IEA Anticipates End of Russian Gas Flows Via Ukraine

(Bloomberg) -- The International Energy Agency is anticipating an end to Russian gas flows through Ukraine after a transit deal expires at the end of the year, warning of a tough winter ahead for Kyiv and its neighbors.

“It is not excluded that some sort of continued arrangement for transit flows might yet be found,” the IEA said in a report Thursday. “But the base case assumption is that Russian transit flows via Ukraine will be discontinued from January 2025.”

After the agreement between Gazprom PJSC and Naftogaz lapses, Ukraine will have to secure gas supplies from central and eastern Europe, according to the study, which examines the nation’s energy security ahead of winter.  

For more than five decades, gas flows have been a key feature linking Russia, Ukraine and Europe. But that era may be coming to an end, even as some countries like Austria and Slovakia still import the fuel from the east. Alternative solutions to keep gas flowing through the route — including supplies from Azerbaijan — have been mooted, but it’s still unclear how they would work.

Ukraine has endured two successive winters since the Kremlin’s full-scale invasion in February 2022, but a series of blistering attacks this year have severely damaged the nation’s energy infrastructure.

“The stresses on the system are now immense,” the Paris-based agency said. “Intensified attacks between March and May 2024 left Ukraine with only around a third of its pre-war electricity generation capacity by mid-year, even before the latest strikes.”

Moldova’s Risk

The IEA also highlighted bleak implications for neighboring Moldova, saying the country faces “significant uncertainty for gas deliveries,” which will likely be much more expensive after the transit deal’s expiry. While Moldova is preparing for various scenarios, it faces “tangible risks” to its energy security and affordability.

European Commission President Ursula von der Leyen said it is up to Ukraine to decide the future of Russian gas flows. The commission has previously stated it will not negotiate with Moscow on an extension of the transit agreement. 

Gas flows through the route now account for less than 5% of the continent’s supplies, but that’s still enough to have an impact on energy security and market pricing across the continent.

Slovakia’s largest gas supplier, SPP, said it’s in a comfortable situation ahead of the winter. Austria is working under the assumption that gas via Ukraine stops in January, and the government in Vienna is hoping that will allow it to break contracts with Gazprom. 

Czech energy minister Jozef Sikela has warned the EU that supplies coming through an interconnector may contain fuel from Russia, which would undermine the bloc’s efforts to wean itself off supplies from Moscow.

Uniper SE — once one of Gazprom’s key clients — has no intention of taking Russian gas, according to Chief Executive Officer Michael Lewis. Europe’s gas market is in a strong position to maintain steady supplies this winter, thanks in part to the region’s high levels of storage, he said in an interview this week.

(Updates with additional details throughout.)

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