Heavy fighting near the Russian town of Sudzha, where Russian gas flows into Ukraine, has raised concerns over a sudden stop to transit flows via Ukraine before a five-year deal with Russia's Gazprom (GAZP.MM) expires.
The Ukraine gas transit route enables Russia to export gas to Europe via Ukraine. The transit deal is set to expire at the end of the year. Kyiv has previously said it has no plans to renew or extend it.
According to Ukraine’s gas pipelines operator, Russian gas transit via Ukraine to Europe fell by 28.5% to 14.65 billion cubic metres (bcm) last year in from 20.5 bcm in 2022.
WHY COULD TRANSIT STOP EARLY?
Russia said it was fighting intense battles against Ukrainian forces that had penetrated its southern border near a major natural gas transmission hub of Sudzha.
Two Russian military blogs said, without providing evidence, that Ukrainian forces had captured a gas measuring facility at Sudzha, through which Russian natural gas passes.
The latter increases the risk for a more sudden stop in Russian pipeline flows via Ukraine, analysts at ING said.
For now, Gazprom said it will continue to ship gas through Ukraine on Thursday and Ukraine's gas transit operator also said operations continue as normal.
But there is a risk that Gazprom uses the fighting as an excuse to cut flows, said James Waddell, head of European gas and LNG at consultancy Energy Aspects.
Ukraine's gas system operator declared force majeure through the other entry point of the transit route, Sokhranivka, and halted flows in 2022, citing "the interference of the occupying forces in technical processes."
"This is a more likely reason for stopping flows than collateral or intended damage to the pipelines," he said.
WHICH COUNTRIES RECEIVE GAS VIA THE ROUTE?
Most EU nations have lessened their dependence on Russian gas due to the Ukraine invasion. Former main recipients of gas via Ukraine include Austria, Slovakia, Italy, Hungary, Croatia, Slovenia, and Moldova. Austria still receives most of its gas via Ukraine, while others have diversified their sources and taken steps to reduce demand.
Moldova, one of Europe's poorest countries, last year sourced all its gas from European markets, leaving available gas from Gazprom for its breakaway eastern region, Transdniestria.
Croatia's imports are now minimal and Slovenia's have dropped to near zero after its main gas supplier Geoplin's contract with Gazprom ended last year, a study by the Center on Global Energy Policy at Columbia University said.
HOW CAN GAS VIA UKRAINE BE REPLACED?
The previous European Commission said earlier this year that alternative supply sources exist.
Austria can import from Italy and Germany, and its utilities have said they have taken precautionary measures if Russian gas supply stops.
Hungary has been relying on Russian gas from an alternative route: the TurkStream pipeline, and Slovenia gets its gas from Algeria and other sources. Italy receives most of its gas through a route which facilitates Azeri gas imports and from Algeria.
ARE THERE OTHER OPTIONS FOR UKRAINE TRANSIT?
Slovak gas supplier SPP said a consortium of European gas buyers could take over the gas on the Russia-Ukraine border when the transit contract expires, but it is unclear how this might work.
Another option is for Gazprom to supply some of the gas via another route, for example via TurkStream, Bulgaria, Serbia or Hungary. However, capacity via these routes is limited, SPP told Reuters.
The EU and Ukraine have also asked Azerbaijan to facilitate discussions with Russia regarding the gas transit deal, an Azeri presidential advisor told Reuters, who declined to give further details.
The EU has been trying to diversify its imports of gas and signed a deal to double imports of Azeri gas to at least 20 bcm a year by 2027 but the advisor said the infrastructure and financing were still not in place to facilitate this expansion.
However, with Azeri domestic consumption set to rise, analysts at Energy Aspects said they see only around 1.7 bcm available for incremental exports, and there is also little spare capacity to get the gas into Europe.
HOW MUCH REVENUE WILL GAZPROM LOSE?
Russia could lose around $4.5 billion annually if exports halt, based on an expected average gas price to Europe of $320 per 1,000 cubic metres in 2025. Its daily exports via Ukraine to Europe currently stand at more than 40 million cubic metres, according to Gazprom's data.
