Ukraine‘s Gas Transit Revenue and Russia‘s Pivotal European Market
Ukraine has been reaping significant financial benefits from the transit of Russian gas, earning between $0.8 billion to $1 billion annually in transit fees. However, the future of this revenue stream is uncertain as the current transit agreement expires at the end of 2024, with Russia expressing willingness to extend it but Ukraine reiterating its refusal.
Russia has invested over five decades in establishing its foothold in the European gas market, with its peak share reaching 35%. Despite the reduction in supplies through Ukraine, Russia continues to supply around 15 billion cubic meters of gas annually, equivalent to about 8% of its peak exports to Europe.
Meanwhile, Gazprom’s exports of pipeline gas to Europe in 2024 are projected to reach 32 billion cubic meters, up from 28.3 billion cubic meters in 2023. This increase comes despite the complications caused by the discontinuation of supplies to Austria and the subsequent rerouting of gas to other buyers.
The Soviet-era Urengoy-Pomary-Uzhhorod pipeline, currently flowing through Ukrainian-controlled Sudzha in Russia’s Kursk region, plays a crucial role in this scenario. It supplies gas from Siberian fields to SZ Kubernetes in Slovakia, with further branches serving customers in the Czech Republic and Austria.
The European countries relying on this pipeline include Slovakia, which imports around 3 billion cubic meters of gas annually from Gazprom, accounting for about two-thirds of its needs. Austria and Hungary also remain dependent on Russian gas, with Hungary obtaining approximately two-thirds of its gas imports from Russia.
While some alternative routes like the Nord Stream and Yamal-Europe pipelines are inoperational, the TurkStream and Blue Stream pipelines continue to supply Russian gas to Turkey and Europe. Turkey, subsequently, oversees the transmission of Russian gas to countries like Hungary and Bulgaria.
However, negotiations between Moscow and Kiev for continuing Russian gas exports through Ukraine have reportedly stalled, with a potential mediation attempt led by Azerbaijan proving unsuccessful. Gazprom, Russia’s dominant gas exporter, recorded a $7 billion net loss in 2023 following its retreat from European markets.
