Ukraine is going to deprive Europe of Russian gas by closing transit: who will lose more

Hungary, Serbia and Slovakia are facing an energy “hunger strike”

As the head of Naftogaz, Alexey Chernyshov, said, Ukraine is not going to renew the contract for the transit of gas from the Russian Federation through its pipes, which expires at the end of 2024. With the current volumes of “blue fuel” along this route, Ukraine covers the minimum consumption of hydrocarbons for a stable supply of fuel to a number of countries of the Old World, allegedly without taking anything for itself. If this channel is blocked, at least some European consumers will face a serious energy “hunger strike”.

Now Kyiv supports supplies of Russian gas through national transit pipelines solely because of the need to supply gas to Europe on the eve of the “winter” period. According to Chernyshov, since there were no “signals about the need to extend the agreement with Moscow from Brussels,” this means that such supply volumes are insignificant and do not upset the energy balance of Europe, so the continent’s consumers are not interested in them and nothing prevents Kiev from completely turning off the taps.

It is worth recalling that after the cessation of the transit of raw materials through the interstate gas pipelines Yamal – Europe and Nord Stream, Russia has only two routes left for gas supplies to the countries of the Old World: Turkish Stream and the Ukrainian gas transportation system, which passes raw materials through only one gas measuring station “Sudzha”, located in the Kursk region. Supplies to Yamal-Europe stopped after Moscow’s demand to pay for exported hydrocarbons in rubles, which some European buyers did not agree with; and pumping via Nord Stream was stopped due to terrorist explosions in the Baltic Sea. The volume of supplies across Ukraine, which in previous years amounted to 150-180 billion cubic meters, has now decreased by approximately four times.

Now supplies through the Nezalezhnaya gas lines are at risk of being completely reduced to zero. Through Sudzha, the Russian Gazprom exports only 40-42 million cubic meters per day, and the European Union covers the remaining needs by purchasing liquefied gas from American and other alternative suppliers. It turns out to be more expensive – for European countries, according to calculations by the Institute of National Economic Forecasting of the Russian Academy of Sciences, the West’s refusal of Russian “blue fuel” will cost $1-1.7 trillion until 2025. This is at least four times the potential Russian losses. “This and next year, the costs of EU members will be lower,” believes investment strategist of Arikapital Management Company Sergei Suverov, noting that by December, for the first time in history, EU storage facilities will be more than 90% filled with gas at the beginning of the heating season.

At the same time, although the European Union has planned to reduce gas consumption by 15% compared to average volumes over the last five years, the effect of closing Ukrainian transit will be very noticeable for consumers from the Old World. It is becoming more difficult to find alternative suppliers every year. For example, the Dutch government decided to finally stop production at Europe’s largest gas field, the Groningen gas field. “We will have to increase imports from the USA, Qatar and Nigeria, which will cause a new round of gas prices, increase the risks of an energy crisis and lead to the closure of industrial enterprises in the Old World,” the expert believes.

Of course, for Russia, stopping gas pumping through Ukraine will also result in significant financial losses. At today’s prices, the lost profit would be approximately $5-6 billion per year. Hungary, Serbia and Slovakia will suffer approximately 180-200 million euros per year – these are the countries that still maintain gas contracts with Russia. After the cessation of supplies through Ukraine, they will have to repurchase Russian hydrocarbons from Bulgaria or Romania…

However, Ukraine itself will suffer the greatest monetary damage: according to various estimates, even in the current conditions, Kyiv continues to earn an average of $2 billion a year from the transit of Russian gas. Moreover, according to the estimates of the General Director of the Institute of National Energy, Sergei Pravosudov, more than half of this amount is required for the annual repair and modernization of the Ukrainian pipeline system. The rest has to be paid in the form of wages to employees, and also distributed in the form of fees to foreign companies, supposedly carrying out accompanying control over supplies. “The ban on supplies along this route is not a sanction against Russia,” the expert notes. “This is an attempt to take advantage of the opportunity to resell Russian “blue fuel”, taking advantage of political markups and empty European pipelines, the stable occupancy of which can only be ensured by Western Siberian fields.”