As of 1 January 2025, the flow of Russian gas through Ukraine’s pipeline finally came to a halt, marking the end of a five-year transit deal that had previously played a vital role in Europe’s energy supply, prior to the Russian invasion.

Ukrainian Energy Minister German Galushchenko applauded the end of the gas transit agreement as a ‘historic event’, predicting financial losses for Russia with the loss of important markets, despite the EU significantly reducing imports of Russian gas following Russia’s invasion of Ukraine in 2022. Before the outbreak of the war, Europe imported about 40bn m³/y of Russian gas.

When asked whether the gas deal termination would cause ‘any emergency’ in Slovakia, European Commission spokesperson Anna-Kaisen Itkonen said at a press briefing in Brussels, earlier this month, that the EU Gas Coordination Group concluded ‘there are no security supplies issues or concerns for the European Union following the end of the transit agreement’. Indeed, she claimed that the EC has been ‘working intensively for over a year with member states and with Ukraine as well to prepare in advance for this scenario’. In the scramble for energy security over the next two or three years, there’s competition for new contracts and, failing that, for spot volumes as member nations seek to protect themselves in what is known as the ‘heating season’.

It’s a complex situation because of the ending of Russian gas pipelined through Ukraine under the long-standing but fraught transit agreement, and because there are concerns whether enough LNG is being produced to keep everybody happy.

Deeper in the background is the security of the energy supply chain, in what the Oxford Institute for Energy Studies (OIES) describes as ‘the battleground for critical minerals and materials that underpin strategically critical technologies including for low-carbon energy’. In a geopolitical issue of paramount importance, the energy supply chain is dominated by China, not just through its own domestic production of critical minerals but through its control of mines in Latin America, Africa and Asia.  

‘There are no security supplies issues or concerns for the European Union following the end of the transit agreement.’ – European Commission spokesperson Anna-Kaisen Itkonen

Back to Europe’s heating season. Overall power demand jumped by 4.5% in September and October 2024 which ‘continue[d] the rising demand trend observed over the last few months’, explains Rystad Energy. Simultaneously, there was a disturbingly large fall in solar generation, the inevitable result being that ‘generation from all conventional sources saw a boost in October’.

This is the opposite of what occurred immediately after the invasion of Ukraine. There was a collapse in demand of up to 18% in the two years to mid-2024 because of consumers’ energy frugality, government policies and two mild winters in a row. The much-predicted ‘winter of discontent’ didn’t happen.

But the situation has changed and several European nations look exposed. Austria appears particularly vulnerable following its dispute with Gazprom over broken contracts, as we see below.

One of the great anomalies of the war raging on the border of Ukraine is that Russia has continued to provide energy to Europe while doing its best to undermine the freedom of the nation through which its gas passes. With the expiry of the gas transit deal, the big question is whether that will affect Russia more than it does Europe.

The gas transit agreement was signed in late-2019 between Ukraine’s Naftogaz and Gazprom under the auspices of the European Commission and Ukrainian and Russian governments at a time when few foresaw coming tensions. Since Russia’s invasion of Ukraine, supplies pumped through the pipeline have plummeted, down to 14bn m³ in 2023, from a peak of 150bn m³ in 2021. The collapse can be partly blamed on sabotage in September 2022 of the Nord Stream pipelines and repair work on turbines, but it’s mostly due to certain nations’ overnight repudiation of Russian gas, notably Estonia, Lithuania and Latvia, as well as on Brussels’ determination to wean the EU off the invader’s energy.

Ukraine has repeatedly said it wants no dealings with Russia, and the European Commission has said it is ‘ready to live’ without Russia’s pipeline gas. But can it in a global shortage of LNG? As we’ll see, some EU nations aren’t so sure.

In an opaque situation, the agreement was originally intended to phase out fully by 2027. Also, under the REPowerEU Plan, all imports of Russian fossil fuel are to stop at some point. The incoming EC Energy Commissioner Dan Jorgensen promised to come up with a plan that would cut imports before the deadline. The Commission’s line is that the phase-out should be ‘achievable and affordable’. Its main concern is to avoid a spike in prices triggered by shortages pending certainty of alternative supplies.

Fig 1: Ukraine has shut off supplies of Russian gas flowing from east to west through pipelines in its territory. Principal Ukraine gas pipelines are shown in this detail from the 2024 System Capacity Map from European Network of Transmission System Operators for Gas (ENTSOG)/Gas Infrastructure Europe 
Source: ENTSOG/Gas Infrastructure Europe

Numerous studies have tried to predict what will happen after transit cessation at the start of the year. Some dare to believe the transit agreement could become an issue when US President-elect Donald Trump takes his seat in the Oval Office and promises to hold ‘peace talks’ with Russia and Ukraine.

For the present, the burning issue remains price. In a volatile market for gas, especially LNG, could gas prices in Europe go through the roof?  

The cost of pumping LNG throughout the EU has become a crucial factor in the affordability of gas. An analysis by the EU’s Agency for the Cooperation of Energy Regulators (ACER) of cross-border transportation costs shows that levies applied by Germany, for example, boost them by up to five times to €4/MWh – and it’s likely to go higher.

As OIES explains, Germany is trying to recoup some of the ‘vast amount of money’ it spent on purchasing about 50 TWh from alternative suppliers after the sabotage of Nord Stream in September 2022. Needless to say, Brussels is not pleased about Germany’s gouging of neighbouring nations. In the meantime it doesn’t help that Germany’s relatively new LNG terminals are running at half-throttle pending the availability of supplies.

Also on the issue of price, ACER believes most EU member states could do more to reduce energy use by billing consumers more during periods of peak demand. ‘[The Agency’s] analysis shows that current cost recovery methods do not charge consumers based on their consumption during periods of system tightness and thereby largely fail to send adequate signals,’ it explains.

An exhaustive analysis by OIES highlights the precarious position of Austria following the victory by one of its biggest suppliers, OMV, over Gazprom following a nearly two year-long arbitration that awarded OMV €230mn for gas that should have been delivered by Nord Stream. This is turning out to be a Pyrrhic victory because, after OMV told Gazprom it would effectively pay itself the damages it was awarded by offsetting fees payable to Gazprom under another contract, the Russian energy giant responded by shutting down deliveries to OMV, while still pumping gas through to other Austrian buyers.

Overall, Austria’s purchases of Russian gas actually increased through 2024. OMV has said it can survive the end of the transit agreement because it has tied up alternative suppliers such as BP, Equinor and US LNG producer Cheniere, the latter not however starting deliveries until 2029.

Landlocked Slovakia is also highly dependent on Gazprom – around 60% of its gas supplies come from the state-owned company – while other nations are concerned to varying degrees and may look to sign bilateral arrangements, something the EC frowns on.

Incidentally, it pays to have a big coastline. Italy, which boasts several LNG terminals that can stock up from the global market, buys almost no gas from Russia.

In summary, ‘the overall level of dependence on Russian gas in the EU remains low, with the exception of several central and east European member countries’, assesses OIES. With expiry of the transit agreement, these countries will still have to look elsewhere. Behind the scenes, these most-affected countries have drawn up ‘zero-transit scenarios’ for which they did a dummy run in late 2024.

Looking forward, much depends on the attitude of Ukraine. According to geopolitical experts, the Zelenskyy government will probably refuse to deal directly with Gazprom, but may have to consider a future transit agreement in some shape if formally requested by some EU member states, following purported ‘peace talks’.

Whatever happens, there shouldn’t be any more winters of discontent after 2026. US LNG producers are coming to the rescue with increasing supplies from late-2025 and accelerating steadily thereafter, in line with Trump’s call to ‘drill, drill, drill’. But this isn’t straightforward either, because the global LNG shipping fleet is under pressure for deliveries from Asian as well as European nations. Consequently, fixed contracts are hard to find and spot prices are rising.

Contrary to fears that the election of Donald Trump may set back the advance of renewable energy, consultants point out that wind power alone jumped by over 60% during his first term despite his declared opposition to ‘windmills’. And they say he has no objection to Texas’ booming LNG industry and the production of green fuels such as sustainable aviation fuel (SAF).

Provided Europe gets through the next two years, ACER is reasonably optimistic. ‘The outlook for the natural gas market is projected to remain healthy and improve further in the future,’ predicts its latest report on the security of EU electricity supply. ‘This is because global LNG production capacity is increasing vastly, and the role of the LNG supply, backed by expanded import infrastructure, is becoming more prominent in Europe.’

Given the expiry of the transit agreement, it looks as though Russia may be the loser. While Europe has been chasing alternative supplies under the Versailles Declaration, albeit with mixed success, Russia’s faltering war-damaged economy needs all the fossil-fuel revenues it can get.

• Further reading: ‘Europe’s energy landscape shifts as Russia-Ukraine gas transit deal ends’. What alternative gas flow routes are available following the cessation of the Russia-Ukraine gas transit agreement on 1 January 2025?
• Find more about the challenges of net zero, including energy security, LNG markets and Saudi Arabia’s decarbonisation plans.