European countries via Turkish Stream. It pumps about 15 billion cubic meters per year to the countries of Southern and Southeastern Europe - gas is delivered to Romania, Serbia, Northern Macedonia, Hungary, Greece and Bulgaria (through intermediaries, not under a direct contract with Gazprom).
It is worth recalling that before the SWO, Russia supplied blue fuel to the EU countries via other routes, in particular through the Yamal-Europe gas pipeline. This pipeline stretches from Russia's Torzhok through Belarus and Poland to Frankfurt am Oder, and its capacity is 33 billion cubic meters per year. However, in March 2022, Poland restricted gas supply to Germany via this route.
Pipeline gas from Russia also previously reached the EU via Nord Stream. In August 2022, Gazprom announced a complete shutdown of pumping. The company reported that this was done due to the repair of the only gas pumping unit left in operation at the Portovaya compressor station. In late September, terrorist attacks were carried out on gas pipelines, blowing up two strings of Nord Stream and one string of Nord Stream-2. Vladimir Putin earlier said that Russia is ready to supply gas to Europe through the only branch of Nord Stream-2 (about 27.5 billion cubic meters per year), but Moscow's proposals are not responded to in Europe. The pipeline was completed in 2021 and has already been technically injected with gas. However, German regulators have never authorized its commissioning.
Consequences of transit interruption for Europe
Despite the fact that the EU has reduced imports of Russian energy carriers since 2022, Moscow still remains one of the main suppliers of resources to Europe. According to Eurostat, France, Hungary and Spain are the biggest buyers of Russian gas - they accounted for more than half of all imports from Russia this year. Over the past nine months, Russia has supplied more than €10 billion worth of gas to the EU, with pipeline gas accounting for about €5.4 billion and liquefied natural gas (LNG) the rest. Paris and Madrid buy LNG exclusively from Russia.
In the third quarter of 2024, the volume of pipeline gas imports from Russia was 54% lower than in the first quarter of 2021. However, due to rising prices, its value fell by only 10%. Over the last three quarters, natural gas supplies from Russia to the EU have increased, and now their share (20%) is close to the figure for the third quarter of 2022 (22%).
In mid-October, the European Commission claimed that it was ready to stop the transit of Russian gas through Ukraine. According to former European Commissioner for Energy Kadri Simson, gas reserves in the EU are allegedly at 95%, which will avoid shortages and keep prices stable. At the same time, only for two weeks of the heating season the reserves of underground gas storages decreased to 87% at once. The key factor here could be the cold weather. Against this background, in November, the average exchange price of gas in Europe exceeded $500 per 1,000 cubic meters for the first time in a year. Igor Yushkov, an expert of the Financial University under the Government of the Russian Federation and a leading analyst of the National Energy Security Fund, believes that the probable cessation of Ukrainian transit threatens Europe with an even greater price hike.
- There will be a gas shortage and a price hike. Yes, then the situation will normalize, and Europe will again reduce consumption, as it was in 2021-2022. The period of high prices led to the fact that consumption fell by about 90 billion cubic meters per year. That is, they did not replace most of the Russian gas, but simply reduced consumption, mainly in the industrial sector," he told Izvestiya. - There has been a wave of deindustrialization - enterprises cannot afford to buy gas at such high prices and remain profitable.
In October, the International Energy Agency (IEA) called the future of Russian gas transit through Ukraine a "key uncertainty" ahead of the winter of 2024/25. This could lead to a loss of around 6 bcm of gas supplies to the EU in the first quarter of 2025 alone, with a total of 15 bcm of volumes being lost for the year.
Which European countries could be affected
Among European countries, Austria and Slovakia will suffer the most from the abrupt termination of pipeline gas purchases from Russia. This year about 80% of Austrian gas demand was covered by Russia, which is much more than in other European countries. In mid-November, Gazprom stopped supplying gas to Austria. According to Reuters, the reason for this was the debt of the Austrian company OMV in the amount of €230 million. However, the contract between OMV and Gazprom for gas supplies to Austria was calculated until 2040.
As for Slovakia, it is still interested in gas imports from Russia. Bratislava is actively looking for an opportunity to solve the problem with the possible termination of Ukrainian transit. Prospects for gas purchases, in particular, were discussed at the meeting of the Russian and Slovak foreign ministers on December 5 in Malta. On the same day, Economy Minister Denis Sakova and SPP CEO Vojtech Ferenc arrived in St. Petersburg for talks with Gazprom.
- Austria and Slovakia will be most affected. They are landlocked and will have to buy LNG as pipeline supplies are running at maximum - both from Azerbaijan, Algeria and Norway. They will have to deliver LNG to a coastal country (e.g. Croatia), will have to pay for regasification and pumping to their territory. It will be expensive," said Igor Yushkov. - Slovakia will also lose money due to the termination of transit to Austria.
It is unclear how the termination of gas supplies through Ukraine will affect Moldova and Transnistria. In 2023, 1.8 billion cubic meters were sent to Moldova via Ukrainian territory. According to Prime Minister Dorin Recean, stopping the gas supply from Russia may provoke a humanitarian catastrophe in Transnistria, which consumes this fuel on borrowed time. Moldova, which imports up to 80% of its electricity from Transnistria, will also suffer. Because of the uncertainty with supplies through Ukraine, Moldova and Transnistria are already preparing to introduce state of emergency regimes.
- If we cross out transit through Ukraine, Moldova will theoretically be able to use the Trans-Balkan gas pipeline. But the question arises whether it has enough capacity to meet demand," Alexander Frolov, deputy director of the Institute of National Energy, told Izvestia. - Another thing is that Moldova is not a very big consumer: it needs about 3 billion cubic meters per year, and somewhere 60% of this volume is consumed by Transnistria. But if Tiraspol does not receive gas, Chisinau will not receive energy from the power plants located in Transnistria.
At the same time, the expert notes that in case of termination of Ukrainian transit, about one third of the gas volume (about 5 billion cubic meters per year) can be redirected to the "Turkish Stream" and go to Hungary. This year Budapest has received over 5 billion cubic meters through the Turkish corridor.
Are Azerbaijan and Kazakhstan capable of replacing gas from Russia?
Meanwhile, Ukraine (and possibly the European Commission) continues to develop schemes for purchasing pipeline gas from alternative suppliers. Kiev expects that Russian gas can replace fuel from Azerbaijan and Kazakhstan. However, experts note that the hopes of the Kiev leadership are unlikely to be justified.
- Azerbaijani gas will not replace Russian gas. Azerbaijan already supplies as much gas to Europe as it can, both in terms of production and export capacity," said Igor Yushkov. - As for Kazakhstan, it is trying to keep production at least at the current level, while consumption is growing. From an exporter it will gradually become an importer - this is the prospect of 2025-2026.
According to the Ukrainian media, in the fall Kiev offered Azerbaijan (as a gas exporter) and Slovakia (as a buyer) a scheme with an alternative to Russian supplies to Europe through its territory. The mechanism of fuel transportation is proposed to be as follows: a prospective buyer, for example Slovakia, buys fuel at the entry point from Azerbaijan to Russia or from Russia to Ukraine. The gas owner itself arranges transportation of gas through Russia and pumps it into Ukrainian underground storage facilities, and then can use it as it chooses, including selling it abroad. In this scheme, Ukraine is not a transit country, but a re-exporter. However, neither Baku nor Bratislava have given Kiev a final answer yet.
It is not ruled out that in the future Kiev may return to the restoration of gas transit through its territory if the conflict with Russia is settled peacefully. According to US President-elect Donald Trump, Ukraine allegedly wants to make a deal with Russia. He said this after a meeting with Zelensky in Paris on December 7, calling for immediate peace talks. It should be noted that Moscow has repeatedly stated its readiness to resolve the conflict peacefully.
