Russian gas: Ukraine wants to close the valves, and it is Moscow that will suffer the most

The war raging in Ukraine is carefully eroding the ties that still united Russia and the West. There is, however, one, made of the hardest steel, which still resists mortars and sanctions: the gas pipeline ironically called Brotherhood (brotherhood), which runs through Ukraine.

The territory, through its central position between Russia and Europe, is thus a major corridor for Russian gas entering Europe. At least it was until Moscow’s invasion of Ukraine. Since then, the natural gas tap (gas in gaseous form, as opposed to liquefied natural gas) has dried up: from 40% in 2021, the share of Russian natural gas arriving in Europe has fallen to less than 8% at the end of 2023, according to figures from the European Commission.

About another 7-8% of Russian gas comes to us in liquefied form (LNG).

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Europe distances itself from Russian gas

Still, a large part of the Russian natural gas continuing to arrive in Europe passes through Ukraine at war, kyiv being linked by a five-year transport contract to Gazprom, the gas jewel of Moscow.

The latter, however, ends in a few months, on December 31, 2024, and Ukraine has indicated its desire not to renew it. For his part, Vladimir Putin continues to raise the specter of a disaster scenario for European Union consumers deprived of Russian gas.

In reality, analyzes The Insider, the termination of the contract between Gazprom and kyiv will above all hurt the Russian company’s wallet – and hence the Kremlin’s finances. For two years, and under Repower EU adopted in 2022, the European Union has been striving to distance itself from Russian natural gas, and the project is already well advanced.

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Partially weaned by Moscow in 2022, the Old Continent has massively turned to LNG. In 2023, according to figures from the European Council, the United States was the main supplier to the EU (nearly 50% of its total LNG imports). Russia only comes in 3rd position.

The diversification of gas supplies makes Europe more independent from Russia. And it should also be noted that the European Union has reduced its gas consumption by 20% since the invasion, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

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European independence is taking place in the Ukrainian corridor, according to The Insider. The transit of Russian gas through Ukraine has thus decreased considerably since February 24, 2022: in 2023, its volume only represented 34% of what it was in 2021.

The contract signed in 2019 commits Gazprom to deliver 65 billion cubic meters of gas to European customers via Ukraine in 2020 and at least 40 billion in each of the following four years, but only 15 billion cubic meters were delivered in 2023.

Russia is therefore seeking to redirect its exports towards Asia, but the calculation is not good, any more than it is for oil, we noted at the beginning of May. Thus, American sanctions on Russian gas projects, such as Arctic LNG 2, dissuade potential Chinese and Indian customers from purchasing Russian LNG from sanctioned companies.

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In this context, the closure of Brotherhood in Ukraine could prove particularly painful for Gazprom, which posted a net loss of 629 billion rubles ($6.86 billion) last year, compared with a net profit of 1.2 trillion rubles in 2022, reported - at the beginning of May.

Saving Eastern Europe from the energy crisis

The fact remains that the European Union will not emerge completely unscathed from the end of the gas transport contract between kyiv and Moscow. If Western Europe has turned to LNG, Eastern countries continue to receive Russian gas through Brotherhood. For them, the bill could be steep. According to Euractiv, the main consumers of Russian natural gas delivered to Europe via this route are Austria (6 billion cubic meters), Slovakia (6.5 billion cubic meters) and Hungary (1 billion cubic meters ).

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Austria, in particular, is linked to Russia by a supply contract which runs until 2040: the country was forced to admit in February that Russian gas represented 98% of its total supply… two years after the Russian invasion of Ukraine.

To save its eastern members from the energy crisis, the European Union is currently working on a plan to leave the Ukrainian corridor open, Bloomberg revealed on Monday. According to anonymous people close to the matter, one of the options discussed would consist of purchasing Azerbaijani gas, then injected into Russian pipelines destined for Europe. A “tinkering” which would prevent Europe from perpetuating its dependence on Moscow, while continuing to irrigate its energy “bad pupils”. But the plan is only in its infancy, and the Ukrainian deadline is fast approaching.