As an expert in gas transit and former head of Ukraine’s gas transmission network, I have closely observed decision-making over Gazprom’s continued use of pipelines through Ukraine, especially since Kyiv’s armed forces seized the critical Sudzha gas metering station inside Russia’s Kursk region two weeks ago.
Understanding Gazprom’s approach requires recognition of Sudzha’s strategic significance. It is the only remaining route to deliver gas directly to Europe and became even more crucial after the Yamal and Nord Stream 1 pipelines ceased operations in 2022.
At present, the gas flow through Sudzha is 40-42 million cubic meters per day, making it an indispensable link in the chain of Russian gas exports to Europe. It is even more important to Gazprom, the once money-spinning gas giant financially humbled by the continent’s turn away from Kremlin energy.
Given its importance, the lack of control over Sudzha introduces substantial risks for the Russian company. Gazprom now has no oversight of the metering station where gas flow is measured, creating the risk of third-party interference with metering equipment and preventing Gazprom personnel from performing standard maintenance procedures.
In short, Gazprom can no longer trust the system that proves and details a large part of its exports and therefore its revenues.
The company is also obliged to provide metering documentation to Russian Customs and Fiscal Services so that it can pay tax.
These issues alone could justify the declaration of force majeure and the halting of gas flows, yet Gazprom has not taken this step, leaving analysts and industry experts wondering why.
Since the company’s employees are no longer there, and anyone can interfere with the metering equipment, its executives can no longer rely on the accuracy of the data produced. So why do they persist?
The financial implications for Gazprom are a major factor. The company reported a loss of 0.5tn rubles ($5.4bn) in the first half of 2024 alone, and maintaining $5bn a year in revenue from gas sales to the European Union (EU) is crucial to its balance sheet.
There are no technical alternatives to redirect the gas to other markets and, with every day of transit generating $14m in revenue, it serves as a lifeline for the company.
Gazprom is acutely aware that even a brief interruption in transit could make its customers switch to alternative gas supply routes, potentially permanently. The minimal volatility in EU gas prices in response to the recent Ukrainian military operation in the Kursk region suggests the European market is increasingly able to function without Russian gas and Ukrainian transit.
There are also domestic political considerations. Export revenues have provided the primary source of funding for subsidized gas prices to ordinary Russians, and the loss of the European gas market could force the government to increase prices for consumers. That would add to inflation and stoke social tensions.
Outside Russia, the primary recipients of its gas are Slovakia, Austria, and Italy, with Hungary receiving a share indirectly via the Turkstream pipeline since 2021.
The Kremlin needs Gazprom to maintain supplies to pro-Russian Slovakia and Hungary, where it offers cheaper gas as a quid pro quo to politically sympathetic governments. This is a central element of Russian foreign policy as it seeks to split the EU and block military and financial support for Ukraine. Without Russian gas, their leaders would have fewer incentives to support Russian interests.
Maintaining gas transit to the separatist region of Transnistria is also crucial for the Kremlin. Without the provision of free gas, the reintegration of this region with Moldova might become possible.
If Gazprom were to cease transit, it would not only lose revenue from gas sales but also face substantial legal claims from its European customers for failure to deliver. The firm is contractually obliged to provide gas to Slovakia and Austria for its European off-takers, and failure to do so could result in massive claims for damages.
Germany-based Uniper, for example, has already won a $14.5bn arbitration case against Gazprom, with many other claims still pending. Austria’s OMV has a contract extending until 2040, and a claim for non-delivery could amount to billions of dollars. Even Moldova would have legal grounds to sue Gazprom.
Given these considerations, it is likely Gazprom will continue to operate under the current circumstances for as long as possible. However the military and commercial threats of transit interruption remain significant.
Neither Ukraine nor Europe faces substantial risks if the transit were to be interrupted. In fact, it may be more prudent to end it during the summer rather than in January when the demand for gas is at its peak.
Sergiy Makogon was CEO of GasTSO of Ukraine (2019-2022) and is an energy expert with extensive experience in the European and Ukrainian gas markets.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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