Global energy markets are bracing for the potential cessation of the last major link between Russian and European gas networks by December 2024. The flow of Russian gas through Ukraine is set to stop, following Kyiv’s decision not to renew the gas transit agreement signed with Moscow in 2019. The interruption of this route is likely to create a temporary uncertainty in the European gas market, especially with the winter season approaching when demand for crude typically peaks. However, the anticipated fluctuations in gas prices in early 2025 are not expected to be as severe as those experienced after the suspension of gas supplies via the “Yamal” and “Nord Stream-1” pipelines.
European countries have adopted compensatory measures to address the disruption of most Russian gas supplies to major European consumption markets. This includes securing additional liquefied natural gas (LNG) supplies from suppliers in the Middle East and the United States, alongside importing extra gas shipments via pipeline from Norway and North Africa. Similarly, Central and Eastern European countries are exploring several options to enhance their energy stability following the cessation of Russian gas flows through Ukraine, including utilizing the European gas network and LNG import terminals in neighboring countries for additional crude supplies. Some countries, like Hungary, are even welcoming additional Russian gas flows, but this time via the “TurkStream” pipeline.
The Decision Made:
Kyiv has officially ended the debate over the renewal of the gas transit contract through the “Yurungoy–Pomary–Uzhorod” pipeline. On October 7, the Ukrainian government informed its Slovak counterpart—a key transit point for Russian gas into Central and Eastern European markets—that it would not extend the agreement for Russian gas transit through Ukraine, which is set to expire by December 31 of this year.
Kyiv’s motivation behind ending this longstanding relationship with Moscow, which has lasted for five years, is clear: it seeks to eliminate Russian influence and sever its commercial and economic ties to Moscow post-war. This aligns with the European Union’s goal of achieving complete independence from Russian energy sources by 2027.
The pipeline linking Ukraine and Russia represents the last major connection between the Russian and European gas networks, following the closure of most other Russian gas routes, including the “Yamal-Europe” pipelines through Belarus and the “Nord Stream-1” under the Baltic Sea over the past two years. Russian gas flows through the “Yurungoy–Pomary–Uzhorod” pipeline are vital for energy security and stability in the Central and Eastern European gas market.
In 2023, the total volume of Russian gas supplied to Europe via Ukraine was approximately 15.5 billion cubic meters, accounting for only 3% of the continent’s total gas imports (both piped and liquefied). Despite this small share for Europe, markets such as Slovakia, Austria, and Moldova rely heavily on Russian gas, with dependence ranging from 80% to 100% of total gas imports.
Overall, Slovakia, Austria, and Moldova imported approximately 10.9 billion cubic meters of Russian gas last year, distributed as follows: Slovakia with 5.7 billion cubic meters, Austria with 3.2 billion cubic meters, and Moldova with 2 billion cubic meters, according to estimates by the Norwegian company “Rystad Energy.” These quantities account for nearly 70% of all Russian gas supplied via Ukraine.
Winners and Losers:
Energy markets are watching closely for the impending disruption of Russian gas flows through Ukraine but believe this time that the risk of gas supply shortages within the continent is less severe than after the suspension of other gas routes in the past two years. Most European countries have found sufficient alternatives for Russian gas imports. However, the International Energy Agency has warned that the cessation of Russian gas flows through Ukraine represents a “significant uncertainty” for Central and Eastern Europe this winter, when crude demand peaks.
The primary risk is that the halt of gas supplies between Russia and Ukraine could upset the fragile balance of the gas market within Europe, leading to a short-term surge in crude prices on European and global commodity exchanges in early 2025. Despite the negative implications, including Ukraine possibly losing around $1 billion in transit fees for Russian gas, the European Union—along with Kyiv—views this step as a symbolic victory over Moscow as the continent moves closer to its goal of entirely phasing out Russian piped gas.
For Russia, losing its last major gas export markets in Europe will result in Moscow and “Gazprom” losing an estimated 4to4to4.5 billion annually; this will exacerbate the company’s already troubled situation, having reported its first net losses in two decades of around $6.9 billion in 2023. Nonetheless, Russia is seeking alternative options for gas and LNG exports beyond Europe, with Asia, particularly China, being the primary target market. If Moscow succeeds in this endeavor, it could offset these financial losses in the long run.
Alternative Options:
European countries have adopted compensatory measures in response to the halt of Russian gas flows over the past two years, including importing additional LNG shipments from the United States and some Middle Eastern and African countries under short- and medium-term contracts, along with additional gas supplies transported by pipeline from Norway and North Africa.
Central and Eastern European countries have similar options available to compensate for Russian gas. Among the most crucial are the capabilities to supply their markets with substitute LNG shipments through import terminals in neighboring countries, the European gas network, or the infrastructure related to the “Vertical Corridor” project, which aims to connect and facilitate gas transport among seven European countries: Greece, Bulgaria, Romania, Hungary, Slovakia, Moldova, and Ukraine.
Additionally, some European countries friendly to Moscow, like Hungary, are open to receiving additional gas flows via another transit route, specifically the “TurkStream” pipeline infrastructure that connects Russia to Turkey and extends to Bulgaria, Serbia, and Hungary. Apart from this route, the possibility of repurposing the Ukrainian gas network to receive gas flows from Azerbaijan was discussed by European parties in recent months. However, it remains unclear how the Ukrainian route would operate to fulfill this purpose, making it difficult to assess its technical and financial viability at this time.
The previous overview highlights two available options for Central and Eastern European countries following the shutdown of the Ukrainian gas pipeline. The first involves a complete abandonment of Russian gas, utilizing the existing European gas network to meet market needs. The second option involves obtaining additional Russian gas flows through alternative transit routes. European governments are well aware of the significant damage that could ensue if Russian gas supplies through Ukraine were to cease without finding adequate and present alternatives. As a result, they are actively seeking to bridge the potential gap in gas supply by selecting suitable supply mechanisms from both economic and political perspectives.
Austria as a Case Study:
At the onset of the Ukrainian war, the Austrian government firmly rejected any European ban on Russian gas, justifying that such a step would severely harm the Austrian economy, which had just emerged from the aftermath of the COVID-19 pandemic. The Austrian Energy Agency even stated in a report released in 2022 that the earliest feasible date for achieving complete independence from Russian gas would be 2030, not 2027, as set out in the EU’s plan to eliminate Russian imports. This date precedes the expiration of the contract signed between “Gazprom Export” and “OMV” for the supply of Russian gas to Austria by about ten years, with the actual expiration date set for 2040.
To avoid incurring any collateral damage to its economy, Austria continued to receive uninterrupted Russian gas flows in 2022 and 2023, reaching record levels of 3.2 billion cubic meters last year, which accounted for over 80% of the country’s gas imports in the same year. It is worth noting that fossil fuels still comprise a significant portion of the energy mix in Austria, accounting for approximately 66%, with gas primarily used for heating and manufacturing.
However, with increasing pressure from the EU on its members to eliminate Russian energy imports and the legal difficulties in settling financial transactions between the EU countries and Moscow, the Austrian government and the local energy agency deemed it appropriate to prepare for the cessation of Russian gas imports and to terminate the supply contract with “Gazprom” at the earliest opportunity. In May, the Austrian company “OMV” announced its readiness to abandon Russian gas supplies in the near future.
The key question arises: is Austria sufficiently prepared to relinquish Russian gas soon? The Austrian government’s discourse indicates its flexibility to navigate the next phase of ending the Russian gas transit agreement through Ukraine, as it has numerous options to replace Russian gas, whether by securing additional LNG shipments or importing gas through neighboring gas networks (especially from Norway, Italy, and Germany). Furthermore, Austria has a substantial gas storage, at 93.5% as of October (equivalent to 9,500 terawatt-hours), which can meet any potential gas supply shortfall for months, even without additional supplies from Italy or Germany.
In fact, “OMV,” Austria’s largest energy company, possesses significant logistical capabilities and established trade relationships with energy suppliers worldwide, which would facilitate the Austrian government’s task of obtaining gas from Norway and the global market, along with the possibility of importing LNG shipments through the (GATE) terminal in Rotterdam, where the company has a regasification capacity of three billion cubic meters per year.
Additionally, starting in 2026, “OMV” will receive additional LNG shipments from “BP” at a capacity of one million tons annually, along with further flows amounting to 850,000 tons annually starting in 2029 from the American company “Cheniere Energy.” All these available options will enable the Austrian government to be sufficiently flexible in managing the halt of Russian gas supplies through Ukraine at the beginning of next year.
Perhaps the Austrian government will take further actions to enhance the country’s energy security by adopting additional measures to improve energy consumption efficiency and rationalize gas use, alongside expanding renewable energy applications in the residential and heating sectors. In any case, these aforementioned measures should not be seen as a permanent solution regarding Austria’s aim to achieve climate neutrality by 2040; it will need to develop other options to expand renewable energy capacities and import green hydrogen, according to the Austrian Energy Agency.
In conclusion, it can be said that the sensitivity of the European gas market to the risks posed by the disruption of Russian gas supplies through Ukraine has diminished, unlike the situation during the first two years of the Ukrainian war (2022 and 2023), due to the abundance of supplies and diverse sourcing options. Nevertheless, European countries must adopt a comprehensive approach to enhance their energy security and minimize their exposure to the fragile European gas market, which will involve expanding renewable energy capacities and improving energy efficiency measures.
