Russian gas deliveries to Europe through Ukraine are scheduled to halt on New Year’s Day, signifying the conclusion of Moscow’s enduring influence in the European gas sector.
The oldest gas export pipeline from Russia to Europe, dating back to the Soviet era, was anticipated to shut down at the close of 2024, coinciding with the expiration of a five-year transit agreement between Russia and Ukraine.
As reported by Reuters, information from Ukraine’s gas transit operator indicated on Tuesday that Russia had not made any requests for gas shipments for January 1.
In the wake of the war in Ukraine that began in February 2022, the European Union has made substantial efforts to decrease its dependence on Russian gas by exploring alternative energy sources.
Countries such as Slovakia and Austria, which continue to import Russian gas, have secured replacement supplies, and analysts anticipate that the market will experience minimal disruption from this cessation, as reported by Reuters.
On Tuesday, European benchmark gas prices settled at 48.50 euros per megawatt hour, reflecting only a modest increase from previous trading sessions.
Nevertheless, the interruption of gas flows has considerable geopolitical ramifications.
Since the onset of the invasion of Ukraine, Moscow has seen a decline in its previously dominant share of gas supplies to EU nations, ceding ground to competitors including the United States, Qatar, and Norway, which has further encouraged the EU to diminish its reliance on Russian gas.
Gazprom, once the world’s leading gas exporter, has reported a loss of $7 billion for the year 2023, marking its first annual deficit since 1999.
The unavailability of affordable Russian gas has significantly contributed to an economic downturn in Europe, leading to increased inflation and worsening the cost-of-living crisis.
While Europe has rapidly pursued alternative energy sources, the reduction of Russian gas supplies raises enduring concerns regarding its long-term global competitiveness, particularly in relation to the industrial future of Germany.
Consequences of the Ukraine conflict
For over fifty years, Russia and the Soviet Union established a substantial presence in the European gas market, which peaked at approximately 35%. However, the ongoing war in Ukraine has severely undermined Gazprom’s operations in this sector.
Most gas routes from Russia to Europe are currently inactive, including the Yamal-Europe pipeline through Belarus and the Nord Stream pipeline under the Baltic Sea, which was damaged in 2022.
The Soviet-era pipeline that traverses Ukraine transports gas from Siberia through the town of Sudzha, now under Ukrainian control, in Russia’s Kursk region. From there, it continues through Ukraine to Slovakia, where it branches off to the Czech Republic and Austria.
Kyiv has declined to engage in discussions regarding a new transit agreement.
Ukraine is forfeiting approximately $800 million annually in fees from Russia, while Gazprom is projected to incur losses nearing $5 billion in gas sales to Europe through Ukraine.
The termination of the transit agreement is not expected to trigger a resurgence of the EU gas price surge witnessed in 2022, as the remaining volumes are relatively minimal.
In 2023, Russia transported around 15 billion cubic meters (bcm) of gas through Ukraine, which constitutes merely 8% of the peak Russian gas flows to Europe recorded in 2018-2019.
Gazprom reported that it would deliver 37.2 million cubic meters on Tuesday, a decrease from 42.4 million cubic meters on Monday. Subsequently, Ukraine’s gas transit operator indicated that Russia had not scheduled any gas flows for January 1 through the Ukrainian pipeline to Europe as of 1500 GMT.
The cessation of supplies via Ukraine will significantly impact Moldova, a nation that was formerly part of the Soviet Union.
Hungary and other nations continue to receive Russian gas from the south through the TurkStream pipeline, which runs along the Black Sea floor, although Hungary had expressed a desire to maintain the Ukrainian route as well.
