Russian Gas Transit Through Ukraine – Current Status

In December 2023, Russian President Vladimir Putin met with Slovak Prime Minister Robert Fico in Moscow. This meeting brought into light the ongoing complexities surrounding Russian gas transit through Ukraine. The current contract allowing this transit is nearing expiry, raising concerns about future gas supplies to Europe. Ukrainian President Volodymyr Zelenskiy has indicated that continued transit is contingent on Russia not receiving payments during the ongoing conflict. However, this condition is unlikely to be accepted by Moscow.

Russian Gas Supply Overview

In 2023, Russia supplied approximately 15 billion cubic metres (bcm) of gas to Europe via Ukraine. This figure represents only 8% of the peak gas flows recorded in 2018-2019. The geopolitical landscape has shifted since the Russian invasion of Ukraine in 2022, prompting the European Union (EU) to reduce its reliance on Russian gas. Consequently, Russia’s market share in Europe has diminished, with competitors such as Norway, the United States, and Qatar gaining ground.

Key Pipeline Routes

The Urengoy-Pomary-Uzhgorod pipeline is route for Russian gas, transporting it from Siberia through Ukraine to Slovakia. From Slovakia, gas is distributed to the Czech Republic and Austria. Despite interruptions in supplies, Austria continues to receive substantial volumes, while Hungary relies heavily on Russian imports. Slovakia also depends on Gazprom for approximately two-thirds of its gas needs.

Current Challenges and Dilemmas

The EU faces a dilemma regarding its stance on Russian gas. While some member states, like France and Germany, have committed to halting imports, others, including Slovakia and Hungary, maintain closer ties with Moscow. These countries argue that Russian gas remains economically viable and blame high transit fees imposed by neighbouring EU nations for the challenges in sourcing alternative supplies.

Financial Implications for Ukraine and Russia

Ukraine benefits financially from the transit of Russian gas, earning between $0.8 billion to $1 billion annually. Recently, Gazprom’s total pipeline gas exports to Europe via all routes are projected to increase to 32 bcm. However, Gazprom faced financial setback in 2023, reporting a net loss of $7 billion, its first annual loss since 1999. The loss was primarily due to the decline in EU gas markets.

Potential Future Developments

Russia has expressed willingness to extend the transit agreement, but Ukraine remains firm in its refusal. Alternative routes, such as TurkStream, may provide limited capacity for gas supply, but Hungary’s desire to keep the Ukrainian route operational complicates matters. The EU and Ukraine have also sought Azerbaijan’s assistance in facilitating discussions with Russia regarding the gas transit deal.

Questions for UPSC:

1. Critically analyse the impact of the Russian invasion of Ukraine on European energy security.
2. Explain the significance of the Urengoy-Pomary-Uzhgorod pipeline in the context of Russian gas exports.
3. What are the economic implications for Ukraine if Russian gas transit ceases entirely?
4. What strategies can the European Union adopt to reduce its dependency on Russian energy supplies?

Answer Hints:

1. Critically analyse the impact of the Russian invasion of Ukraine on European energy security.

1. Shift in energy supply dynamics as the EU reduces reliance on Russian gas.
2. Increased gas prices in 2022 due to reduced Russian supply and market volatility.
3. Emergence of alternative suppliers like Norway, the U.S., and Qatar filling the gap.
4. Geopolitical tensions influencing energy policies and security strategies across Europe.
5. Long-term investments in renewable energy and infrastructure to encourage energy independence.

2. Explain the significance of the Urengoy-Pomary-Uzhgorod pipeline in the context of Russian gas exports.

1. Key transit route for Russian gas from Siberia to Europe, particularly Slovakia.
2. Facilitates gas distribution to neighboring countries like Austria and the Czech Republic.
3. Despite geopolitical tensions, it remains operational for gas volumes.
4. Historical importance as part of the Soviet-era energy infrastructure.
5. Continuing role in regional energy security for countries dependent on Russian gas.

3. What are the economic implications for Ukraine if Russian gas transit ceases entirely?

1. Loss of $0.8-$1 billion in annual transit fees, impacting Ukraine’s economy.
2. Increased energy insecurity as domestic gas supplies may not meet demand.
3. Potential for higher energy prices domestically due to reduced supply options.
4. Incentives to seek alternative energy partnerships and investments in renewables.
5. Worsening relations with Moscow, complicating future negotiations on energy issues.

4. What strategies can the European Union adopt to reduce its dependency on Russian energy supplies?

1. Diversification of energy sources by increasing imports from alternative suppliers.
2. Investment in renewable energy technologies to enhance energy independence.
3. Development of strategic energy reserves to buffer against supply disruptions.
4. Implementation of energy efficiency measures to reduce overall consumption.
5. Strengthening energy partnerships with neighboring countries and regions.