News.Az presents an interview with Igor Yushkov – Leading analyst at the National Energy Security Fund, lecturer at the Financial University under the Government of the Russian Federation.
– How do you assess the development of the European gas market without Ukrainian transit starting in early 2025? What trends are already emerging in this new context?
– Following the cessation of gas transit through Ukraine, we observe that Russia has not been replaced in the most affected markets. European countries have started to withdraw gas from underground storage facilities at an accelerated pace, with withdrawal rates currently exceeding those of previous years. For example, European underground gas storage (UGS) facilities now hold only 5–7% of reserves, with Slovakia and Austria being the hardest hit. These countries are withdrawing gas not only from their own storage facilities but also from neighboring countries where gas flows have been redirected.
The primary consequence of this situation is that European UGS facilities are depleting much faster. This means that by the end of the heating season, if the situation remains unchanged, reserves in UGS could drop to 30% or even lower. Consequently, Europeans will have to actively purchase gas throughout the rest of the year to replenish storage and prepare for the 2025–2026 heating season.
Futures for the summer months are already showing an increase, indicating that the market recognizes the necessity of substantial gas purchases for both current consumption and storage replenishment. For comparison, after the 2023–2024 heating season, European UGS still held more than 50% of reserves, while this year, that level is likely to fall to around 30%.
Thus, the halt of gas transit has not only triggered a rise in gas prices in Europe but will also lead to sustained high prices throughout the year due to increased demand.
– Financial Times, citing sources familiar with the discussions, reports that European officials are considering resuming purchases of Russian pipeline gas as part of a potential agreement on Ukraine. Proponents argue that this step would help lower Europe's high energy prices. How do you assess this proposal? Is there a chance that purchases of Russian gas via Ukraine will resume this year?
– Many European countries, as well as almost the entire European business sector, support the resumption of Russian gas supplies, particularly Slovakia and Austria. Slovakia has suffered a double blow.
First, the cessation of Russian gas supplies has negatively impacted its economy, as Russian gas was not only more convenient but also significantly cheaper than any alternative. Second, Slovakia lost transit revenues, as gas was previously pumped through its territory to Austria. For a small economy, these transit payments were substantial. Thus, Slovakia has simultaneously faced rising gas costs, increasing the production costs of all goods in the country, and a loss of transit income.
However, this issue extends beyond Slovakia to all of Europe. The termination of Russian gas transit through Ukraine has added further strain to the European gas market, driving prices higher. The gas deficit has worsened, and prices have risen beyond what they would have been under normal transit conditions. As a result, not only Russian gas but also alternative supplies—including Norwegian gas and U.S. LNG—have become more expensive, as overall market prices have surged.
Could European countries return to purchasing Russian gas? Theoretically, yes, since sanctions do not explicitly prohibit the import of Russian gas. However, deliveries have been reduced due to infrastructure issues. For example, Nord Stream 1 encountered difficulties with turbine maintenance, as the German company Siemens, responsible for servicing them, could not return the turbines from Canada due to sanctions. Other routes have also been blocked:
- The Yamal-Europe pipeline stopped deliveries after Poland confiscated Gazprom’s stake in Europol Gaz, prompting Russia to halt transit.
- The southern route via Ukraine remained operational for some time, but only 16.2 billion cubic meters of gas were pumped through it in 2023. As of January 1, 2024, this route has also been closed.
Thus, the cessation of Russian gas transit has dealt a significant blow to the European economy. The energy resource shortage is driving up energy prices, which, in turn, reduces the competitiveness of European industry and goods in the global market.
– Kyiv has long denied the possibility of a new transit deal with Moscow. At his annual press conference on December 19, Russian President Vladimir Putin definitively closed the issue, stating: “There will be no [transit] contract, everything is clear. But that’s fine—we will survive, Gazprom will survive.” How does Russia plan to handle this situation? What is the future of previously established agreements for Russian gas supplies to Europe via Ukraine?
– Russia has never refused to supply gas to Europe, and the fact that deliveries continue even now demonstrates Russia’s commitment to depoliticizing energy as much as possible. Despite frequent accusations that Russia allegedly uses gas as an “energy weapon,” the history of supplies proves otherwise. For over 50 years, our country—first the USSR, then Russia—has reliably supplied Europe with gas without imposing political conditions. From 2014 to 2022, despite rising tensions, Moscow did not use gas supplies as a tool of pressure. Even today, with open conflict between Russia and Europe, and with Europe supporting Ukraine by supplying arms and funding its military needs, Russia continues to supply gas. Isn’t this proof that Russia does not use energy resources as leverage?
A clear example is the situation in Moldova and Transnistria. Since Ukraine blocked gas transit, these regions have faced serious challenges, but Chisinau refuses to acknowledge this. Moldovan authorities officially claim that Russia stopped supplies, attributing it to Kremlin decisions. However, in reality, Russia physically cannot supply gas to Moldova and Transnistria because Ukraine blocked transit, and all pipelines in this direction pass through Ukrainian territory.
Regarding the European market, Russia remains open to continuing gas transit, but Ukraine has rejected this. There are, however, several possible ways to resume supplies:
- Ukraine is obligated to conduct transit capacity auctions, as it adopted the European capacity booking system in 2019. At that time, such auctions took place, with Gazprom as the sole participant since the Ukrainian gas transport system is only viable for transiting Russian gas to Europe. Ukraine could hold these auctions again, allowing transit to resume without the need for long-term agreements.
- In December 2024, Russia proposed moving the gas delivery point to the Russia-Ukraine border. Ukraine claims it does not want any contractual relationships with Gazprom, but a solution was offered: European companies could take ownership of the gas at the border and then handle transit themselves. However, Kyiv rejected this proposal. Ukrainian President Volodymyr Zelensky stated at a December 19, 2024, press conference in Brussels that even if the gas changes ownership at the border, Ukraine will still consider it "Russian" and will block transit to prevent Russia from earning revenue.
European nations previously opposed this mechanism because they understood that Ukraine, as a transit country, continually creates problems—raising tariffs and imposing conditions. They preferred that ownership rights be transferred in Europe, leaving Gazprom to manage transit. However, by late 2024, European nations reconsidered their stance and expressed readiness to accept gas at the Russian border if it was the only way to resume supplies.
Thus, there are viable options to restore Russian gas transit through Ukraine. European businesses are interested in this, as additional volumes would ease the market and lower prices. In Brussels, EU policymakers pushing for a hard stance against Russia oppose these supplies, but on the national level, many countries—including Slovakia, Hungary, and Austria—support resuming trade.
While there is no unified position in Europe, countries that previously relied on Russian gas want to maintain access, meaning the possibility of resuming transit remains open.
– How do you explain the 4% increase in Russia’s LNG exports in 2024 compared to 2023, which brought total exports to 33.6 million tons—exceeding the forecast of 33 million tons announced by Russian Deputy Prime Minister Alexander Novak?
– The growth in Russian LNG exports to Europe is not surprising—it is the result of commercial contracts. When comparing 2024 to 2023, it is important to consider that in 2022, when gas prices in Europe reached record highs, Russia’s key LNG export project to Europe—Yamal LNG—decided to cancel its annual maintenance shutdowns. The plant operated at maximum capacity to maximize profits from high prices.
However, by 2023, accumulated equipment wear and tear required two maintenance shutdowns. As a result, the plant was not operating at full capacity for a portion of the year, leading to reduced export volumes. In 2024, no maintenance was conducted again, so production and export volumes returned to 2022 levels—around 21 million tons.
Additionally, gas prices in European and Asian markets were relatively similar in 2023–2024, making it more profitable to supply LNG to Europe. This is primarily due to logistical factors:
- LNG can be quickly delivered by Arctic-class tankers to Europe or transferred to conventional tankers in the Barents Sea.
- Shipments can also be made directly to European ports.
- This allows for faster return trips, which is especially important given the limited number of Arctic-class LNG tankers.
In winter, logistics become even more critical. The eastern section of the Northern Sea Route is typically closed from November to May each year, making LNG shipments to Asia via this route impossible. As a result, all winter exports are redirected to Europe, explaining the increase in shipments.
However, in 2025, breaking the record for LNG exports to Europe is unlikely. The reason is that two other Russian projects—CryoGas Vysotsk and Gazprom Portovaya LNG—have come under U.S. sanctions. This means that their products will likely struggle to find buyers, and the gas itself will have nowhere to go. These projects have a combined capacity of around 2 million tons, which could lead to an overall decrease in Russian LNG exports to Europe.
At present, Yamal LNG remains Russia’s largest project with the flexibility to choose between Asian and European markets. However, due to logistical advantages, it will continue to prioritize Europe as its main destination.
– How do you assess the prospects for finalizing price negotiations and successfully implementing joint gas production projects, considering that Russia and Iran have already agreed on a pipeline route through Azerbaijan?
– Regarding the pipeline construction agreement and the transportation of gas through Azerbaijan to Iran, we are currently talking about small volumes. Iran requires additional gas to stabilize its energy system in the northern part of the country during the heating season.
Iran’s main challenge is the lack of underground gas storage facilities (UGS). This means that in winter, when demand spikes sharply, the country must rapidly increase production. However, its major gas fields are located in the south, and when temperatures drop in the north, Iran needs to quickly ramp up extraction, transport gas northward, and distribute it via pipeline networks. This process is complicated by logistical constraints.
In such conditions, Russian gas supplies could become a convenient solution for balancing the energy system and covering peak demand during the colder months. Russian gas could be transported through Azerbaijan to northern Iran, particularly to the Tehran region, significantly simplifying the internal distribution of energy resources.
At the same time, Iran is largely self-sufficient in gas production, holding the world’s second-largest reserves (after Russia). However, a significant increase in exports should not be expected at this stage—we are only talking about a few billion cubic meters per year, which will be used for domestic consumption.
As for plans to pump 50 billion cubic meters of gas annually, this volume is considered a long-term goal with an eye on future exports. If the pipeline project through Iran to Pakistan and India is successfully implemented, Russian gas could reach these markets. If not, the supplies will likely remain limited to relatively small volumes intended exclusively for Iran.
