Russian gas supplies to Europe set to cease, ending Moscow's dominance

Russian gas supplies to Europe via Ukraine are set to cease on New Year’s Day, marking the end of Moscow’s long-standing dominance in the European gas market.

The oldest gas export route from Russia to Europe, a pipeline originating from Soviet times, was expected to close at the end of 2024 as a five-year transit agreement between Russia and Ukraine expires.

According to Reuters, data from Ukraine’s gas transit operator revealed on Tuesday that Russia had not requested any gas flows for January 1.

Following the outbreak of the war in Ukraine in February 2022, the European Union significantly reduced its reliance on Russian gas by seeking alternative sources.

Countries still purchasing Russian gas, such as Slovakia and Austria, have arranged for substitute supplies, and analysts predict minimal market disruption from the halt, reported Reuters.

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On Tuesday, European benchmark gas prices closed at 48.50 euros per megawatt hour, showing only a slight increase from earlier trading.

However, the cessation of gas flows carries significant geopolitical implications.

Since the invasion of Ukraine, Moscow has lost its dominant share of gas supplies to EU countries to competitors like the United States, Qatar, and Norway, prompting the EU to further reduce its dependency on Russian gas.

Once the world’s largest gas exporter, state-controlled Gazprom reported a $7 billion loss in 2023, marking its first annual loss since 1999.

For Europe, the absence of affordable Russian gas has contributed to a significant economic slowdown, rising inflation, and an exacerbation of the cost-of-living crisis.

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Although Europe has swiftly sought alternative energy sources, the loss of Russian gas raises long-term concerns about its diminishing global competitiveness, particularly regarding Germany’s industrial future.

Impact of Ukraine war

Russia and the Soviet Union spent half a century building up a major share of the European gas market, which at its peak stood at around 35%, but the war in Ukraine has all but destroyed that business for Gazprom.

Most Russian gas routes to Europe are shut, including Yamal-Europe via Belarus and Nord Stream under the Baltic that was blown up in 2022.

The Soviet-era pipeline via Ukraine brings gas from Siberia via the town of Sudzha - now under the control of Ukrainian soldiers - in Russia’s Kursk region. It then flows through Ukraine to Slovakia, where the pipeline splits into branches going to the Czech Republic and Austria.

Kyiv has refused to negotiate a new transit deal.

Ukraine is giving up some $800 million a year in fees from Russia, while Gazprom will lose close to $5 billion in gas sales to Europe via Ukraine.

The end of the transit deal is unlikely to cause a repeat of the 2022 EU gas price rally as the remaining volumes are relatively small.

Russia shipped about 15 billion cubic metres (bcm) of gas via Ukraine in 2023 - only 8% of peak Russian gas flows to Europe via various routes in 2018-2019.

Gazprom said it would send 37.2 million cubic metres on Tuesday compared to 42.4 mcm on Monday. Later, Ukraine’s gas transit operator said Russia had not nominated any gas flows for Jan. 1 through the Ukrainian pipeline to Europe as of 1500 GMT.

The halting of supplies via Ukraine will be a major blow to Moldova, a country that was once part of the Soviet Union.

Hungary and other countries continue to receive Russian gas from the south, via the TurkStream pipeline on the bed of the Black Sea, although Hungary had been keen to keep the Ukrainian route as well.

With inputs from agencies