Explanatory video: What happens when the gas transit contract with Ukraine expires?

By Nina Chestney

LONDON (Reuters) – Ukraine has said it will not renew its five-year contract with Russia’s Gazprom to transit Russian gas to Europe when it expires at the end of the year, but it is considering alternatives.

Since the Ukraine war, Norway has overtaken Russia to become Europe’s largest pipeline gas supplier, and the EU has increased its imports of liquefied natural gas (LNG) from the US and other countries.

WHAT IS THE GAS TRANSIT ROUTE IN UKRAINE?

The gas transit route through Ukraine, agreed between Moscow and Kyiv in 2019, enables Russia to export gas to Europe via Ukraine.

According to the Ukrainian gas pipeline operator, the transit of Russian gas through Ukraine to Europe fell by 28.5% to 14.65 billion cubic meters last year (in 2022 it was 20.5 billion cubic meters).

There are two entry points: Sokhranivka and Sudzha, but Ukraine declared force majeure and stopped flows via Sokhranivka in 2022. The system connects Poland, Slovakia, Hungary, Romania and Moldova.

WHICH COUNTRIES RECEIVE GAS THROUGH THIS ROUTE?

Most EU countries have reduced their dependence on Russian gas as a result of Ukraine’s invasion. Former major recipients of gas from Ukraine include Austria, Slovakia, Italy, Hungary, Croatia, Slovenia and Moldova. Austria still gets most of its gas from Ukraine, while others have diversified their sources and taken steps to reduce demand.

Moldova, one of Europe’s poorest countries, got all its gas from European markets last year, leaving available gas from Gazprom for its breakaway eastern region of Transnistria.

Croatia’s imports are now minimal and Slovenia’s imports have fallen to almost zero after the contract between its main gas supplier Geoplin and Gazprom expired last year, according to a study by Columbia University’s Center on Global Energy Policy.

HOW CAN GAS BE REPLACED THROUGH UKRAINE?

EU Energy Commissioner Kadri Simson said an analysis had shown that there were alternative sources of supply.

Austria can import gas from Italy and Germany and Austria’s energy suppliers have announced that they have taken precautionary measures in the event of a gas outage in Russia.

Hungary relies on Russian gas through an alternative route: the TurkStream pipeline, and Slovenia gets its gas from Algeria and other sources. Italy gets most of its gas through a route that facilitates gas imports from Azerbaijan and Algeria.

ARE THERE OTHER OPTIONS FOR TRANSIT THROUGH UKRAINE?

The Slovak gas supplier SPP stated that after the transit contract expires, a consortium of European gas buyers could take over the gas at the Russian-Ukrainian border. How this will work, however, is still unclear.

Another possibility is that Gazprom will supply part of the gas via another route, such as TurkStream, Bulgaria, Serbia or Hungary. However, capacity via these routes is limited, SPP told Reuters.

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The EU and Ukraine have also asked Azerbaijan to facilitate talks with Russia on the gas transit agreement, an adviser to the Azerbaijani president told Reuters. He declined to provide further details.

The EU is trying to diversify its gas imports and has signed an agreement that envisages doubling gas imports from Azerbaijan to at least 20 billion cubic metres per year by 2027. However, the infrastructure and financing for this expansion are not yet in place, said the consultant.

This week, Ukraine also signed its first contract with a US LNG exporter to purchase cargoes from the end of this year through the end of 2026.

WHAT IS HAPPENING TO UKRAINE’S GAS TRANSIT NETWORK?

Since 2015, Ukraine has stopped importing gas directly from Russia, but uses the transit system to supply households and businesses. The system maintains pressure for supplies to both Europe and the domestic market.

Ukraine has experience in dealing with transit disruptions – such as in 2006 and 2009 – and has tested the system to ensure that it can work even if supplies from Russia fail.

Ukrainian energy officials and industry sources have repeatedly stressed that a transit ban poses no threat to Ukraine. They said Ukrainian compressors could pump gas from deposits in the west to the east.

HOW MUCH REVENUE IS GAZPROM LOSE?

If Russia were to stop its exports, it could lose around $4.5 billion annually if the average gas price to Europe reaches $320 per 1,000 cubic meters in 2025. According to Gazprom data, the country’s daily exports to Europe via Ukraine currently exceed 40 million cubic meters.

WHAT CAN GAZPROM DO WITH THE GAS?

If Ukraine does not extend the contract, Russia plans to use alternative routes and increase its LNG exports. Gazprom, in turn, plans to increase its gas sales to China.

Gazprom began supplying gas to China via the Power of Siberia pipeline in late 2019. The goal is to export 38 billion cubic meters starting next year and eventually up to 100 billion cubic meters per year, including 50 billion cubic meters via the planned Power of Siberia 2 pipeline. However, negotiations on prices and other issues have stalled.

(Reporting by Nina Chestney in London, Pavel Polityuk in Kiev, Vladimir Soldatkin in Moscow, Alexandra Schwarz-Goerlich in Vienna, Julia Payne in Brussels, Jan Lopatka in Prague and Francesca Landini in Milan; editing by Louise Heavens)