Gazprom set to lose revenues from Ukraine transit halt, re-routing options look limited

• Gazprom could face considerable revenue loss from halt of supplies through Ukraine 
• Re-routing options look limited as TurkStream flows are near full capacity
• Putin says Russia ready to use Yamal pipeline but Poland unlikely to agree anytime soon

Gazprom looks set to lose significant revenues from gas sales to Europe after the transit agreement with Ukraine expired on 1 January and the options for re-routing gas through other pipelines to reach European customers currently look limited. 

Both Gazprom and the Gas TSO of Ukraine confirmed on 1 January that flows of Russian gas via Ukraine had come to a halt after the expiry of the five-year transit agreement that was signed in December 2019. The volumes transported via Ukraine to European customers averaged ~15 Bcm/year in 2024, much less than before Russia’s invasion of Ukraine and also much less than the volumes Gazprom was contracted to export via Ukraine, which was about 40 Bcm/year in the 2021-24 period.

Ukraine is expected to lose around USD 800 million per year in transit fees while Gazprom’s loss of revenues from gas sales are believed to be much higher.

One industry observer speaking to Gas Matters Today said Gazprom’s loss of net revenues would probably be around USD 3.5-4 billion annually taking transit fees, transport costs in Russia and operational costs into account. 

As for alternative routes, Gazprom’s options currently look limited with the capacity on TurkStream – the only functional route for supplying Russian pipeline gas to Europe at the moment – operating at near full capacity. 

READ Ukraine transit near expiry: What’s next for Russian piped gas?

One gas analyst said exporting Russian gas to Europe via the Yamal pipeline was a theoretical option but it seems unlikely that Poland – which on 1 January took over the rotating presidency of the EU Council from Hungary – will agree transit of Russian gas through its territory anytime soon.

Vladimir Putin has nevertheless said Russia is ready to supply gas to Europe via Poland through the 33 Bcm/year Yamal—Europe pipeline. Poland terminated a supply and transit agreement with Russia for Yamal in May 2022 and Europol Gaz, a subsidiary of Polish energy company Orlen, took over ownership of the Polish section of Yamal from Gazprom in October 2023. Flows of Russian gas via the pipeline are currently zero.

The Kondratki entry point on the Belarus-Poland border is no longer listed on the ENTSOG transparency platform, a market observer told Gas Matters Today.  

“I’m not sure if it is dismantled, but there is zero technical capacity at the moment it seems. That’s why I would rule out Yamal flows going forward,” he said.

Ukrainian gas infrastructure exposed

All eyes were now on whether the Ukrainian gas infrastructure will remain in place – it could partly be dismantled by Ukraine or destroyed by Russian forces – and whether the US would support a new transit agreement when Donald Trump takes office later this month, the market observer said. 

“So far Russia hasn’t targeted Ukrainian gas infrastructure, and I think they might hold back for now to keep the option of a flow resumption, in case Trump favours it,” he said. 

Several alternative arrangements replacing the Ukraine-Russia transit deal, including a swap agreement with Azerbaijan, have been circulating in the press for some time. However, it is doubtful if Azerbaijan has spare production capacity to increase exports to Europe.

READ Azerbaijan strengthens position as key European gas supplier amid rising production

As for buyers of Russian gas via Ukraine, Slovakia was one of the few remaining countries with significant exposure to the the halt in supplies. 

On Tuesday, Slovakian energy supplier SPP confirmed that Gazprom Export had suspended gas supplies to the company. 

“SPP has been preparing for this situation for a long time, therefore it continues to guarantee safe natural gas supplies to all its customers, from large industrial consumers to households,” the company said in a statement. 

The company’s CEO, Vojtech Ferencz, noted that it had signed commercial contracts for the purchase of gas from sources other than Russia with BP, ExxonMobil, Shell, ENI and RWE . 

These contracts are flexible, and we can increase not only the required gas volumes, but also the length of validity of these contracts. This means that we are fully prepared for the stoppage of the supply of Russian gas through the territory of Ukraine,“ Ferencz said.

SPP’s preferred alternative gas transport route during the winter season is from Germany through Austria or the Czech Republic while gas imports through TurkStream is also a possibility, the CEO said. Gas can also be imported from Croatia or Italy, via Austria to Slovakia.

“Given the high transit fees, a transit corridor through Poland appears to be the least likely, but not excluded,” Ferencz said. - AW

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