Disruption of Gas Transit via Ukraine: Challenges and Consequences for Europe and Russia

The announcement by Alexander Novak, Russian Deputy Prime Minister, regarding gas transit via Ukraine reveals several strategic issues for Russia, Ukraine and the European Union (EU). At the end of 2024, the current gas transit agreement between Russia and Ukraine expires. While Russia is open to continued supplies, Ukraine has repeatedly stated that it will not renew this agreement. This situation places the EU in a delicate position, as some European countries continue to depend on Russian gas flows for their energy consumption.

Despite the EU’s drastic reduction in Russian gas imports since the start of the war in Ukraine, countries such as Slovakia, Austria and Hungary still depend on these supplies. Slovakia, in particular, finds itself in a vulnerable position as it has no solid alternatives. It could try to set up a reverse flow from Austria or import via liquefied natural gas (LNG) terminals in Germany, but this would entail additional costs.

Economic Impact for Ukraine

For Ukraine, the end of gas transit could have significant economic consequences. Currently, Kyiv generates around 714 million euros in annual revenue from the transit of Russian gas, which is below the 1.25 billion euros initially forecast. However, maintaining this infrastructure is expensive. Ukraine’s pipeline network, designed to transport large quantities of gas, requires high maintenance costs, estimated at around €892 million per year, to remain operational. If Russian transit stops, Ukraine will need to find alternative ways to finance these costs, while ensuring that pipelines continue to meet domestic needs.

Implications for Russia and the EU

Russia could suffer a loss of $7-8 billion in annual revenue, which would represent around 15% of Gazprom’s total turnover. These losses could not be compensated by alternative markets for several years. Construction of the “Power of Siberia 2” pipeline to China is not planned until 2030, and a proposed LNG terminal on the Baltic Sea would not come into operation until 2026-2027. In addition, the end of this transit could trigger damage claims from European customers, some of whose contracts extend until 2040.

For the EU, the loss of the 15 billion cubic meters of gas transported through Ukraine each year would come as a shock to some central and eastern European countries. Even though the EU’s overall dependence on Russian gas has been reduced, Russia’s share of total gas imports remains significant, accounting for around 15% in the second quarter of 2024, just behind the United States’ 19%. Countries like Hungary and Slovakia, which do not have access to the sea to import LNG, would be forced to find other sources at a much higher cost.

Strategies and Perspectives

To try to get around the potential blockage, one of the options being explored is for European companies to sign transport contracts directly with Ukraine, rather than going through bilateral contracts with Gazprom. This would allow Ukraine to continue to collect transit fees while aligning with European needs. However, any permanent cutoff of gas flow through Ukraine would significantly increase costs for EU countries that already use reverse flow mechanisms to import gas more cheaply.

The situation remains complex and evolving. A permanent disruption to transit via Ukraine would undermine not only Russian gas revenues, but also the energy security of several European countries. Russia could turn more towards Asia, but these markets will not compensate for European losses in the near future. For its part, Ukraine could benefit from a reorganized transit system, but this would require significant investments to adapt its infrastructure. For Europe, the search for alternatives remains limited by geographic constraints and high logistics costs.

The final decision will depend on negotiations between the EU, Ukraine and Russia, while discussions have already been initiated to explore options via other routes, notably through Turkey and Azerbaijan.

-

-

PREV the 2024 Viviane Esders Prize awarded to Jean-Claude Delalande
NEXT The extension to 100 years of the lifespan of gas pipes denounced by the CGT of GRDF – 10/10/2024 at 6:14 p.m.