Gas transit: what scenarios are possible for the agreement between Russia and Ukraine

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to RBC on the prospects for the transit of Russian gas through Ukraine after the current transit contract completion in December 2024.

According to the expert estimates, in 2022, about 19 billion cubic meters of gas entered the Ukrainian GTS from Russia, in 2023 — about 14 billion cubic meters.

As Alexey Belogoryev explains, Gazprom's gas flows directly from the Ukrainian GTS to Slovakia (86.8%, according to data for 2023) and Moldova (13.2%), mainly to Transnistria.

"From Slovakia, it goes further to Austria, to one of the largest European gas hubs Baumgarten, from where it partially goes to neighboring Hungary and Italy. But the main volume is consumed in Austria and Slovakia," the expert recalls.

"In case of the transit termination, Slovakia, Austria and Transnistria will remain without gas. For Transnistria, Ukraine can physically provide supplies if it itself has excess gas (the volume is not so large — 1.8 billion cubic meters in 2023). The situation in Slovakia and Austria is much worse. In an emergency, they can count on reverse gas flows from Italy, Germany and possibly Greece and Bulgaria, but it is unlikely that they will be able to completely cover the deficit in 2025-2026, and stock prices in the EU will undoubtedly rise. A catastrophe is likely not to happen, but for these two countries, the situation will return to the worst months of 2022. Ukraine also loses a lot: if there is no transit, then the cost of maintaining the GTS will fall entirely on the shoulders of domestic consumers with a corresponding increase in prices. In addition, Russian transit leaves Ukraine with the possibility of virtual gas reverse, which reduces the total cost of imports and simplifies its logistics," Belogoryev comments.

"Neither side is interested in a long-term agreement. We are talking about short-term capacity reservations, most likely for a month in advance on a general basis. The main question is whether Ukraine will agree to have Gazprom or, say, some Russian intermediary book the capacity? Apparently, the Ukrainian authorities want it to be a company or companies resident in the EU. Russia's agreement to this condition is not yet obvious, and the question arises on what basis the reservation will be made if the gas passing through Ukraine belongs to Gazprom. That is, whether there will be attempts to change the points of gas transfer ownership, which are located in the EU under purchase and sale contracts," the analyst notes.