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As the war in Ukraine continues, Russia continues to pump natural gas to Europe through the war-torn region, where heavy fighting is taking place. The Soviet-made Urengoy-Pomary-Uzhgorod pipeline, one of the main arteries for Russian gas to Europe, runs from Western Siberia through Sudzha in Russia’s Kursk region before entering Ukraine and heading towards Slovakia. From Slovakia, the pipeline branches off and carries gas to the Czech Republic and Austria, with Hungary, Slovakia and Austria being the main consumers.
In 2023, around 14.65 billion cubic meters (bcm) of gas was delivered through the Sudzha route, accounting for about half of all Russian gas exports to Europe. Despite the ongoing conflict, Gazprom, the state-controlled Russian gas company, continues to send significant volumes of gas through this route, with recent daily flows reaching about 39.6 million cubic meters (mcm). However, the fate of this supply route is uncertain, especially since the transit agreement between Russia and Ukraine expires in 2024.
The geopolitical and economic background
Before the invasion of Ukraine in 2022, Russia supplied almost half of the European Union’s natural gas, with annual volumes peaking at 175-180 bcm in 2018-2019. However, the war has drastically reduced these volumes, and Russia’s total gas supplies to Europe plunged 55.6% to 28.3 bcm in 2022. The unexplained attacks on the Nord Stream pipeline in September 2022, which shut down another key route for Russian gas to Europe, further exacerbated the decline.
As Europe increasingly turns away from Russian gas, it has become increasingly dependent on liquefied natural gas (LNG) imports, with the US and Norway significantly increasing their share of the European gas market. In 2023, the US supplied 56.2 bcm, compared to 18.9 bcm in 2021, while Norway increased its share to 87.7 bcm from 79.5 bcm in 2021. Other suppliers include North African countries, the UK and Qatar.
Why does Russia continue to send gas through Ukraine?
Despite the dramatic decline in its market share, Russia continues to send gas through Ukraine, for several reasons: financial necessity, contractual obligations and the historical importance of the route. Gazprom, which once held enormous power as a „state within a state“ within Russia, has lost much of its importance due to the loss of its European market. The company recorded its first annual loss in over 20 years in 2023, amounting to 629 billion rubles.
Ukraine also benefits financially from gas transit and earns significant revenues from the agreement. However, with the transit agreement set to expire in 2024, Ukraine has signaled that it has no intention of extending or renegotiating the agreement, jeopardizing the future of Russian gas supplies to Europe.
Will the transit continue after 2024?
With the transit agreement about to expire, the big question is: will gas supplies continue beyond 2024? Russia has expressed its willingness to continue supplying gas through Ukraine even after the current agreement expires, as confirmed by Russian Deputy Prime Minister Alexander Novak. However, the situation remains tense, as geopolitical tensions and the ongoing conflict make the continuation of this route uncertain.
The risks and dwindling appeal of Ukrainian gas storage facilities
Increasing attacks on Ukraine’s energy infrastructure by Russia have made European traders increasingly wary of using Ukraine’s vast underground gas storage facilities. These facilities, the largest in Europe, were crucial last year when EU companies stored excess gas there ahead of winter. But after targeted attacks on pumping stations, storage volumes have fallen dramatically, and this summer only a fraction of last year’s volumes were stored.
European traders are concerned not only about the physical security of the stored gas, but also about the ability to get it out again if needed. Damage to above-ground facilities used to pump the gas in and out has made this a risky venture, leading to a significant decline in storage activity in Ukraine. The lack of attractive price differentials this year also reduces the appeal of storing gas in a war zone.
Europe’s growing dependence on LNG imports
As the European Union continues to move away from Russian gas, LNG imports are becoming increasingly important. European gas prices have held near their highest levels since December, providing a strong incentive for more sea-based LNG imports, particularly from the US, which has become Europe’s main supplier. However, competition for LNG with Asia remains intense, with fluctuations in demand and geopolitical risks affecting trade routes.
The ongoing conflict in Ukraine, coupled with Europe’s growing LNG imports, underscores the uncertainty about the future of Russian gas supplies to the continent. With the transit agreement set to expire in 2024 and no clear solution in sight, the question remains: is this the beginning of the end for Russian gas supplies to Europe via Ukraine?