Europe wants to keep Russian gas flowing through Ukraine. Meduza breaks down the options under discussion.
Ukraine has said it has no plans to extend the current contract for Russian gas transit through the country, which expires at the end of this year. Nevertheless, European officials are in talks with Kyiv to find ways to continue transit in 2025, reports Bloomberg. The goal is to reduce direct interaction between Moscow and Kyiv by involving an intermediary, like Azerbaijan, or by forming a consortium of European companies to buy gas at the Russian-Ukrainian border before moving the gas through Ukraine. Meduza explains why this proposed deal has a slim chance of success and why Gazprom’s legal issues could lead the company to cut off gas supplies earlier than expected.
According to Bloomberg’s sources, one potential option for continuing gas transit through Ukraine would involved European countries purchasing Azerbaijani gas, which would then be routed through Russia and Ukraine to Europe. But while using an intermediary to keep gas flowing might seem like a realistic option on paper, it’s extremely unlikely in practice.
The exact details of the proposed scheme remain unclear, but it would most likely involve swapping Russian gas for Azerbaijani gas (Azerbaijan State Oil Company, SOCAR, would supply Gazprom’s customers and vice versa). European companies from six countries — Austria, the Czech Republic, Hungary, Italy, Slovakia, and Ukraine — are ready to consider this plan, according to the consultancy ICIS, which cited a document signed by company representatives.
This exchange could occur in two ways: either physically, with actual changes in gas flows, or virtually, reflected only on paper. However, both options would be nearly impossible to implement in practice. The first option would require Gazprom to grant SOCAR access to its gas transportation system, while the second would require modifying both Gazprom and SOCAR’s existing long-term export contracts.
Currently, Azerbaijan supplies gas to Europe through the Southern Gas Corridor — a network of pipelines that pass through Turkey, among other countries. In 2023, the country exported 12 billion cubic meters of gas to Europe (a volume comparable to Gazprom’s current supplies through Ukraine) and it plans to double this figure by 2027. However, it’s not possible to increase both production and export right now due to infrastructural constraints and growing domestic gas demand in Azerbaijan. “We need more money to invest in fields and additional investment is needed in the pipelines,” Reuters quoted Azerbaijani presidential advisor Hikmat Hajiyev as saying.
Even before the start of the full-scale war, in 2021, Ukraine threatened legal action against Gazprom in a bid to unblock natural gas supplies from Central Asia. Gazprom, as Russia’s gas monopoly, didn’t respond to the proposal at the time and continues to remain silent on the issue. It’s hard to imagine the situation changing now.
Not without consequences
Halting gas transit would not only cause financial losses for Ukraine but also jeopardize the country’s entire gas transportation infrastructure. However, Ukrainian officials have repeatedly stated that negotiating with Russia to extend the gas transit contract is out of the question. Ukraine’s natural gas transmission system has the capacity to pump about 140 billion cubic meters of gas to Europe annually, but in the last two years, supplies have been significantly lower — only about 15 billion cubic meters per year.
Completely stopping export flows from Ukraine to Europe poses two threats to Kyiv: a loss of transit revenue amounting to approximately $1-1.3 billion per year, and a risk to the infrastructure itself, which could fall into disrepair or be targeted by military strikes.
Since the end of March 2024, Russia has been attacking energy infrastructure in western Ukraine, including underground gas storage facilities, whose capacities are leased by European companies. “I’m doing everything to find a solution [to keep the Ukrainian gas transportation system] operational because it’s a big asset and someone should be a customer,” Oleksiy Chernyshov, the chief executive of Ukraine’s state-run Naftogaz company, told Bloomberg. “Otherwise it’s loss generating.”
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One possible solution for keeping at least part of Ukraine’s gas transmission system operational after Russian transit stops is the so-called Vertical Gas Corridor, a planned project that would connect Ukraine’s system with Moldova, Bulgaria, and then the Trans Adriatic Pipeline, which supplies gas from Azerbaijan to Europe. The Vertical Corridor would also open access to Ukraine for liquefied natural gas (LNG) from terminals in Greece and Turkey, which could be pumped into Ukrainian underground facilities for storage by European companies. In theory, Ukraine could send this gas to Slovakia using part of the route currently used for Russian gas, but this would require significant investments in infrastructure.
Another option for continuing transit from Russia through Ukraine could be direct agreements between European companies and both Gazprom and the Ukrainian side. In this case, a consortium of European companies would purchase the gas at the Russian-Ukrainian border and independently negotiate with Kyiv for its continued transport westward. However, this means the consortium would have to assume all the risks associated with transporting gas through a country at war, and not everyone finds this idea appealing. Last week, the CEO of OMV, Alfred Stern, stated that the Austrian energy company insists on maintaining the terms of its existing contract with Gazprom — namely, delivery at the Baumgarten hub on the Slovak-Austrian border.
Most industry analysts see the complete halt of Russian gas transit through Ukraine from January 1, 2025, as the most likely scenario. Experts at Energy Aspects point out that the inter-operator agreement between Russia’s Gazprom and the Ukrainian gas transportation system operator, Ukrtransgaz, which sets the technical details of how the two companies work together, also expires at the end of December. And if this agreement isn’t renewed, any talk of continuing gas supplies is off the table.
Suing Gazprom
The transit of Russian gas through Ukraine could decrease even before the aforementioned contracts expire. At the end of May, OMV warned that gas supplies from Russia could cease due to a foreign court ruling. A major European energy company (OMV didn’t disclose its name) won a lawsuit against Gazprom. If enforced in Austria, the court’s decision would require OMV to transfer gas payments to the plaintiff rather than to Gazprom Export. Consequently, Gazprom Export would stop all supplies to OMV.
Three weeks later, on June 12, the German energy company Uniper announced that it was terminating its long-term supply contracts with Gazprom early and claiming more than 13 billion euros (about $14 billion) in compensation for undelivered gas since mid-2022, in accordance with an arbitration ruling from a Stockholm court. “It is not yet clear whether significant amounts [can be recovered],” said Uniper CEO Michael Lewis, noting that any funds received would be transferred to the German government.
It's likely that OMV was referring to this court decision in its May statement, although several European companies, including Germany’s RWE, are currently involved in similar arbitration proceedings with Gazprom. A court decision to seize payments for gas could theoretically be enforced in any territory where Gazprom’s gas is delivered, affecting not just what flows through Ukraine but also customers who receive supplies through pipelines like TurkStream.
Hungary has attempted to shield itself from a similar situation, with the government issuing a decree at the end of May prohibiting third parties from collecting payments intended for Gazprom Export. While this could potentially put national and European legislation in conflict, it wouldn’t be the first such case for Hungary.
Gazprom could have reason to stop gas supplies to Europe as early as this week, as companies make their next monthly payments around June 20. If all payments are processed and Uniper doesn’t attempt to seize them, supplies will continue as normal. However, if gas payments from companies like Austria’s OMV are seized, Gazprom could immediately reduce transit volumes. Even then, analysts from Energy Aspects believe Uniper is likely to recover only about one billion euros (about $1.1 billion).
The termination of some of Gazprom’s long-term supply contracts wouldn’t mean a complete halt in gas transit, however. There are plenty of trading companies in the European market that would be happy to use the capacities freed up by large buyers and purchase Russian pipeline gas, which isn’t subject to sanctions.
