Yuri Barsukov on extending gas transit through Ukraine

Last week, the newly elected Prime Minister of Slovakia Robert Fico, following a visit to Ukraine, said that the transit of Russian gas to the EU through Ukrainian territory will “probably continue” beyond 2024, when the contract signed in 2019 between Gazprom and Naftogaz expires ” The Ukrainian authorities immediately stated that there was no question of extending the transit contract. But from subsequent statements by both Mr. Fico and Ukrainian and Russian officials, it quickly became clear that another version of the agreement was being discussed, which would allow all parties to save not only face, but also significant income from gas trade. For example, Russian Energy Minister Nikolai Shulginov admitted on January 27 that “some decisions will be agreed upon in order to continue transit, probably with the participation, perhaps, of other intermediaries.”

We are talking about a long-standing proposal, according to which Gazprom will sell gas to European companies on the border of Ukraine, and further transit through Ukrainian territory will be the responsibility of the buyer. Previously, Gazprom resisted such a scheme, since in its gas supply contracts the delivery points were located in Europe and not all of the company’s clients would be ready to change contracts and agree to take on the Ukrainian risk. But now this is an argument from a past life. Gazprom’s contract base has been largely destroyed, and the company has only those customers left for whom it is extremely difficult to find an alternative to Russian gas, and therefore they are seriously interested in continuing transit. This is primarily Austria, as well as Slovakia, Hungary, the Czech Republic and, to a certain extent, Italy. Ukraine itself is also extremely interested in transit, not only because of the income generated, but also because the country still uses Russian gas under a virtual reverse scheme, and the transition to a full-fledged real reverse from Europe means significant additional costs. And the continuation of Ukrainian transit will allow Gazprom to save approximately $5 billion in revenue per year.

The gas agreements will not set a precedent and may not require any interaction between Kiev and Moscow. Thus, since the end of 2022, Ukraine has increased the tariff for pumping Russian oil through its territory via the southern branch of the Druzhba oil pipeline several times, for which Hungarian and Czech buyers of raw materials paid. Negotiations were conducted between Ukraine and oil recipients, on the one hand, and between the Europeans and Transneft, on the other. Despite the obvious difficulties caused by military operations and the political situation, this option for supplying gas to Europe looks mutually beneficial and the most achievable for all parties and certainly more realistic than the still illusory hub project in Turkey.