Executive Summary

• The myth of “cheap Russian gas” persists due to expectations that Russian gas giant Gazprom will eventually resume exports to the EU, weakening interest in alternative solutions. In reality, Russian gas is more expensive when security costs are factored in, with Russia-dependent countries subject to blackmail, corruption, and attacks on gas infrastructure.  
• Countries in central, eastern, and southern Europe have pursued divergent political and commercial strategies at significant cost to their populations. These challenges can be mitigated through stronger political engagement at both the EU and regional levels.  
• The expiration of Russia’s gas transit agreement with Ukraine presents an opportunity for Kyiv and neighboring European Union member states to renew discussions on access to regionally produced liquefied natural gas and pipeline gas.  
• To enhance security and reduce costs for consumers, Ukraine could collaborate with neighboring gas grid operators to integrate a pipeline network extending from the Baltic Sea to the Balkans, with Ukraine’s vast storage capacity serving as the central hub of this system. 

Introduction

The expiration of the arrangement supporting Russian gas transit through Ukraine on January 1, 2025, marks a critical step toward ensuring European energy security. However, decoupling from Russia alone will be insufficient and likely temporary unless Europe develops an integrated gas transit infrastructure that enhances the resilience and security of both markets and infrastructure. A new Baltic-to-Balkan pipeline initiative, circumventing Brussels and European governments, would be a crucial next step in this direction. 

For decades, the Kremlin has sought to deepen Europe’s dependence on fossil fuels, perpetuating the myth of cheap Russian gas and constructing transport corridors such as the controversial Nord Stream and TurkStream gas pipelines to undermine European market integration. 

However, Russia’s decision to cut over 80 percent of pipeline gas deliveries following its full-scale invasion of Ukraine in 2022 — aiming to weaken European support for Kyiv — has backfired. Unable to secure alternative markets, Russia has incurred multibillion-dollar losses, leaving exporter Gazprom financially strained over the past two years. With the expiration on January 1 of an agreement facilitating gas transit to Europe via Ukraine — following Kyiv’s decision not to renew it — Russia’s share of EU pipeline gas and liquefied natural gas (LNG) exports has declined further, consolidating at 11 percent of total imports in early 2025, down from 40 percent in 2021.  

As Russia struggles to reclaim its once-lucrative European market, Ukraine has an opportunity to access a diverse range of gas supplies, including regionally produced resources and imports from the global LNG market. A cost-effective project that could advance rapidly is the integration of the Baltic Sea corridor’s natural gas infrastructure in the north with the Vertical Gas Corridor in the Balkans. 

This concept would partially align with the vision of the Three Seas Initiative (3SI), which aims to enhance regional connectivity by integrating the energy, transport, and digital sectors of 13 EU member states, spanning from the Baltic Sea in the north to the Adriatic Sea in the south. 

Although 3SI, heavily promoted by Poland, has gained significant recognition since its inception in 2016, it has struggled to deliver major infrastructure projects, particularly in road and rail. However, the expiration of the Russian gas transit agreement with Ukraine, Poland’s EU presidency in the first half of 2025, and the urgent need for a decisive response to Russia’s renewed regional claims are injecting new momentum into these efforts.  

The State of Play 

Since the beginning of the year, Ukraine’s state oil and gas company, Naftogaz, has signed two supply agreements with its Polish counterpart, PKN Orlen, to secure LNG via Polish and Lithuanian import terminals. Although the volumes to be imported by PKN Orlen on behalf of Naftogaz in April and delivered at the Ukrainian-Polish border are small — equivalent to approximately two LNG cargoes — the potential for expansion is real and immediate, as the necessary infrastructure is already in place.   

In the north, the Baltic Sea corridor has taken shape around a cluster of projects, including the newly commissioned subsea Baltic pipeline, which facilitates Norwegian and Danish gas exports to Poland, as well as LNG import infrastructure at Poland’s Świnoujście terminal and Lithuania’s offshore LNG terminal near Klaipėda. 

Meanwhile, Ukraine’s southern neighbors — Greece, Bulgaria, Romania, and Moldova — are working to revive flows via the Trans-Balkan corridor, historically used to export around 27 billion cubic meters (bcm) of Russian gas to the south a year. This route became idle in 2020 after Moscow diverted supplies through Turkey.  

Currently underutilized, the corridor could be reversed to enable shipments from Greece to Ukraine. At present, south-north transmission capacity is less than 5 bcm per year but could be expanded at minimal cost.  

In reverse mode, the full Vertical Gas Corridor linking the Balkans to Ukraine would grant buyers access to LNG via Greece or Turkey’s on- and offshore terminals, as well as Black Sea pipeline gas from Romania’s offshore Neptun Deep bloc, expected to come online in 2027. Ukraine’s vast gas storage capacity and transmission pipelines are strategically positioned at the center, connecting the two corridors, facilitating regional integration, and ensuring supply security —  particularly for countries like Greece and Bulgaria, which have limited storage.  

A fully functional gas transmission corridor linking the Baltic and Nordic countries to the Balkans would benefit over 100 million regional consumers by providing access to abundant, competitively priced resources while also strengthening security against future Russian destabilization.  

Meanwhile, the United States and Russia are discussing the possibility of commercial reactivation of the sabotaged Nord Stream pipelines to Germany. Originally built by Russia to deprive Ukraine of its historic transit role and increase central and eastern European countries’ dependence on gas entering the region via Germany, these pipelines could have significant geopolitical and economic implications.  

The creation of a Baltic-Balkan corridor integrating all regional countries would render Nord Stream obsolete, stripping Russia of another tool to undermine Europe. Crucially, the necessary infrastructure for this corridor is already in place and could be used immediately to establish a seamless market fully aligned with western Europe.  

The sticking point is that most countries have pursued divergent strategies driven by political and commercial interests, often at significant cost to their populations.  Stakeholders interviewed for this paper said some companies based in Ukraine had been waiting for the expected renewal of the Russian transit agreement and balked at signing diversified supply contracts or using the proposed alternative routes. Their reluctance reflects a general view that Gazprom, a Russian majority state-owned energy giant, will eventually resume exports to the EU, dampening interest in alternative solutions.  

While many still subscribe to the misleading myth, promoted by Gazprom, that Russian gas is cheap, historical data show that it was, in fact, more expensive or sold at market levels to western Europe and was significantly costlier for eastern European buyers. 

Considering the costs and security risks posed by Russian gas imports, 3SI members and their neighboring partners — Norway, Denmark, Ukraine, and Moldova — should join forces to integrate existing infrastructure. Regulatory and political alignment would enhance access to diverse sources and lower prices. 

Opportunities and Challenges 

Following its full-scale invasion of Ukraine in February 2022, Russia cut most of its gas supplies to Europe and demanded payments in rubles, accelerating the EU’s pivot to the global LNG market. Since then, many countries have managed to build or expand regasification and transit capacity. Poland, for example, completed the Baltic Pipe to Denmark, enabling the import of up to 10 bcm annually from Norwegian or Danish North Sea production. Poland also brought online interconnecting infrastructure to Lithuania. 

Meanwhile, in 2022, Greece and Bulgaria brought a 3 bcm/year gas interconnector into commercial operation, allowing Balkan buyers to access LNG imported via Greece’s Revithoussa and Alexandroupolis terminals or Caspian gas delivered via the Southern Gas Corridor, which links Azerbaijan’s offshore production to Greece and Italy. Additionally, Norway ramped up output and pipeline exports to Europe, while Denmark brought a critical offshore field back onstream. 

The United States and Qatar, the world’s largest LNG producers, are set to double output in the second half of this decade, while Romania expects to do the same by 2027, positioning itself as Europe’s top gas producer. These developments promise greater diversification and lower energy costs for millions of consumers. However, Europe’s gas market remains fragmented and disrupted by an East-West divide, despite expectations that EU member states should operate within a single market governed by shared rules and codes. 

Some obstacles stem from national policies, as governments have prioritized domestic interests, leading to market distortions such as higher prices and transmission tariffs. For instance, it costs an average €5/megawatt hour (MWh) to import natural gas from Poland’s  Świnoujście LNG terminal, €7/MWh to book monthly transmission capacity for the import of gas from Norway into Ukraine via Denmark and Poland, and an average €12/MWh for monthly transmission capacity to import gas from Greece’s Revithoussa LNG terminal up to Ukraine via the Trans-Balkan route.  

Source: Author’s calculations based on 2024/2025 tariffs published by gas grid operators DESFA, Bulgartransgaz, Transgaz, VMTG, and GTSOU. Conversions from Bulgarian leva and Romanian lei were made at the spot foreign exchange rate.  

Other hurdles, including different technical specifications for the quality of transported gas, are also holding up market integration. Romania’s Transgaz, for example, prevents Ukrainian and Moldovan companies from importing gas from its domestic market using the Trans-Balkan route, insisting there is a wide discrepancy in methane content between the Romanian and Ukrainian markets.  

Transmission capacity between Poland and Ukraine is also limited because of congestion in eastern Poland, necessitating infrastructure upgrades. In the meantime, gas transmission system operators in both countries have reached a temporary solution that guarantees the allocation of limited border capacity needed to import gas from Poland. Polish gas industry sources indicate that Ukrainian companies have so far shown no interest in booking transmission or securing regasification capacity at the Gdańsk LNG terminal, which is expected to come onstream in 2028. There are also war-related risks associated with Ukraine. Despite assurances from storage operator Ukrtransgaz regarding the safety of gas stocks in local facilities, many companies remain hesitant to inject gas.  

Conclusion 

Ukraine has a unique opportunity to work with neighboring EU member states to integrate gas markets from the Baltic Sea to the Balkans at minimal cost. The necessary transmission infrastructure is already in place, opening opportunities to tap a variety of gas sources, including LNG from the expanding global market and regional producers such as Norway, Denmark, and Romania.  

Ukraine’s vast storage capacity would sit astride this bidirectional gas highway, offering an opportunity to regional companies to build security stocks. However, national interests and market-specific complexities have hindered regional integration despite existing infrastructure. This underscores the need for sustained political engagement at both the EU and member-state levels to achieve alignment under shared regulatory frameworks. 

Additionally, as discussions progress on a potential peace agreement with Kyiv, there remains a risk that the United States and Russia could negotiate the resumption of gas exports via Ukraine or the controversial Nord Stream corridor, which has remained idle since it was sabotaged in September 2022. 

Ideally, Washington, Brussels, and Kyiv should be made aware of the risks associated with resuming these imports. These include potential infrastructure attacks, as seen with Nord Stream and Ukraine’s storage and gas production facilities in recent years; political blackmail to extract concessions; and a return to the corrupt practices that have long plagued eastern Europe’s oil and gas industry.  

For this reason, the EU must take an active role in supporting regional integration along the Baltic-Balkan corridor, which presents real opportunities for diversification. Simultaneously, it should establish clear limits on the volume and duration of any potential Russian gas deliveries should they reenter the European market.  

Recommendations 

While there are compelling arguments favoring the establishment of an integrated Baltic-Balkan gas corridor, rapid progress will require a number of concrete steps: 

1. As a priority, the upcoming 3SI summit in Warsaw at the end of April should advocate for integrating the two corridors to guarantee regional security of supply and access to competitively priced non-Russian gas.  High-level talks should include 3SI members and partner countries — Norway, Denmark, Ukraine, and Moldova. These talks should be followed by technical discussions to address existing obstacles.  

2. At the member-state level, Poland should remove barriers to trade, including cumbersome and costly storage obligations, to encourage cross-border transfers. Some of the barriers, such as mandatory storage reserves for traders and importers and the requirement to book associated transmission capacity, are expected to be removed this year. However, the Polish oil and gas company PKN Orlen retains a monopoly over import capacity at the Świnoujście onshore LNG terminal, with a similar arrangement planned for the Gdańsk offshore LNG port once operational in 2028. PKN Orlen could be encouraged to release imported LNG volumes on a competitive market basis. While current regulations require companies to sell a share of imported volumes on the local exchange, increasing these quantities could create more liquidity.   

3. Ukraine needs to clarify its strategy for developing its gas market following the loss of Russian transit and associated revenue. As a result of Russia’s repeated attacks on its domestic gas production facilities, Ukraine is expected to import significant quantities of gas ahead of next winter. Some traders interviewed for this report estimate summer import needs at or over 4 bcm. After the war, gas demand may rise further as reconstruction begins. Ukraine can import gas either via the Baltic region or the Balkans, but it needs to present a clear vision, backed up by realistic short-, mid-, and long-term demand forecasts. It also needs to revert to free-market arrangements, which were suspended at the start of the Russian invasion, and ensure price signals accurately reflect internal supply and demand.  

4. Romania could be a valuable regional player, offering access to its own onshore and offshore gas resources, as well as to neighboring markets in the south. However, high transmission tariffs set by the grid operator and reluctance to cooperate on issues such as gas quality specification alignment have posed challenges for companies looking to enter the market. To address these issues, political engagement at the EU and neighboring member-state level is necessary to persuade the Romanian government and Transgaz, in particular, to collaborate and align on projects that promote regional market integration.   

5. While the loss of Russian transit has increased costs for many operators reliant on transit revenue, including Ukraine, some tariffs, such as those charged by Romania’s Transgaz and its Moldovan subsidiary, Vestmoldtransgaz, are among the highest in the region. A solution to reducing Transgaz’s tariffs is challenging, as both the company and the regulator, ANRE, have not provided clear details on their tariff calculation methodology. However, gas grid operators along the southern Vertical Gas Corridor should benchmark transmission costs against the more competitive Baltic Sea Gas Corridor. Currently, importing gas from Greece to Ukrainian storage costs nearly twice as much as importing it from the North Sea or Polish and Lithuanian terminals, making it economically prohibitive.  

6. Incentivize global LNG and regional gas producers to establish a security stock in Ukraine that can be accessed on short notice. Ukraine can offer around 10 bcm of storage capacity, which could be used by nonresident companies to create security stocks. Currently, companies are wary of injecting gas in Ukraine because of war-related risks and unfavorable market conditions. However, with gas prices expected to fall as global production increases in the coming months and years, Ukraine’s underground storage facilities could attract more interest. To mitigate war-related risks, stocks could be insured by international banks, including through the World Bank’s Multilateral Investment Guarantee Agency, and backed by EU guarantees. The more volumes are imported and stored in Ukraine, the greater the likelihood that transmission and storage operators will offer discounts on the costs of shipping, injecting, storing, and withdrawing gas.   

7. Another issue to consider is the need for transparency regarding the origin of gas imports. There have been suspicions that some imports entering the Balkan region from Turkey were of Russian origin, sold at significantly reduced prices, thus undercutting other suppliers. While Russian pipeline imports are not currently sanctioned, there is a strong push at the EU level to phase out Russian fossil fuel imports by 2027. In light of this deadline, the EU should introduce a requirement for pipeline importers from non-EU countries to disclose the origin of their purchased pipeline gas and the price paid.  

8. After losing most of its European market share in 2022, Russia has sought to regain some of its lost customers by offering discounted prices to companies, primarily in the Balkan region. In the absence of dedicated sanctions, the EU could consider introducing a fee to cover the gap between these discounted prices and European hub prices, adjusting in line with the latter to ensure Russian prices remain aligned with EU market prices. If Russian gas transit is limited in quantity and duration and subject to an EU market alignment fee, the integration of the Baltic Sea corridor and the Vertical Sea Corridor could still be possible, with Russian gas as one of several sources for the region. However, such an option should only be considered as a last resort, given the ongoing risks that Russia could use the revenue from gas sales to rearm and launch new attacks on Ukraine and other European countries. 

9. As the United States works toward a peace agreement between Ukraine and Russia, Kyiv may be asked to consider resuming gas transit to EU markets as compensation for the infrastructure damage Ukraine has sustained since the start of the full-scale war. Given the EU’s intention to phase out Russian fossil fuel imports, the EU should only agree to such a proposal if the transit is limited in both volume and duration.  

About the Author

Aura Sabadus is a Non-resident Senior Fellow with the Democratic Resilience Program at the Center for European Policy Analysis (CEPA).

Aura works as a journalist specializing in European energy markets for the London-based Independent Commodity Intelligence Services (ICIS), a global energy and petrochemicals news and market data publisher.

Aura has written extensively on European natural gas markets, taking a particular interest in political risk and energy supplies in the Black Sea region.

In her additional role as research fellow of the Energy Community, an international institution working to extend the EU’s internal energy market to non-EU states, she contributes to market reform efforts in Ukraine and Moldova as well as the integration of central and eastern European natural gas markets.

She is frequently quoted in the international mainstream media, speaks at industry and academic conferences, and occasionally teaches at London-based universities.

Aura holds a PhD in International Relations from King’s College London.

CEPA is a nonpartisan, nonprofit, public policy institution. All opinions expressed are those of the author(s) 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.