(Bloomberg) -- Russian gas flows to Europe via Ukraine stopped as a key transit deal expired, raising the stakes for the continent’s energy security as it draws heavily on reserves.
“Due to the repeated and explicit refusal of the Ukrainian side” to extend five-year agreements, Gazprom PJSC “was deprived of the technical and legal opportunity to supply gas for transit through the territory of Ukraine from January 1, 2025,” the Russian gas giant said in a Telegram statement.
For five decades Ukraine has been a key avenue for gas supplies into Europe, even during the nearly three years since Russia’s full-scale invasion of Ukraine. The halt means a handful of central European countries that have relied on the flows will be forced to source more expensive gas elsewhere, adding to pressure on supplies at a time when the region is already depleting its winter storage at the fastest pace in years.
Ukraine halted Russian gas exports over its territory as of 7 a.m. local time on Wednesday in the interest of national security, the energy ministry in Kyiv said in a statement on Telegram.
“We have stopped the transit of Russian gas, this is a historical event,” the Ukrainian energy ministry said in a statement. “Russia is losing markets, and will begin to experience financial losses.”
Ukraine’s gas infrastructure has been prepared to work amid zero transit from Russia, and the country’s foreign partners have been warned in advance, the statement said. Ukraine has secured guaranteed gas supplies enhanced via a southern route, as well as from Poland, the country’s Gas Transmission Operator said on its website.
For now, no alternative is in place for the five-year-old transit agreement, despite months of political wrangling. While the shipments across Ukraine account for only about 5% of Europe’s gas needs, the region is still feeling the aftershocks of an energy crisis triggered by the Kremlin’s full-scale invasion of its neighbor.
The end of the transit deal has highlighted Europe’s continued reliance on Russian gas via pipelines and shipments of liquefied fuel, as well as the cracks in the bloc’s approach to weaning itself off Russian supplies.
European Commission President Ursula von der Leyen has set a political objective of phasing out Russian fossil fuels by 2027 in the wake of the invasion, and has said the end of transit will have little impact on regional energy markets. Still, countries like Hungary and particularly Slovakia have waged an increasingly bitter campaign to keep the fuel flowing.
Europe is also facing an increasingly tight global gas market. The front-month contract rounded out the year with a 51% annual gain — the biggest since 2021.
Read: High Gas Prices Spell Tough Start to 2025 for European Consumers
Escalating Dispute
Ukrainian President Volodymyr Zelenskiy last month rejected any arrangement that would ultimately send money to Russian coffers while the war continues. Meanwhile, Slovak Prime Minister Robert Fico has threatened Ukraine with a possible electricity cutoff, raising questions about broader energy security in the region.
In a last-ditch effort over the weekend, Fico urged the EU to address the looming halt of supplies via Ukraine, saying the economic effect on the bloc would outweigh the impact on Russia. He estimated that European consumers could face as much as €50 billion ($52 billion) in extra gas prices per year and another €70 billion in higher electricity costs.
Slovakia and some other Central European states have favored discounted gas from the east, and in recent months, key companies from the region have raced to build support for an alternative to the Russia-Ukraine deal.
Slovakia has said it can handle the loss of Russian gas, but other supplies would likely be costly to bring into the landlocked nation. Russian gas also used to flow from Slovakia into Austria and the Czech Republic, though the latter two nations no longer buy the fuel directly from Gazprom.
‘Expected Situation’
“The stop of flow via Ukraine on 1 January is the expected situation and the EU is prepared for it,” a European Commission spokesperson told Bloomberg News. The commission, the EU’s executive, has been working with member states for more than a year to prepare for such a scenario, she added.
The bloc has diversified its supplies since 2022, turning increasingly to imports of liquefied natural gas, notably from the US. There are “various options” for regulating gas transit to central and eastern Europe, including through another pipeline route and LNG terminals, the German economy ministry said Tuesday.
Officials from Poland, which assumes the rotating presidency of the EU on Wednesday, said the nation is in close contact with the commission and “ready to coordinate further steps with member states, if needed as from Jan. 1.”
Read: European Gas Faces a Raft of Challenges With Transit Deal Ending
Disputes between Moscow and Kyiv have previously disrupted gas shipments to European customers in winter months.
In 2009, Russian gas flows via Ukraine to Europe stopped for almost two weeks, with more than 20 nations affected during freezing temperatures, until the two nations signed a gas deal ending their dispute. A shorter disruption occurred in 2006. The expiring agreement, set in 2019, was also a result of last-minute negotiations.
However, the war makes a quick resolution unlikely for now. Russian President Vladimir Putin last week indicated there was no time left to conclude an agreement before the end of the year. Separately, he said a lawsuit from Ukraine’s Naftogaz — alleging that Gazprom hasn’t fully paid for transit services — is another barrier.
Some European nations have also warned against ideas that would brand Gazprom’s fuel as non-Russian. Energy companies in the region have previously floated options such as taking ownership of the fuel when it enters Ukraine, or resorting to a complex swap involving Azerbaijan’s energy company Socar as a mediator.
Russia still supplies gas to nations such as Serbia and Hungary via another pipeline, TurkStream, which bypasses Ukraine. But that link isn’t sufficient to fully compensate for the entire loss of the Ukraine route. Another pathway, across Poland, is now closed. The Nord Stream pipeline linking Germany to Russia was damaged in explosions in 2022, and the newer Nord Stream 2 link has never been authorized by Berlin.
--With assistance from Daryna Krasnolutska, Petra Sorge and Aliaksandr Kudrytski.
(Updates with new information throughout.)
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