Transit of Russian Gas Through Ukraine Ends as Europe Adapts

The transit of Russian natural gas through Ukraine to Europe and Moldova officially ended on January 1, marking the conclusion of a five-year contract between Ukraine’s Naftogaz and Russia’s Gazprom. The cessation, confirmed by Ukraine's gas transmission system operator, effectively halts supplies at both the entry and exit points along Ukraine's borders.

The contract, signed on December 30, 2019, was a compromise following Gazprom’s loss in the Stockholm arbitration, which required the Russian energy giant to pay $2.9 billion to Naftogaz. Despite challenges, the agreement facilitated transit under "ship-or-pay" terms, providing revenue for Ukraine even as actual volumes fell below contracted levels.

During the contract’s five-year duration, only 148 billion cubic meters (bcm) of gas were transported, significantly less than the agreed 225 bcm. Tensions escalated in 2022 when Ukraine lost control of the Sokhranivka station in Luhansk, and accusations of gas theft in Russian-occupied territories emerged. By 2023, transit volumes had dropped to 14.65 bcm, relying exclusively on the Sudzha entry point.

In the absence of a renewed agreement, Slovakia and Hungary, traditionally reliant on Ukrainian transit routes, sought alternatives. Hungary turned to the TurkStream pipeline, while Slovakia explored options involving Azerbaijani gas.

Discussions about gas supplies from Azerbaijan revealed capacity limitations, as Baku's existing commitments left little room for additional exports to Europe. Efforts to secure Azerbaijani supplies via Russia or storage facilities in Ukraine proved unfeasible, reflecting the complex dynamics of regional energy security.

The European Union has been preparing for this shift since 2022, when plans to eliminate reliance on Russian energy by 2027 were announced. Imports of liquefied natural gas (LNG) from the U.S. and increased supplies from Norway have diversified the energy mix, reducing Russian gas to just 5% of the EU's consumption by 2024.

However, Moldova faces significant risks. Its dependence on Russian gas for electricity production makes it vulnerable, despite stockpiles of alternative fuels. Neighboring Romania is expected to assist with electricity supplies in case of shortages.

While Ukraine’s gas transmission system will continue to serve domestic needs, the loss of transit revenue necessitates higher tariffs for industrial consumers. Experts warn that Ukraine’s storage and domestic distribution networks could face stress by the end of the heating season.

Despite the uncertainty, Ukraine’s gas infrastructure remains a strategic asset with the potential to regain relevance in the future. Meanwhile, Europe’s energy diversification efforts signal a continued shift away from reliance on Russian hydrocarbons, reshaping the regional energy trade landscape.