Russia explores new gas transit options as Ukrainian agreement nears expiration

Natural gas transit through Ukraine currently serves as the only pipeline supply route for Russian raw materials. The pipeline boasts a capacity of about 1.41 billion cubic feet of gas per day. However, the contract with Gazprom will expire at the end of 2024, and Kyiv authorities have already indicated their intention to negotiate new agreements with the Russian company.

This implies that Russian gas supplies through this route will continue only until the end of the year. Gazprom is already considering its next course of action, especially considering its existing commitments to customers in Hungary, Slovakia, and Austria.

One option Russia is considering involves the potential supply route through Turkey. They have reassured us that gas delivery will occur as planned. At the end of 2023, Moscow assured Budapest that their gas and oil contracts would remain intact. Last year, they supplied Hungary with 2.17 tons of crude oil and approximately 148 billion cubic feet of natural gas. Both commodities delivered to Hungary are currently exempt from sanctions. The agreement between the two countries, which spans 15 years, involves the annual supply of 159 billion cubic feet of natural gas.

Yet, Gazprom recognizes that losing transit through Ukraine is a poor financial move. Consequently, the company is examining other potential options as well.

Alexey Belogoriev suggests that Gazprom may benefit more from transitioning from a long-term contract to shorter-term capacity reservations rather than maintaining the Ukrainian transit.

The optimal scenario for Russia would involve Gazprom, or a subsidiary, participating in Ukrainian auctions that distribute free gas transmission capabilities. This would result in no changes to Gazprom's relations with its consumers, he explained.

However, as the Russian newspaper RIA Novosti emphasizes, if the Russian company is excluded from auctions wherein capacities are reserved for a shorter period, they must find an intermediary to negotiate with Gazprom.

Alexey Belogoryev admitted that completely discontinuing transit through Ukraine cannot be entirely ruled out.