Russian Gas Era in Europe Ends as Ukraine Halts Transit

Russia's dominance over Europe's energy markets has come to an end with the complete cessation of Russian gas exports through Ukraine, as reported by Reuters. The halt, effective from 0500 GMT on New Year's Day, marks the culmination of a years-long shift in the EU's energy strategy, driven by the war in Ukraine and the need to diversify its energy sources.

While the loss of Russian gas will not significantly impact consumer prices in the EU—unlike in 2022, when plummeting supplies fueled a cost-of-living crisis and eroded the bloc's competitiveness—it will disrupt energy supplies in Transdniestria, a pro-Russian breakaway region of Moldova. With heating and hot water supplies cut off, Tirasteploenergo, the local energy company, is urging residents to dress warmly and use electric heaters.

The European Commission, however, maintains that the EU is prepared for the Russian gas cut-off, highlighting the bloc's expanded capacity for importing liquefied natural gas (LNG) from alternative sources such as Norway, Qatar, and the United States.

“The European gas infrastructure is flexible enough to provide gas of non-Russian origin,” a Commission spokesperson said. “It has been reinforced with significant new LNG (liquefied natural gas) import capacities since 2022.”

The EU's pivot away from Russian gas has been underway since the start of the war, with the bloc significantly reducing its reliance on Moscow's energy exports. The final hurdle in this transition is the termination of the transit agreement with Ukraine, which will cost Gazprom an estimated $5 billion in lost sales.

Ukraine, having refused to extend the transit deal, is projected to lose up to $1 billion annually in transit fees from Russia. To offset this loss, the country is quadrupling gas transmission tariffs for domestic consumers, a move that could cost Ukrainian industry over 1.6 billion hryvnias ($38.2 million) per year.

The remaining EU buyers of Russian gas through Ukraine, such as Slovakia and Austria, have secured alternative supply arrangements. Austria, for instance, is expected to receive just 7 gigawatt hours (GWh) per day from Slovakia on January 1, a significant drop from the roughly 200 GWh per day it was receiving in recent weeks. Slovakia's main gas buyer, SPP, will prioritize supplies from Germany and Hungary, but will face higher transit costs.

The decline in Russian gas exports through Ukraine marks the end of an era, with combined pipeline routes from Russia having delivered a record 201 billion cubic metres (bcm) of gas to Europe in 2018. The Nord Stream route across the Baltic Sea to Germany was destroyed in 2022, and the Yamal-Europe pipeline via Belarus has also been shut down. Russian gas shipments via Ukraine in 2023 amounted to about 15 bcm, a significant drop from the 65 bcm shipped at the start of the last five-year contract in 2020.