On Monday, Russia continued to pump gas to European customers via Ukraine, marking one of the final days of supply before a crucial transit deal expires at the end of the year. This development signifies the near-total erosion of Russia’s once-dominant position in the European gas market.
Key Details:
Transit Deal Expiration:
Supplies of Russian gas through Ukraine are expected to cease in the early hours of January 1, following the expiration of the current five-year transit agreement.
Kyiv has declined to negotiate a new deal amidst ongoing conflict with Russia, which is now approaching its third year.
Historical Context:
For decades, Russia and the Soviet Union cultivated a substantial share of the European gas market, which peaked at 35%.
The ongoing war in Ukraine has severely impacted Gazprom, Russia’s state-controlled gas company, leading to a significant loss of market share to competitors like Norway, the United States, and Qatar.
Market Impact:
The reduction in Russian gas supplies has driven European gas prices to record highs, contributing to inflation and increasing the cost of living across the continent.
However, the end of the transit deal is not expected to trigger a repeat of the 2022 gas price surge, as the remaining volumes are relatively minor. In 2023, Russia delivered approximately 15 billion cubic meters (bcm) of gas via Ukraine, only 8% of the peak flows seen in 2018-2019.
Political Statements:
President Vladimir Putin indicated last week that there was insufficient time left in the year to finalize a new gas transit agreement, attributing the failure to Kyiv’s refusal to extend the existing deal.
Pipeline Infrastructure:
The Soviet-era Urengoy-Pomary-Uzhgorod pipeline transports gas from Siberia through the town of Sudzha, which is currently under Ukrainian control, and into Slovakia. From there, it branches out to the Czech Republic and Austria.
Most other Russian gas routes to Europe are no longer operational, including the Yamal-Europe pipeline via Belarus and the Nord Stream pipeline, which was damaged in 2022.
The remaining operational routes are the Blue Stream and TurkStream, which transport gas to Turkey under the Black Sea. Turkey subsequently forwards some of this gas to Europe, including Hungary.