Transit number: Will gas supplies through Ukraine stop on January 1?
The contract on the transit of Russian gas through Ukraine to Europe expires on January 1, 2025. However, experts are in no hurry to bury the route. A swap scheme with Azerbaijan is considered as a compromise option, i.e. pumping Azerbaijani gas to Europe "legally". In this case, Russia will de jure turn from a supplier into a transit country. However, the realization of such a scheme requires time. Experts believe that whether it will be realized will depend on the persistence of European business, which is interested in cheap Russian gas rather than expensive American LNG.
How Ukraine refused to transit Russian gas
Despite the fact that Russian gas supplies to Europe via Ukraine have been flowing for almost half a century, relations between the partners could not be called friendly, especially in the zero years of this century. "Gas wars" became a traditional New Year's story. However, if earlier the parties usually reached a compromise with the chimes, making European partners seriously nervous, now everything is much more complicated.
Back in May 2022, the operator of Ukraine's gas transportation system (GTS) announced the "occurrence of force majeure circumstances" due to which it stopped gas transit to Europe through the Sohranivka gas distribution station. Supplies were reduced 2.5 times from the guaranteed volume - to 40-42 million cubic meters per day. In 2023, the volume of supplies amounted to about 15 billion cubic meters. By the end of 2024, according to Alexander Frolov, Deputy Director General of the Institute of National Energy, it will be about 10 billion cubic meters. While at the maximum, in the late 1990s, they amounted to 140 billion cubic meters.
And despite the fact that gas pumping was stopped on Kiev's initiative, Naftogaz filed a lawsuit against Gazprom in the international arbitration court, demanding payment for services not rendered under the gas transportation agreement.
Already this year Kiev refused to extend the contract on gas transit to Russia. Vladimir Putin also ruled out extending the contract, although he noted that Moscow is ready to supply gas through Ukraine under a contract with any counterparty, "but this is impossible under the conditions of a lawsuit from Kiev."
- We said, we will supply, even if it is Azerbaijan's Sokar, or a Turkish company, or a Hungarian or Slovak company. But let them (Ukraine. - Ed.) take the lawsuit out of court. What is this nonsense? They said: "No, we will not take it away." Well, then <...> live without our gas," Russian President Vladimir Putin said on December 26 while speaking to the press following the CIS summit and the meeting of the Supreme Eurasian Economic Council in the Leningrad Region.
Search for compromises
According to the president, Kiev has realized that non-renewal of the contract is a big problem and has "made a fuss".
- What did the hustle start to manifest itself in? In fact, they started to apply to everyone so that someone would sign a contract with us for this transit through the territory of Ukraine instead of Ukraine," Putin explained.
The President noted that this proposal implied that gas would be supplied through Ukrainian territory, but up to the Russian border with this country the process would be managed by Gazprom, and through the territory of Ukraine - under the control of the appropriate structure of a third state.
According to Valery Andrianov, an associate professor at the Finance University under the Government of the Russian Federation, a swap scheme with Azerbaijan was considered as a compromise option, i.e. pumping Azerbaijani gas to Europe "legally" (although in practice it is produced in Russia). In this case, Russia would de jure turn from a supplier into a transit country and there would be no need to conclude a new export contract - Baku would do it.
In mid-December, Bloomberg agency with reference to Slovak SPP reported that major gas companies in Central Europe - Eustream AS, Hungarian MOL Uzbek Oil and Gas Plc and MVM, trade associations and industrial clients from Hungary, Austria, Italy and Slovakia signed a declaration of support for the continuation of gas transit through Ukraine for 2025.
According to Maria Belova, Implements' research director, it is in Ukraine's interest to keep pumping gas, and it's not just about transit revenues.
- Draining the pipeline will have a detrimental effect both on meeting the country's domestic gas needs and on the performance of the largely worn-out pipeline system. The option of resuming supplies is allowed, albeit possibly with a stop for a few days, because a number of European consumers are now making efforts to find a solution to the problem of the end of the transit agreement between Gazprom and Naftogaz," she said.
About Russia and Gazprom
As for the Russian side, experts are not in a hurry to talk about the deterioration of Gazprom's position, both financially and in supply volumes.
- If we still consider the option of a complete "dropout" of gas volumes currently sent to the West through Ukraine, it would mean a loss of about 15% of export supplies in 2024. However, it cannot be ruled out that this route will be preserved in some legal form and volume in the future. Plus the growth of supplies to China and Central Asian countries, which at the end of 2025 may even increase exports of Russian pipeline gas. And taking into account the fact that gas prices in Europe may rise significantly at the beginning of next year against the background of gas shortages, Gazprom's revenue may also increase even if supplies abroad are reduced," said Maria Belova.
Alexander Frolov also agreed with this point of view. According to him, in 2025 supplies to China will increase by 7 billion cubic meters, to Central Asian countries - by 5 billion cubic meters and more.
- In addition, I believe that in 2025 the load of the Turkish corridor will be increased by 5 billion cubic meters," the expert believes.
According to Valeriy Andrianov, stopping transit through Ukraine will not affect domestic gas tariffs. The analyst reminded that they are regulated by state authorities based on economic and social factors, which do not include the size of Gazprom's profit or loss.
On the whole, Izvestia's interlocutors note that the displacement of Russian gas from Europe is a long-term program of actions by the United States and its allies, for the implementation of which various methods have been used - from declaring Russian gas "non-free molecules" to sabotaging the construction and then undermining the Nord Streams. The current interruption of transit is one of the last chords of this game.
Location of a leak at the Nord Stream pipeline
- I believe that even in the case of peace talks, the Trump administration will be least interested in the resumption of Russian gas supplies. Therefore, it is more likely that he will push through the pumping of regasified American LNG from Poland to Ukrainian storage facilities, and further - its transportation to Eastern Europe through the infrastructure that was previously used for pumping Russian gas," Valery Andrianov said.
At the same time, according to him, the scheme with swap of Azerbaijani gas remains viable. Whether it will be realized will depend primarily on the persistence of European business interested in cheap Russian gas rather than expensive American LNG, the expert said.
