Ukraine Ends Party for Europe’s Gas Addicts

The expiry of Ukraine’s five-year gas transit deal with Russia came at the end of a bitter tug-of-war between those seeing any extension as a betrayal of Ukraine’s war-exhausted population, and Kremlin-friendly proponents keen to make a quick profit and appease Putin’s regime.

Doom-and-gloom warnings of soaring prices and market chaos spread widely across international media by Slovakia’s Prime Minister Robert Fico. These proved untrue.

Europe’s flexible infrastructure fully showed its mettle, allowing for a nimble and painless readjustment to the new reality.

Countries such as Austria and the Czech Republic, which until a few days ago were importing Russian gas, simply switched to German supplies, something greatly eased by Berlin’s long-overdue decision to scrap an export fee that would have increased costs across Central Europe.

In the early hours of January 2, the first working day of the new year in Europe, gas prices did exhibit some volatility, but this was fully expected as markets adjusted to the loss of 14 billion cubic meters of Russian gas.

In the greater scheme of things, the volumes represent less than 5% of Europe’s total annual gas imports and the EU itself assessed the impact of the loss of transit as “negligible” in the weeks prior to its expiry.

There was one visible victim. The Russian puppet state of Transnistria was badly hit as gas supplies routed through Moldova were ended.

Yet this was a decision made in Moscow. Russian producer Gazprom could have chosen to reroute the gas via Turkey, Bulgaria, and Romania, but chose not to.

Regardless of the reasoning, the impoverished Russian-speaking population on the left bank of the River Nistru were left to freeze in their homes and reflect on the fluctuating benefits of Russkiy mir,

The Kremlin was betting on sparking a humanitarian crisis as schools and kindergartens immediately shut down. Parts of the population might have chosen to flee for Moldova or Romania in search of warmth.

But the Moldovan authorities were one step ahead. The state company Moldovagaz and wholesaler Energocom joined to bring EU imports to Russia’s illegally established province.

Logistically, it is relatively easy to secure gas from alternative sources via countries to the south, or from Ukraine.

The biggest obstacle remains the inability of Transnistrian authorities to pay for gas imports at market prices. The Russian supplies had been heavily subsidized.

Moldova estimates the cost to secure gas for Transnistria this winter at anything from €20m to €45million, a sum that could be secured either through EU grants or loans. It’s a very small sum for Brussels.

More seriously, Transnistria’s vulnerability to Russia’s gas blackmail is felt in Moldova proper because consumers there depend on electricity generated by Russian gas in Transnistria.

Moldova has turned to Romania, importing more than half of its needs, while the rest is covered from internal production.

In the longer term, however, Moldova will need to come up with a vision for the integration of the energy sectors on the two banks in a way that will end Russia’s tiresome energy blackmail.

Moldova and much Central and Eastern Europe have displayed considerable resilience and solidarity; when Slovakia threatened to cut energy supplies to Ukraine as retaliation, Poland said it would make good the difference. That left Slovakia’s premier to menace ordinary Ukrainian refugees instead.

If this is a victory for much of the region, it’s a defeat for Fico and Viktor Orbán (who has been notably silent over the issue in recent weeks.)

It is quite possible the pair are working behind the scenes to pressure the EU and Ukraine into a resumption, particularly if there is a cold snap later this month or in February, which may lead to higher gas prices.

So it’s unlikely the energy wars are over just yet. The once-mighty Gazprom is now in a precarious financial situation and is unlikely to disappear without a struggle. Russia will continue to demand its exports resume. And Europe continues to import Russian energy through Turkish pipelines. While the EU is pledged to end the imports by 2027, it still imports about 15% of its gas from Russia and so contributes multiple billions to Putin’s war funding.

And yet the consequences of Ukraine’s decision are manifold. Russia won’t be able to replace the $6.5bn it formerly made in pipeline gas sales since the route via Turkey has limited transmission capacity. And it is doubtful it could ramp up liquefied natural gas (LNG) exports to fill the gap.

In two years’ time, we must assume, Europe will finally end its addiction to cheap Russian imports and free itself from a ruthless dealer. It has taken a decision by Ukraine, a non-EU member, to remind the continent of the duty to clean up its act.

Aura Sabadus is a senior energy journalist writing for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. She is also a Non-resident Senior Fellow with the Democratic Resilience Program at the Center for European Policy Analysis (CEPA).

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

Celebrating 20 Years of Leadership in Action

Learn More