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Russia's Gas Transit through Ukraine: End of an Era?

February 4, 2025

By Andrian Prokip
Kennan Institute

On the morning of January 1, 2025, Ukraine’s gas transmission system operator stopped the transit of Russian gas to Europe. This stoppage took effect because the five-year contract on transiting Russian gas, established in 2019, had lapsed. The future of gas transit remains uncertain, yet this decision signifies the impending end of a lengthy transit history and, most likely, the end of Russian gas dominance in Europe.

A Brief History of Russian Gas Transit
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Impact on Russia

Before 2022, Russia expected a steady expansion of its gas exports to Europe in the pipelines it built to bypass Ukraine. However, in 2022 Russia began undersupplying gas to the EU, expecting that energy blackmail on the cusp of winter would compel the EU to abandon its support for Ukraine. Russia demanded payment for gas in rubles to continue gas supply, contradicting existing contracts. Later, it imposed sanctions on the Yamal-Europe pipeline and interrupted gas supplies through Nord Stream several times shortly before the mysterious explosion destroyed the pipeline.

The result was the opposite of what Moscow intended: Europeans worked to diversify their supplies to other nations and to drastically expand their capacity to use liquefied natural gas (LNG). Europe solved its short-term issue of supply, and in so doing practically eliminated any reliance on Russia for the future.

Europe’s replacing Russian supply did more damage to the Russian economy than any sanctions imposed against Russia. In 2024, Gazprom managed to export about 33 bcm through the TurkStream and 15.4 bcm through Ukraine, compared to 174 bcm in 2021. The drop in export volume to Europe devastated Gazprom’s financial condition—the company incurred huge losses for the first time in two decades. The loss of an additional 15 bcm of exports via Ukraine under the old contract will deal another significant blow to Gazprom’s condition.

Russia is an energy superpower in both natural gas and oil production. Oil is both profitable and simple to export: just put it on a ship and send it to your customer. Natural gas is different. Unless it is converted to LNG, it can only transit to the customer through a pipeline.

Thus, Russia’s gas monopoly does not have many options for rerouting any of its gas supply to other regions. Exports to China will rise in 2025 by 7 bcm, reaching the maximum capacity of the Power of Siberia pipeline (38 bcm per year). Even worse, the gas fields that previously supplied Europe are not easily connected to the network of pipelines that supply China.

Today, Gazprom is considering cutting staff at its headquarters and closing foreign representative offices, and increasing gas prices for domestic gas customers. In other words, losing the European market has proven to be a disaster for Gazprom, and the Kremlin may be forced to look for opportunities to re-enter the European market using any pipeline.

The Uncertain Future of Transit

In recent years, Ukrainian companies received less than $1 billion annually from Gazprom for transit, most of which was used to cover the operational costs of the gas transmission system. With suspended transit, these income streams vanished. Ukraine’s energy regulator increased gas transmission tariffs, which, however, amounted to a small share of the final price of the gas.

The future of gas transit is unclear. On the one hand, last year, Ukraine’s top officials stated several times that Kyiv was ready to transit natural gas, provided that the supply came from Central Asia, not Russia. In 2024, a report suggested that gas from Azerbaijan might be transported through Russia and Ukraine to the EU. However, many criticized the idea, predicting that Russia might mix its own gas with Azerbaijani gas, or that the entire supply might covertly originate from Russia.

Some European states and energy companies would be happy to continue importing Russian gas. In late 2024, the Slovak gas company SPP, along with companies from Hungary, Italy, Austria, and the Czech Republic, addressed the European Commission to assist in negotiating the continuation of Russian gas transit. Slovak Prime Minister Robert Fico has even threatened Kyiv multiple times with possible retaliatory measures if transit is not reinstated. However, the European Commission recently indicated that it did not expect gas supply challenges for the EU and that the region had sufficient new supply routes.

Longterm, what will be the European Commission's stance on Russian gas in general? In 2022, shortly after Russia invaded Ukraine, the EU committed to phasing out Russian energy by 2027-2030. The Commission may eventually contemplate a ban on Russian gas. If that occurs, only Central Asian or Azeri gas could be transported through Russia and Ukraine to the EU. Even if some amount of gas supply from Russia is restored in the future, the era of Russian gas dominance in Europe is consigned to history.

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.

https://www.wilsoncenter.org/blog-post/russias-gas-transit-through-ukraine-end-era