Is Europe ready for year-end cutoff of Russian gas via Ukraine?

 

FILE – Warning signs are posted in front of a gas compressor station, a part of the Polish section of the Yamal pipeline that links Russia with western Europe and is owned in part by Gazprom, in Gabinek near Wloclawek, Poland, May 23, 2022.

On the first day of 2025, Ukraine’s contract with Russian state-owned Gazprom will expire, shutting down a major Russian natural gas pathway to Europe.

Although the Kremlin says it is ready to continue the transit deal, urging Europeans to persuade Ukraine to extend the contract, Kyiv has said it won’t budge.

Russian natural gas supplies were a cornerstone of European energy security before Moscow’s February 2022 invasion, when it temporarily cut off 80 billion cubic meters of gas supplies to the continent in response to sanctions and a payment dispute.

The cut-off dealt a major blow to Europe’s economy that remains palpable in 2024, according to an International Monetary Fund analysis.

Since 2021, however, Europe has secured alternative suppliers for natural gas, with Russian imports via Ukraine dropping from 11% to 5%, according to Rystad Energy, an Oslo-based energy analysis firm.

Observers say some EU countries have taken the issue more seriously than others. Germany and the Czech Republic, for example, have invested heavily in liquefied natural gas (LNG) terminals in record time, said Olga Khakova, deputy director for European energy security at the Washington-based Atlantic Council.

The main deck of the Floating Storage and Regasification Unit (FSRU) "Neptune" is seen during the official commissioning of the liquefied natural gas (LNG) terminal "Deutsche Ostsee" at the harbor in Lubmin, Germany, Jan. 14, 2023.

“A lot of landlocked countries, like Czech Republic, have gone out of their way to look at alternative supplies and invested in alternative options,” she told VOA.

Others, like Hungary, have doubled down on their reliance on Russia, while Slovakia and Austria have increased Russian imports.

Those countries, said Khakova, “will have to live with this decision,” explaining that they’ll need to secure alternative routes. Turkey, for example, offers the only other operational pipeline for Europe-bound Russian energy.

Although some European nations would prefer to maintain Russian gas deliveries via Ukraine, it\’s “a difficult sell for the EU,” said Christoph Halser, Rystad’s gas and LNG analyst. He expressed confidence in Europe’s political will and supply chain logistics to forfeit dependence on Ukraine’s pipelines for Russian gas.

Other analysts argue that the EU should do more to send a clear signal to companies that cheap Russian gas will no longer be available. With enforceable goals from the EU for phasing out Russian pipeline gas, companies will invest in competing projects to supply reliable European customers, Khakova said.

LNG to compensate?

Although Russia’s pipeline exports to Europe have decreased, Moscow has compensated for some of the shortfall with LNG deliveries via sea, road and rail, seeing the overall share of European LNG imports increase from 15% to 19%.

Rystad’s Halser, however, calls further expansion unlikely, given Western sanctions against Russia.

“To further increase, and to compensate for the set of pipelines, is not possible with current infrastructure,” he told VOA. “New unsanctioned projects on the Russian side would be necessary.”

Growing LNG deliveries from the United States could replace Russian gas, which European Commission President Ursula von der Leyen said she brought up with U.S. President-elect Donald Trump during a phone call late last week.

“LNG is one of the topics that we touched upon — I would not say discussed,” she told reporters in Budapest, according to Agence France-Presse. “We still get a whole lot of LNG via Russia, from Russia. … Why not replace it with American LNG, which is cheaper and brings down our energy prices.”

Will Ukraine’s pipeline be empty?

Ending the transit of Russian gas to Europe poses some difficult questions for Ukraine. With the contract’s termination imminent, Khakova and other analysts say Russia feels emboldened to attack Ukraine’s natural gas system, adding to Ukraine’s concerns this winter over how to protect the country’s energy infrastructure.

Some observers say Ukraine may not find another commercial use for its dormant infrastructure. Bloomberg reported late last month that European buyers were in talks with Azerbaijan on a deal that would, through a swap arrangement, effectively deliver Azeri-branded gas to Europe though the Russia-Ukraine pipeline network.

FILE – Employees work at a gas well of Ukraine's state energy company Naftogaz in the country's western Lviv region, Oct. 1, 2022.

Subsequent reports, however, indicate that no deal has been reached, and Oleksiy Chernyshov, head of state-owned Naftogaz — Ukraine’s largest oil and gas company — told reporters last week that there is no alternative to halting the delivery of Russian gas via Ukrainian pipelines.

Any arrangement short of completely halting the transit of gas across Ukraine would send a negative signal to Europe, said Aura Sabadus of the London-based Independent Commodity Intelligence Services.

“If Ukraine allows for this gas to flow from 2025 onwards, even if it\’s sold under a different label — let\’s say Azeri gas — other countries might come around and say, ‘well, if Ukraine is doing it, why can\’t we do it?’” she told VOA.

Sabadus said industrial consumers in Germany, for example, could then increase pressure to resume gas flows via the Nord Stream network of offshore natural gas pipelines beneath the Baltic Sea, which stretch from Russia to Germany and were the target of apparently deliberate underwater explosions in September 2022.

But Rystad’s Halser finds it unlikely that a short-term transitional deal to keep the natural gas flowing across Ukraine would prompt demands to reopen Nord Stream.

“There is no political consensus in Germany for taking Russian gas in the near future,” he said, adding that an agreement with a third party to deliver gas across Ukraine might benefit all sides involved and bolster commercial interest in Ukraine’s pipeline system.

 

By：VOA