Russia and Ukraine End Fifty Years of Gas Transport to Europe

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(Bloomberg) — Russia has stopped sending gas to Europe through Ukraine, shutting down a five-decade-old route after Kyiv refused to allow any transit to support Moscow’s war machine.

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Both sides confirmed the suspension on Wednesday after a key transport deal expired. The shutdown means many central European countries that rely on the flow will be forced to find more expensive gas elsewhere, adding pressure on supplies at a time when the region is running out of winter storage at the fastest pace in years.

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Ukraine has been the main gas delivery route to Europe, even during the last three years of war. Although the route covers only five percent of the region’s needs, the countries are still reeling after the earthquake caused by Russia’s attack on its neighbor. The recent outages have helped drive fuel prices up in the market by more than 50% year-on-year.

Russia’s Gazprom PJSC suspended supplies on New Year’s Day after a five-year transit agreement expired, citing a lack of “technical and legal possibilities” for shipments amid “repeated and clear refusals by the Ukrainian side to extend these agreements.”

The standoff was confirmed by the Ministry of Energy in Kyiv, which said the Russian flow cut off its territory as of 7 a.m. local time. Slovakia’s network operator also confirmed that it was not receiving gas.

The end of the deal underscored the European Union’s continued reliance on Russian pipeline gas and liquid fuel exports, despite Moscow’s withdrawal plan. Several countries have sought an alternative arrangement, but months of political wrangling have failed to produce an agreement.

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Slovakia, Hungary

European Commission President Ursula von der Leyen has set a political goal to phase out Russian fossil fuels by 2027, and said the move would have little impact on the region’s energy markets. Nevertheless, countries such as Slovakia and Hungary have been waging an intensive campaign to keep the fuel flowing.

“We knew the transport deal was not going to be renewed,” said Jonathan Stern, a senior researcher at the Oxford Institute for Energy Studies. “The question is whether anyone in Europe – but especially the Slovaks, who will be hit hard by this – will succeed in making an agreement” to continue getting gas.

Europe is also facing an increasingly tight global gas market. Benchmark prices closed 2024 at the highest price in more than a year.

Ukrainian President Volodymyr Zelenskiy rejected any arrangement that would end up sending money to Russian coffers while the war continues. Meanwhile, Slovakian Prime Minister Robert Fico has threatened Ukraine with a possible blackout, raising questions about the region’s broader energy security.

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In a last-ditch effort over the weekend, Fico urged the EU to deal with a freeze on supplies to Ukraine, saying the economic impact on the bloc would outweigh the impact on Russia. He estimated that European consumers could face 50 billion euros ($52 billion) in higher electricity prices every year and an additional 70 billion euros in higher electricity costs.

Slovakia and other central European states have favored reduced gas from the east, and in recent months, key companies in the region have rushed to build support for a deal with Russia and Ukraine.

‘Expected Status’

“The suspension of the flow to Ukraine on Jan. 1 is an expected situation and the EU is prepared for it,” said a spokesperson for the European Commission. The Commission, the EU’s executive body, has been working with member states for more than a year to prepare for the situation, he said.

The bloc has diversified its resources from 2022, shifting more to the sale of liquefied natural gas, mainly from the US. There are “various options” to regulate the flow of gas to central and eastern Europe, including another pipeline route and LNG terminals, Germany’s Economy Ministry said on Tuesday.

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Officials in Poland, which takes over the presidency of the EU on Wednesday, said the nation is close to the commission and is “ready to coordinate other measures with member states, if necessary from January 1.”

Conflicts between Moscow and Kyiv have previously disrupted gas shipments to European customers in the winter months.

In 2009, the flow of Russia through Ukraine to Europe stopped for about two weeks, more than 20 countries were affected during the cold weather, until the two nations signed an agreement to end their conflict. A brief interruption occurred in 2006. The deal, which expires in 2019, was also the result of last-minute negotiations.

However, the war makes a quick decision impossible for now. Russian President Vladimir Putin last week indicated that there is no time left to conclude the agreement before the end of the year. Separately, he said the lawsuit from Ukraine’s Naftogaz – allegations that Gazprom did not fully pay for transportation services – is another obstacle.

Some European countries have also warned of ideas that would label Gazprom’s fuel as non-Russian. Energy companies in the region have previously floated options such as managing fuel into Ukraine, or using a complex exchange involving Azerbaijan’s energy company Socar as an intermediary.

Russia still supplies gas to countries like Serbia and Hungary through the TurkStream pipeline that passes through Ukraine. But that link is not enough to fully compensate for the loss of the Ukrainian route. Another route, through Poland, is now closed. The Nord Stream pipeline connecting Germany to Russia was damaged by an explosion in 2022, and the new Nord Stream 2 link was never approved by Berlin.

—With help from Petra Sorge, Daryna Krasnolutska, Aliaksandr Kudrytski, Ewa Krukowska and Anna Shiryaevskaya.

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