Mihai Melintei, Energy Analytical Studies
Russia’s military aggression in Ukraine has shown that energy is a fundamental part of the system of international relations and new geopolitical developments. After the last UN climate summit, gas has entered the list of strategic energy sources for the global energy transition. In this context, the importance of natural gas has increased considerably as a pillar of energy security.
At the same time, on 1 January 2025, after more than six decades of gas supplies to European countries, first by the USSR and later by Gazprom, the transit of Russian gas through Ukraine was stopped. Gas supplies through Ukraine were not halted following the launch of the full-scale war by Russia in February 2022 and throughout the military clashes, but by the end of 2024, Gazprom and Naftogaz had not reached a new transit agreement.
What does this mean for the European market, Ukraine, Russia and the Republic of Moldova? Is there an alternative to the supply of gas from the Russian Federation to European states, what are the effects for the parties and are there prospects for resuming transit? In this article we try to develop some hypotheses, which will try to answer these questions.
Developments in energy disputes between Russia and Ukraine
Disputes over gas between Moscow and Kiev are not new. They date back to the 1990s and have led to numerous problems, including temporary disruptions in gas supplies to European consumers. The first dispute between Russia and Ukraine took place on 3 March 1994, when Gazprom suspended gas exports to Ukraine for 38 days citing Kiev’s debts. Following negotiations, Gazprom fully resumed supplies on 10 April 1994. At that time, Ukraine committed itself to a debt repayment programme, but failed to do so. However, gas supplies were not stopped.
Another crisis situation was registered on 1 January 2006 when Gazprom stopped supplying gas to Ukraine for 3 days. At the time, Moscow claimed that Kiev was making unauthorised extractions from the export pipeline through which gas was supplied to Europe. The conflict was caused by disagreements over gas prices. Russia had demanded an increase in the price of gas for Ukraine from $50 to $230 per thousand cubic metres, while Kiev had agreed to an increase to a maximum of $80. On 4 January 2006, the parties signed an agreement to supply gas at $230 for five years.
On 3 March 2008, Gazprom cut gas supplies to Ukraine first by 25% and then by the same percentage again for 2 days. The reasons given for this measure included a $1.5bn gas supply debt incurred by Ukraine. In August 2008, the Ukrainian government confirmed that it had seized more than 1.3 billion cubic metres of gas transiting its territory but destined for European consumers.
As of 1 January 2009, Russia stopped supplying gas to Ukraine, and on 7 January halted gas transit to Europe for 19 days. Moscow and Kiev failed to agree on contract terms and prices. The new agreement between Gazprom and Naftogaz was signed on 19 January 2009. In mid-January 2009, Gazprom announced that the Russian export gas remaining in Ukraine’s gas transmission system after 7 January had been taken over by the Ukrainian side. The Russian gas company also reported that in 2008 Ukraine illegally took over 86 million cubic metres of transit gas. Kiev has rejected all the Russian allegations.
Amid political tensions and disputes over gas supplies, in June 2014 Gazprom switched to a prepayment regime for gas supplied to Ukraine. The gas supply was stopped for 176 days due to the absence of prepayment. A few months later, through the mediation of the European Commission, a new agreement was reached between Moscow and Kiev on 30 October, the so-called “winter package”. Since 25 November 2015, Ukraine has stopped direct gas purchases from Russia.
Throughout this chronological evolution of the gas dispute between Moscow and Kiev, the halt in gas transit to Europe via Ukraine has caused major crises. In 2009, for example, the leaders of the largest European countries took part in the resolution of the problem, and the European Commission carried out a special enquiry. In contrast, stopping transit on 1 January 2025 was calmly viewed by the international community. The consequences of the transit halt were much more modest: gas prices in Europe increased slightly, only the Prime Minister of Slovakia was actively involved in the resumption of transit, and the Republic of Moldova faced problems in the supply of gas to the Transnistrian region.
The effect for the European gas market
In 2024, Russia exported about 15bn m3 of natural gas to the European market via Ukraine. This represented about 5% of European needs, but even this volume will be hard to replace without difficulty. By 2022, Gazprom transported about 30bn m3 a year to Europe through two corridors of Ukraine’s gas transmission system:
- through gas metering station (GIS) “Sokhranovka” – about 12.5 billion m3/year. Since May 2022, this corridor has not been operated.
- through GIS “Sudja”, capable of transporting 15-16 billion m3/year. This corridor operated until 1 January 2025.
Of the 15 billion cubic cubic metres of gas transited through Ukraine, 13 bcm was delivered to Slovakia and another 2 bcm to Moldova. At present, about 15 bcm of gas per year is leaving Europe’s energy balance, which will have to be replaced by purchasing LNG or reducing consumption, including through greater use of coal or diversification of gas supply routes. There is not yet a large surplus in the LNG market and prices are significantly higher than for natural gas. At the same time, in the US, two new LNG plant lines with a capacity of 27 million tonnes per year, equivalent to 36 billion m3 , have already been built and are being prepared for launch. In addition, the construction of several LNG facilities in the United States, Canada and Mexico is nearing completion.
Gas prices on the European market are currently 1.5 times higher than in 2024, but remain at half the levels they were in January 2022 (a month before Russia’s invasion of Ukraine). However, we would like to note – the price increase affects the entire volume of gas imports, so the losses are significantly higher than simply replacing 15bn m3 of gas.
At EU level, Slovakia has suffered most from the transit halt. Slovakia will lose around €200 million a year in revenues from Russian gas transit and will have to buy gas from alternative sources. However, the main source of electricity in Slovakia is nuclear power – 62% according to the IEA – and gas is used only for peak generation, power generation for export, industry and the public sector.
The effect for Russia
The prioritisation of the European gas market for Russia and Gazprom was lost three years ago. The main gas volumes on the European market were lost in 2022. The volumes that have now fallen are only a small part of what was once a huge gas export portfolio. The share of Russian gas in EU pipeline imports fell from over 40% in 2021 to around 8% in 2023 and 5% in 2024.
In 2025, according to the company’s operational plan, Gazprom will export 38-40 billion cubic metres of gas to China, around 25 billion cubic metres to Turkey and 15 billion cubic metres to Europe via Turkish Stream. The 15bn m3 of gas that Gazprom lost due to the Ukrainian transit halt would have accounted for about 16% of this export portfolio. The volume is important, but not essential. Judging by Gazprom’s IFRS reporting for 2024, this means a loss of about 10% of revenues. For 2025, the share would be slightly lower due to revenue growth and profit from increased sales to China. It should also be taken into account that more than 40% of total revenues and more than half of Gazprom’s profits are currently generated by the oil segment.
Another necessary variable to consider is LNG exports. Exports of Russian LNG to the European market in 2024, according to CREA data, increased by 14% year-on-year to 17.5 million tonnes. Russia is thus considering exporting in liquefied form some of the gas volumes previously exported through pipelines. Although some politicians are calling for a boycott of this type of feedstock from Russia, purchases of Russian LNG are continuing at record levels on the European market. In this regard, much will depend on the Donald Trump administration’s policy towards Ukraine. The US president-elect could either loosen sanctions in the energy segment against Russia in exchange for a peace deal, or tighten them if the Kremlin refuses to de-escalate the conflict.
The effect for Ukraine
Ukraine lost most of its transit revenues well before 2024, and we are now talking about a loss of only a few hundred million dollars a year. In the first 6 months of 2024, Naftogaz recorded revenues of $210 million for gas transit services. This is due to the fact that by 2022 Gazprom would have had to pay for pumping 40bn m3 of gas per year more than $1.2bn. Gazprom has bypassed this requirement by regularly supplying natural gas through the Sokhranovka (Russia) – Pisarevka (Ukraine) gas metering stations. Pisarevka is located in the Lugansk region, which has been under Russian control since February 2022, so the Ukrainian gas transmission system operator (OGTSU) has declared that it cannot accept natural gas through this metering station, citing force majeure.
The most important effect for Ukraine as a result of the halt in gas transit remains the loss of its status as Europe’s strategic partner in supplying the region with raw materials.
Ukraine itself is currently importing minimal volumes of gas, as Ukrainian industry and gas-fuelled power generation have been largely destroyed in the war. Consumption can mainly be covered by domestic production, so the cost of importing gas from Europe is not the most pressing problem for Kiev at the moment. However, without gas transit, which used to allow use in virtual reverse, gas imports for Ukraine become twice as expensive as transporting it to European hubs.
The effect for Moldova
For the Republic of Moldova, the halt of transit through Ukraine has meant several complex effects in the energy field. Chisinau has stopped buying Russian gas since 2022, but Tiraspol has continued to consume around 2 billion cubic metres of gas a year delivered through Ukraine. This gas was used to run the Cuciurgan Thermoelectric Power Plant, which provided three-quarters of Moldova’s electricity consumption.
Until 1 January 2025, the cost of deliveries to the Transnistrian region for Gazprom was practically equal to the cost of Ukrainian transit, because for the Russian company, extracting an additional 2 billion m3 per year and pumping it through its gas transmission system did not represent a significant cost. Ukraine, in turn, was ready to accept for transport much more gas than Gazprom could sell on the European market.
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Gazprom can now, in theory, organise gas supplies to Moldova through a new route via Turkish Stream and further via the Trans-Balkan pipeline in reverse. In any case, however, the gas would have to transit Ukrainian territory at the Orlovka interconnection point. In addition, for such deliveries Gazprom would have to redirect gas from the Turkish Stream pipeline to the Transnistrian region at significantly higher prices.
As a result, Russia’s influence in Transnistria has turned out to be far from Moscow’s top priority in the context of energy antagonism. Russia and Gazprom are using Tiraspol as a geopolitical gambit, especially against the background that the tense energy situation in Moldova is adding problems for the pro-European leadership ahead of the parliamentary elections.
The question also arises, why, before the Ukrainian transit was stopped, only 500 of the 2,500 MW of gas-fired power plant capacity were used at the Cuciurgan Thermal Power Plant, and why the organisation of coal procurement and delivery to the Transnistrian region for the use of the Cuciurgan Thermal Power Plant in the case of the gas transit stoppage scenario was not carried out in time. The answer validates the possible solution of the problem of natural gas deliveries to the Transnistrian region of the Republic of Moldova in the next period. However, the formula for this solution remains uncertain – will the Trans-Balkan pipeline be used in reverse-flow mode, will gas be purchased on the open market with the involvement of third parties, or will the traditional supply route through Ukraine be maintained.
Prospects for resuming gas transit through Ukraine
During 2024 Ukraine demonstrated to European energy market players that it did not want to extend its contract with Gazprom. However, each side hoped that someone else would be so interested in maintaining transit that they would agree to make concessions – which did not happen. Nevertheless, transit can be restored. Theoretically, Gazprom and Naftogaz could sign technical agreements and Kiev could offer its gas transport capacity for use under European rules. Thus, European companies would be able to purchase gas at the Russian-Ukrainian border and deliver it to Ukraine for onward transport to the European market. Such a step is not being negotiated at the moment. Possibly, Kiev considers the resumption of transit an important asset for future negotiations with Moscow. But the value of the European gas market for Russia is diminishing – the European Union’s REPower EU plan calls for a complete rejection of all Russian fuel by 2027. Even if its implementation is subject to significant delays, European demand is still forecast to fall because of investments already made in low-carbon energy.
In the long term, restoring transit will be even more difficult. Supporting a large-scale gas transport system requires funds, which Naftogaz does not have, not least because of the transit halt. In addition, Ukraine might want to use the excess process gas filling the pipelines – there is now more than a billion cubic metres of gas that can be used. This means that if transit is ever resumed, it will face a technical hurdle – the need to refill the pipelines with gas. Overall, the technical capabilities of Ukraine’s gas transmission system require extensive modernisation.
After finalising the transit agreement with Gazprom, Kiev is still exploring the possibility of supplying Azeri gas through its territory to the European market, in which case Russia would become a transit country for Azeri gas for Ukraine or swap transactions would be conducted through Turkey. But this scenario involves many uncertain variables. In theory, Azerbaijan would transmit all the gas produced through Russia to Ukraine, which would then supply gas to the European market.
Conclusion
There has been talk of stopping the transit of Ukrainian gas during 2024, both in Ukraine and the EU, and in Russia. Everyone has been waiting for this moment. Of course, there were hopes that Gazprom and Naftogaz, as they have done many times before in the evolution of its energy disputes, would sign a new agreement. However, this has not happened. In the current context of European energy directions and Ukrainian political vision it seems to be the natural decision. The operationalisation of Ukrainian transit of Russian gas seemed an anachronism, a relic of an earlier era. In the end, transit along this route was doomed, and the effects are being felt by all parties involved.