How will Gazprom and Europe live without Ukrainian transit

Two weeks have passed since the Russian gas transit through Ukraine was stopped, and despite all the efforts of Slovak Prime Minister Robert Fico, there are almost no prospects for resuming supplies. Experts doubt that this will happen. In their opinion, both sides will lose, although the losses will not be catastrophic.

"This contract will not be, everything is already clear. Well, we will survive, Gazprom will survive this," Russian President Vladimir Putin said about the prospects of Ukrainian transit on December 19 during a direct line.

Stopping the transit of Russian gas has become a historic event, as it was the oldest route of gas supplies to Europe at the beginning from the USSR, and then Russia. In the 90s and 2010s, Gazprom built alternative routes - Yamal - Europe, Nord Streams and Turkish Stream. But due to sanctions, counter-sanctions and sabotage on the Baltic gas pipelines in 2022, Ukrainian transit became one of the two remaining routes for exporting fuel to Europe, although not the same as in Soviet times or in the 2000s. In 2024, a little more than 15 billion cubic meters were supplied through Ukraine — less than half of all Russian pipeline gas exports to Europe. At the same time, Europe has always been and still remains the most profitable market for Gazprom.

Experts note that the stoppage of gas supplies will also affect Europe, and Gazprom.

Gazprom: reduce debit with credit

"A contradictory picture. Gazprom will lose part of its exports to Europe, and we don't know if Ukrainian transit will resume. Half of January has already passed and there are doubts that the resumption will happen. This is a minus of about 15 billion cubic meters per year. Partially offset the volumes to China. Last year, 31 billion cubic meters were supplied to the Power of Siberia, and 38 billion cubic meters are planned this year. It is possible that the volumes will be even higher. Everything will depend on the conjuncture, as Gazprom's supplies go to China with reference to the cost of oil. If prices are high in the Asian spot market, it will be more profitable for China to borrow even more from Gazprom. The planned supply to Uzbekistan will increase. But the pricing is different there and the prices are lower than in the European market. Therefore, the lost volumes can be compensated, but not financially," says Igor Yushkov, a leading analyst at FNEB and an expert at the Financial University under the Government of Russia.

Alexey Grivach, Deputy director of the National Energy Security Fund (NWF), notes that a small part will also be replaced due to the growth of supplies through the Turkish Stream and, possibly, through a swap in Turkey.

"The loss in revenue can be estimated at about $ 5 billion, based on the prices and volumes of last year. At the same time, the loss of revenue is not equal to Gazprom's economic losses," says Alexey Grivach. The costs of gas transit through Ukraine and Slovakia, as well as part of the costs associated with the cost of gas production and transportation, he notes.

"Consequently, the real losses of the company will be much smaller and, most likely, at least to a large extent compensated by the growth of gas supplies to China through the Power of Siberia," says the deputy director of FNEB.

Stopping the Ukrainian transit will be a loss for Gazprom, but the price of gas that will be supplied via the Turkish Stream will be higher, adds independent industrial expert Maxim Shaposhnikov.

"If there is no sabotage on "Turkish Stream", the company will lose no more than 3% of EBITDA (profit before taxes, depreciation ...) by 2025," the expert believes.

FG Finam estimates an annual decrease in revenue due to the stop of Ukrainian transit at $ 6-8 billion, depending on prices.

"According to our calculations, higher gas prices (including indexation in the Russian Federation), a weak ruble, a planned increase in supplies to China and a possible slight increase in exports via Turkey will compensate Gazprom for stopping transit through Ukraine in terms of revenue. In 2025, we expect revenue to grow to about 11 trillion rubles against our forecast of 10.2−10.4 trillion rubles by the end of 2024. In the longer term, Gazprom maintains plans to increase exports to China, Central Asia, increase LNG production and possible cooperation with Iran," says Sergey Kaufman, an analyst at Finam.

Igor Yushkov, a leading analyst at FNEB, adds that in 2025 Gazprom will cancel the additional mineral extraction tax (MET), which amounted to 50 billion rubles per month or 600 billion rubles per year. Approximately these are the monetary losses of the company due to the stop of Ukrainian transit.

Last year and this year Gazprom recorded losses, but in 2023 it was a paper write—off of companies lost in Europe, and in 2024 it was an increased MET.

According to Sergey Kaufman from FG Finam, in general, Gazprom's current financial position looks stable — the company's debt burden due to the consolidation of Sakhalin Energy (Sakhalin-2) and the cancellation of the additional mineral extraction tax may gain a foothold below 2 "Net debt/EBITDA".

Another question is that since 2021 Gazprom has lost annual exports of more than 100 billion cubic meters. And when it will be possible to restore and redirect it to the East is unknown. There are several options — from the Power of Siberia — 2 and the route through Kazakhstan to China to transit through Iran. However, three years have passed and so far the future of each of the projects is uncertain.

Europe: it will no longer be possible to save money without Gazprom

"For the EU, these are also not very large volumes. About 5% of consumption in annual terms. But, of course, even these volumes need to be taken from somewhere," says Alexey Grivach, Deputy Director of the FNEB. — So far, compensation is due to more active gas extraction from UGS, and not due to an increase in LNG imports. But it is already clear that the heating season The EU will end up with much lower storage balances than in the last two years. And, therefore, in the summer they will have to be filled much more actively by next winter. Plus, in terms of reduced supply. And, therefore, at higher prices, all other things being equal."

By the middle of the heating season, European storage stocks had decreased by more than a third — from 104 billion cubic meters to 70 billion cubic meters. At this rate, the UGS injection season will be met by two-thirds depleted and by the next season, in order to match last year's figures, they will have to additionally pump 27 billion cubic meters. Taking into account the loss of Ukrainian transit, the needs will amount to more than 40 billion cubic meters. And European traders will not be able to compensate for them. Previously, Gazprom was the main supplier of the region, which could increase gas flows during the day, and therefore there could be lower reserves in the storage facilities. The delivery of LNG from the USA, for example, takes at least a week, which further enhances the importance of storage facilities during the heating season.

"For the EU countries that received gas through Ukraine (Slovakia, Austria, Italy, the Czech Republic), the main way to compensate for the falling volumes is to import LNG through the territory of third countries with access to the sea — Germany and Italy. At the same time, it is not the EU countries that have the hardest time locally, but Transnistria," notes Sergey Kaufman, an analyst at Finam.

Independent energy expert Alexander Sobko says that in 2024 there were few LNG capacities launched in the world, since Arctic LNG — 2, in fact, did not work due to sanctions. In this case, after the launch of the American Plaquemines plant, real additional volumes may amount to more than 20 million tons (more than 27 billion cubic meters).

"That is, this is enough to cover the basic growth in demand and the loss of Ukrainian transit with a creak," the expert says. At the same time, Alexander Sobko notes, if Russian gas exports remain curtailed, there will not be a strong drop in gas prices yet: "But there will be no growth either. About so on so."

This will not be very good news for the European industry, since the price of gas supplies for a day in advance, a month in advance and next summer on European stock exchanges was set at $ 500 per thousand cubic meters. This is not only 2.8 times higher than pre-crisis quotes. Last winter in Europe they paid less for gas — around $ 380. And at the end of the heating season — generally $ 350.

"I think that the EU should set a new price limit on the market at the moment — and we asked for it — but not at the current level of 180 euros ($ 1950 per thousand cubic meters), now it should be reduced to 50 or 60 euros ($ 540-$650 per thousand cubic meters), — Italian Energy Minister Gilberto Pichetto Fratin said in a radio interview in early January. — This would slow down purely financial transactions that have nothing to do with raw materials, but burden households and businesses."

The Prime Minister of Slovakia, Robert Fico, estimated that if the Ukrainian transit is refused, the countries The EU will have to pay an additional 120 billion euros for gas and electricity over several years.