Who will win and who will lose if the transit of Russian gas through Sudzha stops?

Editor’s note: Iqor Yushkov is leading analyst of the National Energy Security Fund, expert of the Financial University under the Government of the Russian Federation. The article expresses the personal opinion of the author and may not coincide with the view of News.Az.

Regarding the transit of Russian gas through the Sudzha gas metering station, this is now the only remaining active route for gas transit through Ukraine. Until 2022, there were two routes: one of them, which ran further south, passed through the Sokhranovka gas metering station. But in 2022, Ukraine stopped using it, saying it no longer controls part of the pipeline as it now crosses through the Luhansk People's Republic (LPR) territory, and they closed that section of the pipeline.

In response, Ukraine asked Gazprom to redirect the gas volumes that were going through Sokhranovka to the northern route via the Sudzha station, where they believed there was enough capacity to handle larger volumes of gas. However, Gazprom refused, saying that the maximum it could pump through Sudzha was 42.4 million cubic meters of gas per day. As a result, the amount of gas transiting through Ukraine dropped from about 109 million cubic meters to 42.4 million cubic meters per day.

This route is now the last one still supplying gas to Central and parts of Western Europe through Ukraine. Slovakia, Austria, Hungary, and Moldova are currently getting their gas this way. The other route, the TurkStream, mainly supplies gas to Turkey and Balkan countries like Bulgaria, Serbia, North Macedonia, Greece, and Romania, as well as partially to Hungary. Hungary gets most of its gas through TurkStream.

If gas transit through Ukraine stops completely, Hungary could probably meet all its needs via TurkStream. But Austria and Slovakia would be hit hard, as they wouldn’t be able to receive gas through TurkStream. Slovakia would not only lose a gas supply but also the transit fees they collect for pumping gas on to Austria. These countries would then need to look for alternative gas sources on the global LNG markets, which would come with added costs for shipping, regasification, and transportation.

For Moldova, if gas transit through Ukraine ends, they would likely have to rely on gas coming through TurkStream. Even though Moldova doesn’t use that much gas, some of the surplus gas that Gazprom currently sells to traders through TurkStream could be redirected to meet Moldova’s needs.

The biggest losers in this scenario would be Slovakia and Austria, as competition for the available gas would increase, driving up prices across the market. We’re already seeing how the threat of a transit shutdown through Ukraine has caused gas prices to rise by over $100 per thousand cubic meters.

If the transit really does stop, especially after the contract ends on January 1, 2025, the impact could be even worse since this would happen in the middle of the heating season when gas demand is at its highest. Prices could then jump to $600-700 per thousand cubic meters, causing significant issues across Europe.

Ukraine would also take a hit because it earns transit fees and uses some of the transit gas for its own needs. If the transit stops, Ukraine would need to reroute the gas flows, which could be a tough challenge, especially in winter. This would lead to higher tariffs and additional costs.

For Gazprom, stopping the transit would also be a serious setback since it wouldn’t be able to make up for these volumes through other routes. They’d likely need to cut production by 15 billion cubic meters, which would hurt the company’s finances and the Russian budget.

So, in this situation, everyone would lose out, except for LNG producers. The U.S., with its big international companies that export LNG, would benefit from higher gas prices and a larger share of the global market, which also fits their political goals of pushing Russian gas out of the European market.

(If you possess specialized knowledge and wish to contribute, please reach out to us at opinions@news.az).

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