Global energy markets are anticipating the potential shutdown of the last main connection point between the Russian and European gas networks by December 2024. By this date, the flow of Russian gas through Ukrainian territory is expected to cease, following Kyiv's decision not to renew its 2019 gas transit agreement with Moscow. The halt of this route could temporarily create uncertainty in the European gas market, particularly with winter approaching, leading to peaks in demand. However, gas price fluctuations in early 2025 are unlikely to reach the extremes seen after the shutdown of the Yamal-Europe and Nord Stream 1 (NS1) pipelines.
European countries have implemented compensatory measures to offset the impact of losing most Russian gas supplies to primary European markets. These measures include securing additional liquefied natural gas (LNG) from suppliers in the Middle East and the United States, alongside increasing pipeline imports from Norway and North Africa. Likewise, Central and Eastern European countries are exploring several options to strengthen energy stability once Russian gas flows through Ukraine stop, such as leveraging the European gas network and neighboring LNG import terminals for supplementary supply. Some countries, like Hungary, are even open to receiving additional Russian gas, albeit via the TurkStream pipeline.
Final Decision
On October 7, Kyiv formally ended the debate surrounding the renewal of the Russian gas transit contract for the Urengoy-Pomary-Uzhgorod pipeline. The Ukrainian government informed Slovakia—a key transit point for Russian gas to Central and Eastern Europe—that it would not extend the Russian gas transit agreement, set to expire on December 31, 2024. Kyiv's motivation to sever its five-year relationship with Moscow is apparent: it aims to reduce Russian influence and sever commercial and economic ties with Moscow post-war. This aligns with the European Union's goal of achieving full independence from Russian energy sources by 2027.
The pipeline linking Ukraine and Russia is the last major connection between the Russian and European gas networks, following the closure of other Russian gas routes, including the Yamal-Europe pipeline, which runs through Belarus, and Nord Stream 1 under the Baltic Sea in recent years. Gas flows through the Urengoy-Pomary-Uzhgorod pipeline are crucial for energy security and market stability in Central and Eastern Europe.
In 2023, Russian gas supplies to Europe via Ukraine totaled approximately 15.5 billion cubic meters, constituting just 3% of Europe's total gas imports, including both pipeline and LNG sources. While this share is small, markets like Slovakia, Austria, and Moldova rely more heavily on Russian gas, with dependency levels ranging from 80% to 100% of their total gas imports. Slovakia, Austria, and Moldova imported around 10.9 billion cubic meters of Russian gas last year, distributed as follows: Slovakia with 5.7 billion cubic meters, Austria with 3.2 billion cubic meters, and Moldova with 2 billion cubic meters, according to estimates from Norway's Rystad Energy. These volumes constitute approximately 70% of Russian gas supplied via Ukraine.
Winners and Losers
The impending disruption of Russian gas through Ukraine has energy markets on edge. However, the risk of a gas shortage in Europe is perceived to be less severe than during previous pipeline suspensions in the past two years, as most European countries have secured sufficient alternatives to Russian gas imports. Nonetheless, the International Energy Agency (IEA) has warned that halting Russian gas via Ukraine poses a "major uncertainty" for Central and Eastern Europe this winter, when demand is at its peak.
The primary risk is that a halt in gas supplies between Russia and Ukraine could strain Europe's already fragile gas market, potentially causing a short-term spike in gas prices on European and global commodity exchanges in early 2025. Despite the potential financial loss of nearly a billion dollars in transit fees for Ukraine, the EU and Kyiv view this step as a symbolic victory over Moscow as the continent nears its goal of fully phasing out Russian pipeline gas.
For Russia, losing its last major gas export market in Europe would cost Moscow and Gazprom an estimated USD 4 to 4.5 billion annually, exacerbating Gazprom's already troubled financial position. In 2023, the company reported net losses of approximately USD 6.9 billion, marking its first net loss in two decades. Russia, however, is exploring alternative markets for gas exports, focusing primarily on Asia, with China as the main target. If successful, these moves could help Russia offset the financial losses in the long term.
Alternative Options
European countries have adopted compensatory measures in the past two years to counter the halt of Russian gas flows. These include importing additional liquefied natural gas (LNG) shipments from the United States and various Middle Eastern and African countries under short- and medium-term contracts, alongside increased gas imports via pipelines from Norway and North Africa.
Similarly, Central and Eastern Europe have several viable options to offset the loss of Russian gas. Chief among these are capabilities to supply their markets with substitute gas and LNG shipments through neighboring countries' import terminals, the European gas network, or the infrastructure of the "Vertical Corridor" project. This initiative aims to interconnect and facilitate gas transportation among seven European countries: Greece, Bulgaria, Romania, Hungary, Slovakia, Moldova, and Ukraine.
Moreover, certain European nations friendly with Moscow, such as Hungary, welcome additional gas flows through an alternative route, namely the infrastructure of the "TurkStream" pipeline. This route connects Russia to Turkey and extends into Bulgaria, Serbia, and Hungary. Besides this, European parties have recently discussed the potential to repurpose Ukraine's gas network to receive flows from Azerbaijan. However, this route's technical and financial viability remains unclear, leaving uncertainty over its feasibility.
The options above illustrate two key choices available to Central and Eastern European countries after the Ukrainian gas pipeline network stops operating. The first is completely abandoning Russian gas while leveraging the existing European gas network to meet their energy needs. The second option is to continue receiving Russian gas through alternative transportation routes. European governments are keenly aware of the economic consequences they might face if Russian gas supplies through Ukraine cease without sufficient and reliable replacements. As a result, they are exploring options that best meet their economic and political interests.
Austria as a Model
At the outset of the Ukraine conflict, Austria's government firmly rejected the idea of any European ban on Russian gas, arguing that such a measure would severely harm the Austrian economy, which was just beginning to recover from the pandemic's impact. The Austrian Energy Agency, in a 2022 report, even suggested that the earliest feasible timeline for Austria to achieve full independence from Russian gas would be by 2030—three years later than the European Union's target of 2027 for ending Russian imports.
This timeline precedes the expiration of the gas supply contract between Gazprom Export and Austria's OMV by roughly ten years, as the agreement is set to conclude by 2040.
To avoid any collateral damage to its economy, Austria continued to receive uninterrupted flows of Russian gas in 2022 and 2023, reaching record levels of 3.2 billion cubic meters last year, which constituted over 80% of the country's gas imports during the same period. Fossil fuels still account for a significant portion of Austria's energy mix, making up around 66%, while gas is primarily used in heating and manufacturing.
However, with increasing pressure from the European Union on its members to phase out Russian energy imports and the legal challenges in settling financial transactions between EU countries and Moscow, the Austrian government and its national energy agency have deemed it appropriate to prepare for ending Russian gas imports and canceling the supply contract with Russia's Gazprom at the earliest possible opportunity. In May, Austria's OMV company announced its readiness to discontinue Russian gas supplies in the near future.
The central question is whether Austria is adequately prepared to abandon Russian gas soon. Statements from the Austrian government indicate that the country can navigate the next phase of ending the agreement to transport Russian gas through Ukraine, as Austria has several options for replacing Russian gas—either by securing additional shipments of liquefied natural gas (LNG) or by importing gas through the neighboring gas network (particularly from Norway, Italy, and Germany). Furthermore, Austria has a substantial gas reserve, reaching 93.5% by October of this year (equivalent to 9,500 terawatt-hours), enabling it to meet any potential shortfall in gas supplies for several consecutive months, even without additional supplies from Italy or Germany.
In fact, Austria's largest energy company, OMV, possesses significant logistical capabilities and longstanding commercial relationships with energy suppliers worldwide, which will facilitate the Austrian government's efforts to procure gas from Norway and the global market. Additionally, Austria can import LNG shipments through the GATE terminal in Rotterdam, where OMV has a regasification capacity of 3 billion cubic meters annually.
Starting in 2026, OMV will receive additional LNG shipments from BP with an annual capacity of one million tons, along with further flows of 850,000 tons annually from 2029 onward from the American company Cheniere Energy. All these available options will allow the Austrian government sufficient flexibility to handle the cessation of Russian gas flows through Ukraine at the beginning of next year.
The Austrian government may also implement additional measures to strengthen the country's energy security by improving energy efficiency, rationalizing gas consumption, and expanding renewable energy applications in the residential and heating sectors. In any case, these aforementioned measures do not constitute a permanent solution to Austria's goal of achieving climate neutrality by 2040; according to the Austrian Energy Agency, Austria needs to develop other options to expand renewable energy capacities and import green hydrogen.
In conclusion, the European gas market's sensitivity to the risk of interruption to Russian gas supplies through Ukraine has become less acute, unlike in the first two years of the Ukraine war (2022 and 2023). This is due to the availability of supplies and diverse sourcing options. However, European countries will inevitably need to adopt a comprehensive approach to enhance their energy security and reduce their exposure to the European gas market's fragile balance, which will involve expanding renewable energy capacities and enhancing energy efficiency measures.
