Ukraine to halt gas transit from Russia: Is Europe ready, and what are risks for Moldova

Contents

• How much Russian gas has passed through Ukraine
• Transit prospects are diminishing
• Who might face problems without gas transit
• What Chisinau fears

Naftogaz of Ukraine National Joint-Stock Company has received the final payment from Gazprom for the transit of Russian gas through Ukraine. This is a prepayment for transit deliveries in December. According to RBC-Ukraine, the funds were transferred to the company at the end of last week. The payment amount has not yet been clarified, but according to the calculations, Gazprom was supposed to pay about $70 million for December transit.

In fact, this is the last direct payment from the Russian company to Naftogaz for transit services. The buyer country, Hungary, took over payment for oil transit through Ukraine via the Druzhba oil pipeline back in 2022.

How much Russian gas has passed through Ukraine

Over the five years of the transit contract (2020–2024), as of November 25, 146.6 billion cubic meters of gas have been transported through Ukraine to the EU and Moldova. By the end of the year, including December deliveries, the volume could increase to 148 billion cubic meters. This is 36% less than the expected 225 billion cubic meters.

However, reduced shipments were not supposed to affect transit payments. The agreement was signed with a "ship or pay" clause, meaning Gazprom committed to paying for the transit of 65 billion cubic meters in 2020 and 40 billion cubic meters annually in subsequent years, regardless of actual volumes.

In the contract's first year, the Russian monopoly fulfilled its payment obligations, pumping approximately 55.89 billion cubic meters, according to open data from the Gas Transmission System Operator of Ukraine, and paying around $2.1 billion. In 2021, transit slightly exceeded expectations, totaling about 41.7 billion cubic meters, and was fully paid. According to RBC-Ukraine, total payments for transit in 2021 amounted to $1.45 billion.

Following the beginning of active hostilities in 2022, transit dropped to 20.46 billion cubic meters due to the cessation of supplies via the Sokhranivka gas metering station. In 2023, it fell further to 14.65 billion cubic meters. According to RBC-Ukraine sources, payment for the current year is estimated at over $800 million.

Gazprom has refused to pay for reduced transit through Sokhranivka for the third consecutive year - averaging 30 million cubic meters daily or 11 billion cubic meters annually. Naftogaz has filed arbitration claims over this issue, and a year ago, the claim amounted to about $700 million. "The amount will grow, considering that 2024 is still ahead. As of today, the accumulated unpaid amount stands at $679 million," Naftogaz CEO Oleksiy Chernyshov stated in an interview with RBC-Ukraine a year ago.

Transit prospects are diminishing

As December 31 approaches the contract expiration date between Naftogaz and Gazprom, the likelihood of gas transit through Ukraine continuing in 2025 seems less possible.

Ukraine has firmly stated that it will not extend the contract, and an alternative proposal involving gas storage in Ukraine's underground facilities failed to attract interest from other stakeholders.

Countries that were major buyers of Russian gas via land routes have made it clear they can manage without it.

Slovakia, which recently sought to persuade Ukraine to maintain gas transit, announced a pilot deal for gas supply from Azerbaijan. However, instead of using Ukraine, the supply will flow through the Turkish Stream, which may also carry Russian gas.

Prime Ministers of Ukraine and Slovakia Denys Shmyhal and Robert Fico (photo: Telegram/Denys Shmyhal)

Slovakia also has alternative routes, including connections from Germany via Czechia. The country's primary gas buyer, the SPP company, reported diversifying its supply contracts with companies such as BP, Exxon Mobil, Shell, Eni, and RWE. If transit through Ukraine ends, the SPP plans to expand these contracts.

However, Bratislava has noted the higher costs of these alternatives. "If the company loses Russian supplies and has to purchase all its needed volumes from other sources and physically transport them to Slovakia, it will cost at least €140 million more," the SPP stated.

Gas supplies to Austria via Ukraine had been completely suspended since November 16 by Gazprom's decision. As of November 16, Austria ceased receiving gas via Ukraine due to a decision by Gazprom. The Russian monopoly made this move after the Austrian energy company OMV announced it would deduct €230 million from its next payment to Gazprom Export. This amount had been awarded to OMV in arbitration as compensation for irregular gas supplies to Germany until September 2022. In response, OMV seized Russian gas as coverage for the arbitration decision.

According to Reuters, this effectively ended nearly 50 years of Austria-Russia cooperation in the gas sector. This marks the first instance of an EU client not paying Gazprom for gas.

The volume of transit through Ukraine remained steady at 42 million cubic meters per day, suggesting that other buyers or OMV are now acquiring this gas through intermediaries at a higher cost.

The US sanctions on Gazprombank further reduced the likelihood of gas purchases or other energy collaborations with Russia. Restrictions were introduced in early November and almost immediately provoked a reaction from countries that work closely with Moscow in the energy sector, particularly Hungary, Slovakia, and Türkiye.

Hungarian Foreign Minister éter Szijjártó called the sanctions "an attack on Hungary's sovereignty." Türkiye requested the lifting of sanctions, fearing it might be unable to pay for Russian gas, which accounts for nearly 42% of its imports.

US sanctions restrict direct payments for energy supplies. However, Russia is likely to seek alternative mechanisms to continue trade.

Predictions of rising gas prices due to the anticipated halt of transit through Ukraine and the sanctions on Gazprombank have already surfaced.

According to Volodymyr Omelchenko, Director of Energy Programmes at the Razumkov Centre, the risk of price increases is overstated because these factors have already been factored into current prices. After all, there has been talk about the possibility of ceasing gas supplies through Ukraine for at least several months.

"Gas prices in Europe already account for the risks of Ukrainian transit cessation. There are no problems with diversifying supplies and filling EU storage facilities (which were 95% full as of November 1 - ed.). Therefore, a significant further increase in prices is unlikely," Omelchenko said in a comment.

However, the Director of Energy Programmes at the Razumkov Centre believes the sanctions will inevitably negatively impact gas buyers, primarily. They will hinder pipeline gas sales to Hungary, Türkiye, Serbia, and Slovakia via the Turkish Stream and liquefied natural gas (LNG) sales in Europe. Russian companies will need to find alternative banks and payment schemes in hard currencies like the dollar or euro.

Who might face problems without gas transit

As of November 2024, nearly all European countries are prepared to cope with the loss of the Ukrainian gas transit route. Ukraine is ready for this eventuality, and Gazprom's 2025 plans reportedly assume transit via Ukraine will cease.

However, the situation could become critical for Moldova, as the country's Ministry of Energy reported to RBC-Ukraine

The energy situation in this country is not mentioned so often, since gas consumption in it is relatively small - up to 3 billion cubic meters per year. One-third is used on the right bank of the Dniester River, while the remaining two-thirds supply the left bank, including Transnistria.

The cessation of Ukrainian gas transit would primarily affect the left bank (Transnistria), where the Moldowa's State District Power Plant is located. This facility provides electricity for the entire country. Without gas, Moldova could face electricity shortages and destabilization in Transnistria.

Minister of Energy of Moldova Victor Parliсov (photo: https://www.facebook.com/MinisterulEnergieiRM)

The right bank of Moldova stopped consuming Gazprom's gas in November 2022 after Russia unilaterally reduced supplies to 5.7 million cubic meters per day, contrary to its contract with Moldovagaz. Moldowa's government decided to allocate the entire supply to the Transnistrian region, including the Dniester power plant.

Meanwhile, the right bank diversified its gas imports, sourcing from various traders and transporting gas via different routes. "We tested and confirmed the commercial viability of importing liquefied natural gas from the US, becoming one of the buyers of the first cargo at the Alexandroupolis LNG terminal in Greece, and transported it through the "Vertical Corridor" (Ukraine joined the "Vertical Corridor" in January 2024 - ed.) to underground gas storage facilities in Ukraine. We are currently advocating for the creation of a comprehensive product for the entire "Vertical Corridor", which will facilitate the transportation of gas to Ukrainian storage facilities, creating business opportunities for our system operators and strengthening the energy security of the region," the Ministry of Energy of Moldova noted.

If the status quo is maintained and transit continues, it would ensure social stability in Transnistria, the Ministry of Energy of Moldova stated. However, a complete supply halt could bring the region to the "brink of a humanitarian crisis."

"Given the presence of Russian armed forces, weapons, and ammunition depots in the region, as well as the fact that we purchase a significant part of our electricity from Moldova's State District Power Plant, we do not want to destabilize the region and will not prevent Gazprom from continuing to supply gas to the Transnistrian region," the Ministry of Energy reported.

But just in case, Chisinau has prepared backup scenarios - a plan of 44 measures to ensure energy and gas during the cold period. It provides for two main scenarios, one of which is Gazprom's refusal to supply gas to the Transnistrian region via alternative routes (via Türkiye) after the transit contract with Ukraine expires on January 1, 2025. "This (refusal of supplies via Türkiye - ed.) could lead to a crisis in the Transnistrian region and, probably, will cause a wave of internally displaced persons to the right bank," Moldova's Ministry of Energy said in a comment.

So far, Chisinau has not publicly raised concerns regarding the suspension of transit. However, our sources say that the topic is being raised at various international meetings, of course.

The position of Moldowa's government, the country's Ministry of Energy noted, is not to hinder Gazprom's efforts to supply gas to Transnistria via Ukraine and other routes. "However, we have expressed concerns to our Ukrainian colleagues about the possible risks associated with the interruption of transit via the traditional route, as well as the uncertainty on this issue," the Ministry of Energy said. They fear that if there is no 100 percent clarity on transit by the end of December, Moldovagaz will not have time to book capacity on alternative gas supply routes. Then, the situation will have to be managed ad hoc.

What Chisinau fears

Minister of Energy of Moldova Victor Parlicov recently held talks with Gazprom's leadership. However, no specific agreements regarding gas supplies to Transnistria after 2024 were announced following the negotiations.

Still, if alternative gas is found, which is not difficult considering the small volumes needed, it remains unclear who will pay for it.

In this case, the gas prices will increase, and Chisinau has no extra funds. Until now, gas delivered through Ukraine reached Transnistria almost for free. "The volumes consumed on the left bank of the Dniester have not been paid to Gazprom for many years, and tariffs for consumers in the region are significantly lower than the real cost of gas. The population there is accustomed to very low tariffs, which are nowhere near enough to cover the real cost of gas," Moldova's Ministry of Energy noted.

There is another issue. Moldova fears that if non-Russian gas is supplied to Transnistria, which Russia controls, problems could arise with electricity generation and supply to the right bank of the Dniester. A source familiar with the situation noted that these concerns are very serious in Chisinau. "The issue is that Moldova's State District Power Plant is located on territory not controlled by Chisinau. And if there is no gas through Ukraine, there will be no electricity for the right bank. This could become a principled position for Russia," the source said.

If Moldova loses the generation capacity of Moldova's State District Power Plant, electricity supplies from Romania will not cover its needs.

Given these concerns, our sources suggest that Moldova may soon seek assistance from the EU or possibly even the US.