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End of an Era: No More Russian Gas via Ukraine – Now What?

 

Introduction 

On 1 January 2025, Russian gas ceased flowing through Ukraine, following the expiration of a 5-year transit agreement, signed on 20 December 2019, between Gazprom and Naftogaz, Ukraine. This agreement mandated the transit or payment for a minimum of 225 bcm of gas by 31 December 2024, including 65 bcm in 2020 and at least 40 bcm per annum thereafter. However, following Russia’s invasion of Ukraine in February 2022, annual transit volumes fell sharply, with only 14.3 bcm transiting in 2024—far below the stipulated levels. 

The discontinuation of Ukraine’s gas transit is a further step in Europe’s ongoing effort to decouple from Russian gas. While the Ukrainian route held considerable symbolic importance—being the oldest Russian gas route to Europe and, during the 1990s, accounting for close to 80% of all Russian gas entering the continent—its practical impact on the EU has been limited. By 2024, Ukrainian transit represented just 5% of total EU imports, and 80% of its flows were headed to Austria, Moldova, and Slovakia. The termination leaves the TurkStream as the sole major route for Russian pipeline gas into the continent. 

Analysis/Discussion 

European gas prices surged in Q4 2024, with the TTF benchmark rising by 13% and December prices averaging 29% higher than during the same period the previous year. The key question now is how much of this increase can be attributed to uncertainty over transit? While markets did account for the potential halt of Russian gas flows through Ukraine, the primary drivers of the rally were cold spells, Dunkelflaute events (periods of low solar and wind power output), and, most critically, sustained storage withdrawals across the continent during the winter months. 

 A compelling indicator of this dynamic is the unusual pricing of certain gas contracts. For instance, the TTF summer-2025 contract has been trading above the winter-2025 contract since early November. Typically, winter contracts command a premium due to heightened heating demand. However, this pricing anomaly reflects expectations of significant storage injections during summer 2025, as EU member states work to meet their November storage targets. 

The halt in Ukrainian gas transit has had a more pronounced impact on Central and Eastern European countries with greater exposure to Russian supply disruptions, including Austria, Czechia, Slovakia, and Moldova. Before the agreement’s expiration, Ukraine received nearly 40 mcm/d of Russian gas. Approximately 5 mcm/d was routed to Moldova, while the bulk was directed to Slovakia where they retained a portion of the gas and distributed the remainder to Austria and Czechia. In 2024, these four countries were the destination of over 80% of transit flows. 

 Following the agreement’s expiration, gas flows in the region have undergone a notable reconfiguration, with Germany emerging as a pivotal hub. Exports from Germany to Austria and Czechia increased by an average of 7.5 mcm/d and 10.9 mcm/d, respectively, during the first two weeks of January compared to December 2024 averages. This shift has been facilitated by Germany’s abolition of its storage levy, which has enabled higher gas exports to neighbouring countries. Austria has also received marginally increased flows from Italy, while Moldova has boosted its imports from Romania. 

Slovakia, however, has faced significant challenges, relying entirely on storage and imports from Hungary to meet its gas needs. Hungarian flows to Slovakia averaged 7.0 mcm/d during the first two weeks of 2025. Overall, Slovakia appears to have been disproportionately affected by the termination of the Ukraine transit agreement. Prime Minister Robert Fico has been particularly vocal about the topic, even threatening to withhold aid to Ukraine. A face-to-face meeting with Ukrainian President Volodymyr Zelensky is expected soon, where these concerns are likely to take centre stage. 

Company Reflection: Aurora’s insights on these developments 

We are currently evaluating whether, and under what conditions, Russian gas flows could ever return through Ukraine. Certain requirements would need to be met for this to happen. First, a ceasefire or peace agreement between the involved parties would be essential to ensure the safety of transit zones. Second, some relief on energy-related sanctions from the EU and the US would likely be required. Under these conditions, it is more likely that an interconnection agreement between Gazprom and Naftogaz, Ukraine be reestablished. 

If these conditions were met, flows might resume through capacity bookings by Western shippers or return to 2024 levels at some point during Trump’s administration. However, what is almost certain is that a ceasefire will not immediately bring back flows through Ukraine. As a result, at least in the near term, TurkStream will remain the only major corridor for Russian gas into Europe. So, what are the implications?  

In November 2024, we presented an alternative scenario in which Russian gas ceased to flow through Ukraine and never returned. There, we explored the impact on the European supply balance, the global LNG landscape, and gas markets in the Asia Pacific region. One key highlight was that in 2025, lost flows to Europe would be mainly offset by storage withdrawals and redirected US LNG cargoes originally intended for Asia. From 2026 onwards, additional supply from regions such as North Africa could partially fill the gap. Towards the latter years of the decade, new US liquefaction projects coming online will enable LNG to further compensate for the decline in Russian pipeline supplies. 

Additionally, as Russia continues to lose substantial share of its European customer base, countries like China gain significant leverage to dictate terms and prices for future projects like the Power of Siberia 2 pipeline, which is still under discussion among Russian, Mongolian, and Chinese governments. For a comprehensive analysis of this scenario, please refer to our full report 

Conclusion 

Uncertainty surrounds the potential resumption of Russian gas flows through Ukraine, contingent on a ceasefire, sanctions relief, and interconnection agreement. Meanwhile, Europe remains steadfast in reducing its reliance on Russian gas even further. This has accelerated renewable adoption and boosted US LNG imports, all aligned with the REPowerEU initiative.  

If you would like to find out more or hear about how Aurora is helping our clients to navigate the commodities market volatility, please feel free to reach out to Alex Hutcheson, our Business Development Executive. 

Authored by: 

Arturo Regalado – Senior Research Analyst

Adria Chimenos Calaf – Research Analyst