Ukraine’s Energy Future: Impacts of Ending Gazprom Gas Transit by 2024
On December 31, 2024, the five-year gas transit agreement between Russia’s Gazprom and Ukraine’s Naftogaz will end. Last summer, Ukrainian President Volodymyr Zelensky announced that Ukraine would stop Russian gas transit through its territory. Moscow shows interest in continuing transit, but Kyiv plans to reject not only gas but also oil transport from Russia. Ukraine urges the EU to stop buying Russian energy resources, which finance Russia’s war against Ukraine.
Currently, approximately 15 billion cubic meters of gas and 14 million tons of oil are transported from Russia through Ukraine each year. This brings Russia’s state budget about $12 billion. Experts do not predict a disastrous scenario for consumers during the heating season after transit ends. Ukraine’s national gas transportation system could switch to reverse mode, sending gas from Western underground storage to eastern regions. However, Russian missile attacks on gas transport infrastructure could pose a problem. so far, Russia has refrained from attacking pipelines and compressor stations involved in gas transit but has targeted gas storage facilities leased by European oil and gas companies.
As the war continues, discussions in Kyiv suggest Ukraine might become a major gas hub in Europe, potentially bringing $6-12 billion to its coffers annually. Russian attacks on gas storage facilities in western Ukraine seem aimed at discouraging European companies from investing there.
Vitaly Portnikov emphasized that while Ukraine’s gas transport system has supported Russian gas transit for nearly three years during the war, this is an absurd situation that indirectly finances Russia’s military budget. Experts debate who would suffer more when the transit contract ends—Gazprom or Europe. Mikhail Krutikhin noted that Gazprom earns around $6 billion from gas trade requiring transit through Ukraine, and a similar amount from oil sales via the Druzhba pipeline to the Czech Republic, Slovakia, and Hungary.
Despite Ukraine’s potential gains, experts question why the Ukrainian authorities have not leveraged the war’s context to halt both transits as a force majeure. Portnikov explained how this underscores the absurdity of Ukraine financing Russia’s military efforts while receiving little in return.
Lana Zerkala highlighted that gas has historically served as a tool of corruption, skillfully exploited by Russia in Ukraine and the EU. Despite Ukraine’s requests to the European Commission last year to lift restrictions on Russian oil supplies to Hungary and Slovakia, concerns mainly revolved around the possibility of Ukraine halting gas and oil transits.
Title: Navigating the Future of Gas Transit: An Interview with Energy Expert Vitaly Portnikov
Introduction:
As the deadline looms for the expiration of the five-year gas transit agreement between Russia’s Gazprom and Ukraine’s Naftogaz on December 31, 2024, discussions about the future of energy transit in Europe become increasingly critical. President Volodymyr Zelensky’s announcement that Ukraine would cease Russian gas transit reflects a significant shift in energy policy. We sat down with energy expert Vitaly Portnikov to explore the implications of this decision, the potential for Ukraine to emerge as a gas hub, and the broader impacts on European energy security.
Interviewer: Thank you for joining us, Vitaly. With the transit agreement set to expire, what are the key implications for both Ukraine and Russia?
Vitaly Portnikov: Thank you for having me. The end of the transit agreement marks a pivotal moment for both countries. For Ukraine, this is an opportunity to exert greater control over its energy resources and, potentially, to stop indirectly financing Russia’s military operations. For Russia, losing the ability to transport natural gas and oil through Ukraine would mean a significant revenue loss; approximately $12 billion annually comes from these transit fees. This loss could shift the power dynamics in this ongoing conflict.
Interviewer: President Zelensky has indicated a complete halt to Russian gas transit through Ukraine. What might this mean for European consumers during the heating season?
Vitaly Portnikov: Experts believe we won’t see a catastrophic impact on European consumers immediately, even after the transit ceases. Ukraine’s infrastructure could be adaptable; for instance, it can reverse flow, feeding gas from Western storage to eastern regions. However, the threat of Russian missile attacks on gas transport infrastructure remains a major concern. They have so far been cautious about targeting key pipelines and compressor stations, but the risk is ever-present.
Interviewer: You mentioned that Ukraine could potentially become a major gas hub in Europe. What factors contribute to this possibility?
Vitaly Portnikov: Absolutely. If Ukraine successfully positions itself as a key transit point for European gas supplies, it could generate between $6 to $12 billion annually for its economy. This shift depends largely on how they manage existing infrastructure and attract European investment while ensuring security from Russian attacks. Creating a stable environment for investment in Ukrainian energy resources will be crucial.
Interviewer: There seems to be an irony in the current situation—Ukraine has been inadvertently funding Russia’s military through gas transit. Why do you think the Ukrainian authorities have not leveraged the situation to halt transits due to force majeure?
Vitaly Portnikov: This reflects the absurdity of the situation. To put it bluntly, Ukraine has been supporting Russia’s military efforts financially while gaining little in return. I think a combination of diplomatic, economic, and security considerations has influenced the timing of the decision. However, with the war continuing to evolve, the urgency for Ukraine to find alternatives and assert its energy independence has never been greater.
Interviewer: In your opinion, who stands to suffer the most from the end of the transit contract—Gazprom or Europe?
Vitaly Portnikov: Both sides will experience repercussions, but Gazprom stands to lose more in terms of revenue. The company earns a substantial amount—approximately $6 billion annually—from gas trade reliant on Ukrainian transit, alongside oil trade from the Druzhba pipeline. For Europe, while the immediate panic may be limited, there are long-term implications for energy security and pricing strategies if they don’t diversify their energy sources swiftly.
Interviewer: What final thoughts do you have regarding the future of energy transit in this geopolitical context?
Vitaly Portnikov: The future remains uncertain, but it’s clear this is a turning point. As Ukraine reevaluates its energy policies and aims to detach itself from Russian dependencies, the need for international support and solidarity becomes paramount. More than ever, the European Union must commit to reducing its reliance on Russian energy to secure not just energy independence but also political stability in the region.
Conclusion:
The transition from reliance on Russian gas transit presents both challenges and opportunities for Ukraine and Europe. As the landscape shifts, energy security will remain a pivot point in the ongoing conflict, underscoring the complex interplay between geopolitics and natural resources. Stay tuned for more updates on this evolving story.
(End of Interview)
Portnikov noted that Western countries persist in advocating for continued transit, granting a transition period for countries purchasing Russian energy. However, countries like Hungary, Slovakia, and Austria have not utilized this period and continue to buy Russian energy resources.
Krutikhin urged awareness of the ongoing situation, noting that the Russian lobby in Austria argues for supporting Putin due to cheap gas supplies. If Ukraine halts transit, this lobby would lose power. He believes that if Ukraine stops transit, Russia would lose budget revenue and weaken its influence in Central European countries. While a full rejection of Russian energy resources by Europe is targeted for 2027, many countries have yet to make significant progress.
Finally, Krutikhin brought attention to the degradation of the gas measuring station Sudzha, through which Russian gas moves towards Ukraine. This station is under Ukrainian army control, restricting Gazprom’s access and hindering its ability to manage gas flows.
Portnikov suggested pondering Ukraine’s energy strategies while distancing itself from dependency on Russian supplies. Zerkala affirmed the need for a secure energy system through decentralization and restructuring. Ukraine has learned to manage its energy demands independently, relying now on European markets rather than Russian resources. Krutikhin expressed optimism about Ukraine’s ability to fully meet its gas needs domestically and even possibly export gas to Europe in the future.