Europe Unaffected by the Halt in Russian Gas Transit Through Ukraine

Panic rumours about severe consequences following the cessation of Russian gas transit through Ukraine have proven to be baseless. Prices have remained stable, and European officials see no threat to energy supplies. Four weeks have passed without any shocks since the transit stopped, even amid significant drops in temperature mid-month. Why is this the case? Simply put, there was ample time to prepare for the shift away from Russian pipeline gas. The next step involves ending purchases of Russian liquefied natural gas (LNG) in February, may be.

The European Union is not experiencing any problems with gas supplies or storage, stated Anna-Kaisa Itkonen, the European Commission (EC) spokesperson, during a briefing on 7 January, one week after the halt in Russian gas transit through Ukraine. "As I have said before and repeat again: there are no issues with gas supply to member states," she declared.

For Western Europe, the Dutch TTF Natural Gas Futures serves as a key benchmark for gas prices. This virtual index is calculated in euros per megawatt-hour (MWh) of gas energy, although it can be converted into euros per cubic metre. Gas and electricity companies rely on this index when setting prices for their clients.

It is also useful to compare Dutch TTF Natural Gas Futures figures over time. At the start of December 2024, this index fluctuated around €46-48/MWh. By mid-December, it had dropped to €40-41 but subsequently began to rise again.

Independent experts often highlight that weather is the most influential factor in Europe’s winter gas market. When temperatures drop, prices rise; when it warms, prices fall. Indeed, during brief warm spells in January’s first and second halves, prices fell to approximately €43 and €46/MWh. As of 28 January, prices stood at a moderate €48/MWh for the current season.

Impact of Gas Storage Levels

Information about gas storage levels plays a significant role in shaping the market. Major energy companies have built up winter reserves as a safeguard. If reserves are sufficient and the weather remains mild, prices can decrease significantly. Conversely, prices may rise during periods of cold and calm weather when wind farms cannot generate electricity, leading to increased gas consumption.

In late December, another factor emerged: Ukraine decided not to renew its transit agreement with Russia. The previous agreement, signed in 2019, was due for renewal, but Kyiv chose not to extend it. This decision was influenced by Russia's full-scale invasion of Ukraine in February 2022. Moscow has been using revenue from oil and gas exports to fund its war against Ukraine and stockpile weapons for potential invasions of Eastern EU countries.

On 1 January, when Ukraine halted Russian gas transit, rumours of an inevitable market catastrophe began to circulate. However, these predictions did not materialise.

While initial speculation caused prices to spike briefly to €50.6/MWh on 2 January, they quickly began to decline, dropping to €47 within a week and then further to €43, as previously mentioned.

What About Gas Supplies and Reserves?

On 7 January, Anna-Kaisa Itkonen, spokesperson for the European Commission (EC), reported that gas storage levels in Europe were at 70% of their total capacity. While this is lower than the same period 12 months ago, it remains above the average levels seen before 2022. Itkonen attributed the difference to an increase in gas demand.

The situation was not just influenced by demand in Europe. Unseasonably low temperatures in the United States at the beginning of January led to a surge in domestic gas consumption and created challenges for gas producers. This resulted in higher gas prices in the US and caused concern in European markets, as American liquefied natural gas (LNG) is now a key source for the European gas market. It is likely that this factor contributed far more to the rise in European gas prices at the end of December and early January than the cessation of Russian gas transit through Ukraine.

This development is the result of the EU's efforts over the past three years to establish alternative supply infrastructure and agreements, reducing reliance on Russian gas. European determination to break free from Russia’s “gas addiction” soared after autumn 2022.

In autumn 2022, Europe experienced a "perfect storm" on its energy market. Prolonged calm weather in August and September significantly reduced wind energy production, leaving consumers without the usual levels of renewable energy. Simultaneously, the Kremlin played its role as the “bad actor,” creating the illusion of supply disruptions. As a result, gas prices skyrocketed to unprecedented levels—over six times higher than current rates, exceeding €300 per megawatt-hour (MWh).

By the end of winter 2022/2023, prices returned to more manageable levels, below €65/MWh. This was due to energy-saving measures, the recovery of wind farms, increased LNG imports, and other efforts. Since then, the EU has been actively expanding its LNG terminals capacity for receiving shipments by sea.

Russia’s hostile actions have led to Russian gas becoming an unwelcome guest in the EU. Sanctions have been imposed on Russian gas supplies, with two notable exceptions: Russian LNG imports are still allowed, and Hungary, Slovakia, and Austria have been granted a lengthy transition period to phase out pipeline imports through Ukraine.

The strongest advocates for continuing Russian gas transit through Ukraine were Hungarian Prime Minister Viktor Orbán and Slovakian Prime Minister Robert Fico. However, recent developments have undermined their positions.

The continued transit of Russian gas through Ukraine after Russia’s full-scale invasion in February 2022 could be considered a miracle. This became even more remarkable after August 2024, when Ukrainian forces launched an offensive in Russia’s Kursk region. The last operational crossing point for Russian gas into Ukraine fell within the zone of active hostilities.

The Russian town of Sudzha, frequently mentioned in military reports since August, is home to a metering station through which Russian gas flowed. How this station survived and operated for five months is a story for future action films and adventure novels—but not for today.

As of late January, the EU’s gas storage facilities are filled to 55.8% capacity, a relatively healthy level for this time of year. However, gas prices rose in late January due to a decline in wind energy production. This may have led EU leaders to delay announcing measures to phase out Russian LNG imports. Nevertheless, dependency on Russian gas is expected to decrease further in the next heating season, partly due to US policies under Donald Trump, which have boosted American LNG production and exports.