The agreement on the transit of Russian gas through the territory of Ukraine to Europe, signed five years ago in Vienna, expires on January 1, 2025.
Russian President Vladimir Putin announced the impossibility of extending the contract a few days before the New Year, Ukraine is counting down the hours until the valve is closed, and the European Union is divided into supporters and opponents of supplies from Russia.
The history of transit agreements between Russia and Ukraine began in 1992. After the collapse of the USSR, Ukraine received at its disposal the main (built during the Soviet era) gas pipelines through which gas from Russia was supplied to European consumers. For many years, the agreement on the transportation of Russian gas through Ukraine was extended annually (regularly accompanied by disputes over the price and debts of the Ukrainian side and reductions or termination of supplies), until in 2009, also after a scandal, a deal was concluded for 10 years - until the end of 2019.
Sitting at the negotiating table five years ago, the parties accumulated claims against each other: mutual lawsuits between Gazprom and Naftogaz, the termination of direct gas purchases, the construction of alternative gas pipelines such as Nord Stream 2, which threatened Ukraine with a complete cessation of the transit of Russian gas.
But on the night of December 31, 2019, one day before the expiration of the previous agreement, a new agreement was made. The agreement was concluded for the period 2020-2024 with the possibility of extension for another 10 years. In 2020, transit through Ukraine was to amount to 65 billion cubic meters. m, as well as 40 billion cubic meters per year from 2021 to 2024. The document also provides for the withdrawal of all mutual arbitration and court claims of the two companies, on which final decisions have not been made. Kiev expected to receive more than $ 7 billion from Moscow for transit.
The beginning of hostilities in February 2022 radically changed gas relations in the Russia-Ukraine-Europe triangle. Russian gas supplies have been passing through Ukraine in reduced volumes since May of the same year, when Kiev announced the termination of transit to Europe via the Sokhranovka station. The reason: force majeure - the impossibility of controlling the Novopskov compressor station due to the flow scheme of the Russian Federation.
In the fall of 2022 Naftogaz filed a lawsuit against Gazprom in the International Court of Arbitration for delayed payment for gas transportation services. Gazprom CEO Alexei Miller said that the arbitration proceedings were illegitimate and the Russian holding's participation in the process was pointless.
Europe announced a refusal from Russian fuel and imposed sanctions that forced Russia to transfer payments for its gas to buyers from "unfriendly" countries in rubles. As a result, many European companies refused to fulfill this requirement, and supplies from the Russian Federation were interrupted. Then Siemens violated its contractual obligations to maintain the turbines for Nord Stream, which led to a drop in gas flow through the pipeline.
Subsequently, this pipeline system, according to Moscow, "was subjected to an unprecedented terrorist attack". All this led to a sharp increase in gas prices in Europe, the closure of enterprises in energy-intensive industries and the transfer of production capacities to other regions.
However, there are still politicians in Europe who are interested in gas supplies from Russia. A few years ago, Hungary began to receive most of its fuel from the Russian Federation through the "Turkish Stream" gas pipeline. In addition, Slovakia, wishing to maintain the transportation of Russian gas, held several negotiations with Gazprom in December, and on December 22, the Prime Minister of the Republic, Robert Fico, made a working trip to Russia and discussed this issue with Putin. Back in 2009, Fico was able to personally make sure that Ukraine was blocking gas transit to Europe, having visited the central production and dispatch department of Gazprom together with Miller and the then prime ministers of Bulgaria and Moldova, Sergey Stanishev and Zinaida Grechani. The Slovak company SPP and its partners from Hungary, Austria and Italy have supported the preservation of the transit.
The Slovak prime minister has openly called on European Union leaders to urgently address Ukraine's decision to halt gas transit, predicting a rapid rise in prices and total losses for the EU of 120 billion euros in 2025-2026 in the event of a loss of supplies from Russia. Fico said Slovakia could take measures against Ukraine and stop electricity supplies to Kiev.
However, the continuation of the transit agreement in its current form is hardly possible. Putin said that there will certainly be no new contract for the transmission of Russian gas through Ukraine, since it will not be possible to renegotiate the agreement a few days before the New Year. Kiev also announced its intention to stop the transportation of Russian gas at 08:00 Moscow time on January 1. At the same time, both sides still leave a loophole in resolving transit disagreements. Ukraine is ready to resume supplies through its gas transmission system at the request of the European Commission if it is not Russian gas, and the Russian president has allowed the possibility of concluding supply contracts through third countries - Turkish, Hungarian, Slovak and Azerbaijani companies. This will require "opening" of Gazprom's long-term contracts, which is a very complicated procedure.
Experts interviewed by TASS noted that European buyers of Russian gas are still interested in preserving its transit through Ukraine in 2025. The most reasonable scheme seems to be the one that provides for the transfer of property rights to the gas at the border of the Russian Federation and Ukraine. The pumping itself will take place within the framework of auctions in which European companies will participate. Deliveries in such a reduced volume could reach 4-7 billion cubic meters. m per year.
The complete cessation of Russian gas transit through Ukraine from 2025 will have the greatest impact on Austria, Slovakia, the Czech Republic, Italy and Moldova, which will have to buy more expensive liquefied gas or increase coal consumption. The suspension of supplies through Ukrainian territory will also partially affect Hungary.
For Moldova and especially for Transnistria, the suspension of transit even for a week means an unprecedented general energy crisis: it has no economic alternative to gas supplies from the Russian Federation, as well as reserves of this energy carrier. At the same time, the worst-case scenario for Moldova is already a fact: Gazprom announced the suspension of supplies to the republic from January 1 due to Moldova's violations of the contract and refusal to settle the debt. The restriction will remain in force until the Russian company notifies Moldova otherwise in writing.
Slovakia and Austria will be forced to negotiate alternative ways to obtain gas from Russia, primarily through Turkey. "Gazprom" has the opportunity to increase supplies to Europe by 4-6 billion cubic meters per year through the "Turkish Stream" and Blue Stream gas pipelines, the capacity of which can be increased in a relatively short time thanks to their configuration. However, there is no talk of a complete redirection of flows.
A complete stoppage of transit could completely destroy the Ukrainian gas transportation system due to its severe wear and tear and loss of pumping revenues. Some gas pipelines could be dismantled and sold for scrap and spare parts. In 2021, Putin noted that the wear and tear of Ukraine's gas transmission system was more than 80%. Ukraine's income from the transit of Russian gas to Europe is estimated at $0.7-1.3 billion per year.
Only Gazprom can survive the closure of the Ukrainian gas supply route relatively painlessly. In the coming years, the Russian holding will increase supplies to Central Asian countries, plans to implement joint projects with Iran, and is also discussing two new gas pipeline routes to China: "Power of Siberia-2" through Mongolia for 50 billion cubic meters. m and a pipeline through the territory of Kazakhstan for 45 billion cubic meters (35 billion to China and 10 billion for gasification of the northeastern regions of Kazakhstan). As a result, Gazprom can radically change the geography of its supplies and finally resolve the issue of Ukrainian transit.
Source: TASS