As Russia-Ukraine gas deal ends, worries mount in EU's east

The gas had kept flowing despite nearly three years of war between Russia and Ukrtaine, but Russia's main gas firm Gazprom said it had stopped at 0500 GMT on January 1 after Ukraine refused to renew a transit agreement.

Writing on the Telegram messaging app, Ukrainian President Volodymyr Zelenskyy said the end of gas transit through his country to Europe was "one of Moscow's biggest defeats" and urged the United States to supply more gas to Europe.

"The more there is on the market from Europe's real partners, the faster we will overcome the last negative consequences of European energy dependence on Russia," he wrote, adding that Europe's "joint task" now was to support ex-Soviet Moldova "in this period of energy transformation."

Russia and the former Soviet Union spent half a century building up a major share of the European gas market, which at its peak stood at around 35%. In 2020, when the last five-year transit agreement started, Russia shipped about 65 billion cubic meters (bcm) of gas via Ukraine. Supplies have since fallen to 15 bcm, accounting for less than 10% of the EU's pipeline gas imports in 2023.

 Following the cancallation of the contract, Russian energy giant Gazprom will lose an estimated  $5 billion (€4.84 billion) in gas sales, while Ukraine will lose up to $1 billion a year in transit fees from Russia.

The end of the agreement, however, raises questions about gas supply in landlocked eastern EU countries, which cannot import LNG by sea. Austria, Hungary, and Slovakia still rely on Russian gas which is why the governments there are eager to continue purchasing Russian gas.

Russian gas: Mutually beneficial even during the Cold War

Before the Ukraine war, Russia was the world's largest exporter of natural and Europe was Moscow's most important market. European governments prioritized access to cheap energy over concerns about doing business with Putin.

The mutually beneficial relationship began more than 50 years ago, when the former Soviet Union needed funds and equipment to develop its Siberian gas fields. At the time, the western part of then still divided Germany sought affordable energy for its growing economy, and signed the so-called pipes-for-gas deal with Moscow, under which West German manufacturers supplied thousands of kilometers of pipes to transport Russian gas to Western Europe.

This energy relationship persists, as European importers are often locked into long-term contracts that are difficult to exit.

According to the Brussels-based think tank Bruegel, EU fossil fuel imports from Russia amounted to about $1 billion (€958 million) per month at the end of 2023, down from $16 billion per month in early 2022. In 2023, Russia accounted for 15% of the EU's total gas imports, trailing Norway (30%) and the US (19%), but ahead of North African countries (14%). Much of this Russian gas flows through pipelines via Ukraine and Turkey.

Major consumers include Austria, Slovakia, and Hungary. Additionally, countries like Spain, France, Belgium, and the Netherlands still import Russian LNG by tanker, some of which mixes with other gas sources in Europe's pipeline network. As a result, it may even reach Germany, despite its efforts to forgo Russian gas.

Gas market upheaval triggers price spikes

Following Russia's invasion of Ukraine in 2022, gas prices surged dramatically — at times by more than 20 times — forcing some European factories to cut production and many small businesses to close. Prices have since dropped but remain above pre-crisis levels, making energy-intensive industries, particularly in Germany, less competitive.

European consumers are also suffering from high energy prices, prompting many to reduce consumption amid a severe cost of living crisis. The additional expenses are a significant burden: Nearly 11% of EU citizens struggled to adequately heat their homes in 2023, according to the EU Commission. 

The termination of the Ukraine-Russia agreement is already factored into European gas market forecasts, according to an EU Commission analysis reported about by Bloomberg in mid-December.

EU isn't desperate to keep gas route open

The EU is confident in its ability to secure alternative supplies.

"With more than 500 billion cubic meters of LNG produced each year globally, the replacement of around 14 billion cubic meters of Russian gas transiting via Ukraine should have a marginal impact on EU natural gas prices," Bloomberg cites from the commission's document, which is not yet public. "It can be considered that the end of the transit agreement has been internalized in the winter gas prices."

The EU has long argued that member states still importing Russian gas via the Ukraine route — particularly Austria and Slovakia — could manage without these deliveries. Therefore, the EU commission said it would not enter negotiations to keep the route open.

According to the Commission, member states have been able to reduce their gas consumption by 18% since August 2022 compared to the five-year average. Moreover, the United States is expected to create new LNG capacities over the next two years, and these supplies could help the EU address potential disruptions.

"The most realistic scenario is that no Russian gas will flow through Ukraine anymore," the EU commission said, adding the bloc was "well-prepared" for this outcome.

Mounting oncerns in Eastern Europe

Despite EU assurances, Hungary and Slovakia remain anxious about their gas supplies and their ongoing close ties to Russia. Hungarian Prime Minister Viktor Orban, for example, is seeking ways to maintain gas deliveries through Ukraine, even though the country's current imports largely rely on the TurkStream pipeline.

Orban has floated unconventional ideas, such as purchasing Russian gas before it crosses into Ukraine. "We are now trying the trick ... that what if the gas, by the time it enters the territory of Ukraine, would no longer be Russian but would be already in the ownership of the buyers," Orban told a briefing, according to the Reuters news agency. "So the gas that enters Ukraine would no longer be Russian gas but it would be Hungarian gas."

Slovakia has taken a more confrontational approach, threatening countermeasures against Ukraine. Prime Minister Robert Fico suggested halting emergency electricity supplies to Ukraine after January 1 if no agreement is reached. "If necessary, we will stop the electricity shipments that Ukraine needs during outages," Fico said in a Facebook video.

In response to the threat, Ukrainian President Volodymyr Zelenskyy accused Fico of acting under Russian orders, stating on social media platform X that it appears Putin directed him to "open a second energy front against Ukraine."

Fico remains one of the EU's strongest opponents of military aid to Ukraine. During a surprise December visit to Moscow, Fico claimed Putin reaffirmed Russia's willingness to continue supplying gas to Slovakia.

This article was originally written in German. It was first published on December 30, 2024, and has been update for latest developments on January 2, 2025.