Economy

Stopping Russian gas transit: is Europe ready and how will it affect tariffs in Ukraine?

Ukraine may stop transiting Russian gas from 2025, and this is causing serious concern among experts. Oleksiy Kucherenko, MP and former Minister of Housing and Communal Services, in an exclusive commentary for Komersant ukrainskyi suggested that such a decision could even lead to an increase in tariffs for the population. Read more in the article.

What seemed impossible a few years ago is becoming a reality. As of January 1, everything indicates that gas transit from Russia will stop. This was stated by Deputy Minister of Energy Roman Andarak. He also assured that our GTS operator has made some progress in developing alternative gas supplies from other sources. But he did not specify the details.

Oleksiy Kucherenko suggested that Ukrainians might be informed about such decisions at the last moment.

“I would not be surprised if an unexpected but at the same time logical decision is made at the last moment, for example, to transit Azerbaijani gas rather than Russian gas. Slovakia has already contracted Azerbaijani gas, although currently through the southern route. Such agreements are possible, although they have their risks,” Kucherenko said.

Gas tariffs may rise

At the same time, the termination of Russian gas transit poses serious economic challenges for Ukraine. According to the MP, the operation of the Ukrainian gas transportation system (GTS) was financed mainly by transit payments from Russia. If these revenues stop, the cost of maintaining the infrastructure will have to be passed on to Ukrainian consumers.

“This will mean an increase in tariffs for the services of the GTS operator. And this will cause criticism, saying it is a betrayal. However, the maintenance of the pipe costs a lot. If this is not done, the system will not be able to function,” emphasized Oleksiy Kucherenko.

Stopping pressure in the GTS: another challenge?

The termination of pressure from the Russian side may create technological problems, the MP said.

“If the pressure in the pipeline drops, it is not a fact that we will get through the winter safely with the gas reserves that Naftogaz has accumulated. This is a complicated issue, and its solution will require a comprehensive approach,” summarized Oleksiy Kucherenko.

So far, the prospects for resolving this situation remain uncertain, and the Ukrainian energy sector is preparing for possible changes.

However, the situation is reminiscent of the 2018 crisis, when low pressure in the gas transportation system (GTS) created by Gazprom threatened the energy stability of Ukraine and Europe. At that time, Russian Gazprom regularly violated its contractual obligations regarding the pressure at the entrance to the Ukrainian GTS. According to Vadym Glamazdin, the authorized representative of Naftogaz of Ukraine, out of more than 100 days of the year, only one day of the year the pressure met contractual standards. This made it difficult to balance the system, created additional technological risks and jeopardized gas transit to Europe.

Despite these difficulties, the Ukrainian side ensured uninterrupted transit. Even when on March 1, 2018, Gazprom refused to supply gas that had already been paid for, Ukraine did not exercise its right to withdraw transit volumes, demonstrating its reliability as an EU partner.

Gas reserves: realities and challenges

on November 1, 2024, Ukraine officially launched the season of natural gas withdrawal from underground storage facilities (UGS), according to the European Association of Underground Gas Storage Operators (GSE).

Energy Minister Herman Halushchenko said that the country has the necessary gas volumes to successfully pass the autumn-winter period of 2024/2025.

“We have enough gas to get through the heating season. Moreover, its reserves are sufficient even taking into account the increase in consumption at generation facilities,” the Minister emphasized.

Galushchenko also noted that Ukraine has agreements to import gas if necessary, which will be an additional guarantee of stability in the energy system.

Expectations for the 2024-2025 season

During the previous heating season of 2023/2024, Ukraine used about 6.7 billion cubic meters of gas from storage facilities. The government is forecasting a similar level of consumption for the 2024/2025 season, which indicates that the country is steadily preparing for the winter period.

At the same time, the energy sector is preparing for possible challenges associated with increased consumption and the need for imports. However, gas supplies and existing agreements give optimism that the season will be successful.

The end of the Russian gas era and complete phase-out by 2027

The Brussels-based think tank Bruegel provides quarterly reports on gas imports by Europe. The infographic clearly shows a decrease in dependence on Russian natural gas starting in 2021.

Moreover, before Russia’s full-scale invasion of Ukraine, the European Union was the main consumer of Russian natural gas. At that time, the share of Gazprom’s supplies to the EU reached 40% of the bloc’s total gas imports, providing about 150-155 billion cubic meters of gas annually. However, with the outbreak of the Great War, the situation changed radically.

Pipeline supplies were sharply reduced. Since the beginning of 2022, gas imports from Russia to the EU have decreased significantly, and in 2023 its share in Europe’s gas balance fell to 8%. Currently, transit is carried out only through the Turkish Stream and one of the entry points to the Ukrainian gas transportation system. At the same time, Nord Stream and the Yamal-Europe gas pipeline have been completely shut down.

At the same time, the European Union is actively working to minimize its dependence on Russian fossil fuels, setting goals in 2022 to gradually and completely phase out Russian gas by 2027.

Currently, the European Union does not intend to extend the contract for Russian gas imports, which will expire in 2024, and is actually ready to live without it. According to European Commissioner for Energy Kadri Simson during the 2024 State of the Union address, the share of Russian gas in European imports has decreased from 45% to 15%.

“We are no longer at the mercy of Putin’s pipelines,” Kadri Simson said

Effective use of underground storage facilities has become an important element of the EU’s energy security. They are now filled mainly with liquefied natural gas, and the target of 90% of reserves was reached in August 2024, well ahead of schedule.

Europe has dramatically changed its energy strategy, significantly reducing its dependence on Russian gas in a short period of time. Despite the difficulties, including high prices, this process allows the bloc to ensure supply stability, accelerate the transition to renewable energy sources, and strengthen its energy independence. As for Ukraine, the experience of 2018 showed that even in difficult conditions we are able to ensure energy stability.