End of Russian gas through Ukraine marks historic moment amid tight market

While the end of Russian gas shipments through Ukraine was widely anticipated by the market and countries have compensated by importing more gas from their neighbours, the effects of this change continue to be seen particularly in Eastern Europe amid a tightening LNG market as countries look to replace lost volumes, market sources told Gas Outlook.

“Whereas physical gas shortages are unlikely” in Europe, the main impact of the halt will be “price increases” both for wholesale gas and transportation costs, particularly in Slovakia and Austria but also Czechia, Italy, Hungary, Katja Yafimava, senior research fellow at the Oxford Institute for Energy Studies (OIES), told Gas Outlook.

The Transnistria region of Moldova is also among the most affected, she added.

“Lost Russian gas via Ukraine will result in a tighter market as this gas will have to be replaced by alternatives,” she continued.

“Unless transit across Ukraine resumes relatively soon, the market will remain tight throughout 2025, resulting in Europe’s higher call on the existing pool of global LNG as Europe will need to refill its storage over summer 2025.”

“I’d expect prices to stay at least at their current — relatively high level — throughout 2025, reflecting the situation of tight market, potentially easing once new LNG starts arriving in late 2025, early 2026.”

Russian gas flows through Ukraine, which used to stand at around 40 million cubic meters/day accounting for around half of remaining Russian exports to Europe, stopped following the expiration of a five-year contract between the two countries, which Ukraine had already stated it did not intend to extend further, in a bid to hit Russia’s revenues from gas sales.

“Gazprom is losing sales revenues as most of its gas which was transiting Ukraine cannot be diverted to European buyers,” with losses totalling around 6 billion euros per year, she noted.

At the same time, “Ukraine is losing a transit revenue” of around “1 billion euros per year and running a risk of its transmission system (…) becoming more vulnerable to attacks” now it no longer carries Russian gas.

Countries in Eastern Europe  have so far adapted to the halt by importing more gas from other markets, primarily Italy and Germany.

“The termination of Russian supply through Ukraine has led to a tightening of the Central Eastern European markets that Ukraine transit used to mostly supply,” Nick Boyes, senior gas analyst at Axpo, told Gas Outlook. 

“As a result, Czechia and Austria are both needing to import more gas via Germany rather than from via Slovakia where most gas via Ukraine would arrive for those markets.”

“The lower overall supply for Europe also needs to be replaced with other more flexible sources of gas supply, likely to be LNG and supply from West Europe in the summer to replenish storage inventories. “

“This is requiring European benchmarks to price more competitively against JKM and other markets to source robust LNG supplies due to the loss of Russian gas supply.”

“Most countries have already made alternative arrangements via the rerouting of gas and LNG,” Tejal Shah, head of trading and risk at UK-based Flagship Energy, told Gas Outlook.

“So far, these countries are coping well and have enough supply even as we experience the first cold snap of 2025.”

“However, Transnistria, Moldova’s pro-Russian separatist region appears the most affected with severe gas shortages,” she added.

“The cessation of Russian gas transit through Ukraine (…) had a limited impact on market volatility, as it was largely anticipated and priced in by market participants,” Tobias Kistner, group communications director at Swiss-based International energy company MET Group, told Gas Outlook.

“The European Commission assessed that the end of these flows would have a ‘negligible’ effect on European gas prices, reflecting the market’s prior adjustments and diversification efforts.”

“Central and Eastern Europe are being sufficiently supplied through inventories and increased imports from Germany.”

“Despite the limited impact so far, we are following the situation closely.”

“Our customer portfolio is securely supplied,” he added.

Europe has a non-binding target of ending Russian gas imports by 2027.

While the end of Ukraine transits supports that target, some Russian gas is still reaching Europe as LNG.

Meanwhile, European gas storage levels have dropped to 66% full in mid-January, according to Gas Storage Europe data.

They were around 79% full in the same period in 2024, when the winter had been milder.

Depleted storage levels will likely lead to more competition to secure gas over the summer for injection into storage.