Editor’s note: Ivan Us, Chief Advisor to the Center for Foreign Policy Research of the National Institute of Strategic Studies (Ukraine), Ph.D. in Economics. The article expresses the personal opinion of the author and may not coincide with the opinion of News.Az.
As 2025 approaches, both Europe and Ukraine face a major energy challenge: the looming expiration of the contract allowing Russian natural gas to flow through the Ukrainian Gas Pipeline System (GTS). This contract, which formed the backbone of gas supplies from Russia to Europe through Ukraine, expires on January 1, 2025. Ukraine has already indicated that it is not interested in extending the contract. While this might make political sense, the economic impact of such a move is still debatable.
Ukraine has for years earned significant revenues from the transit of Russian gas, which plays a crucial role in the country’s economy. Although the revenues are far smaller than those Russia earns from gas exports, they are nevertheless important in the broader context of Ukraine’s export earnings. Gas transit is one of Ukraine’s most important sources of revenue, and a loss of it could lead to major economic setbacks.
In addition, if Ukraine decides not to extend the transit contract, there are serious risks for the gas pipeline system itself. A shutdown of the system could not only result in financial losses, but also damage the infrastructure, the repair of which would require large investments in the future.
One possible solution is to use natural gas from Azerbaijan, which could be piped through the Ukrainian pipeline system. However, achieving this would require overcoming several technical and political hurdles.
The first option involves transporting gas from Turkey using special tankers to deliver liquefied natural gas (LNG) to ports around Odessa. These ports already have LNG terminals that could handle the reception and regasification of the gas before sending it through the Ukrainian pipeline system. This approach could strengthen Ukraine’s energy independence, but it also brings challenges, including the need for significant financial investments and modernization of existing infrastructure.
The second option is to transport Azerbaijani gas through Russia. This route would allow for larger volumes and would mean higher revenues for Ukraine from transit fees. However, this option carries significant political risks. Given the strained relations between Russia and Ukraine, there is a real possibility that gas transported through Russia could end up being Russian gas. In this case, Ukraine risks losing control of the gas source, which could lead to even more political tensions.
To avoid these risks and ensure transparency, solid guarantees that the gas flowing through Ukraine to Europe actually comes from Azerbaijan are crucial. These guarantees would be crucial not only for the Ukrainian authorities and international partners, but also for critics who might claim that Russian gas is being disguised as Azerbaijani. Such claims could be fuelled by Russia, which has an interest in destabilising Ukraine and stoking internal conflict.
The situation surrounding the Sudzha gas metering station, which is currently under Ukrainian control, is adding to the uncertainty. This limits Russia’s ability to accurately track the amount of gas entering Ukraine. Despite this, Gazprom has stated its intention to continue gas transit and supplies are still flowing. But questions remain about what would happen if Ukraine also gained control of the nearby gas compressor station, which regulates the pressure needed to send gas to Europe. Should Ukraine gain control, Russia could face new technical and political challenges.
The decision not to renew the transit agreement with Russia could have far-reaching consequences. For Ukraine, it means that it will have to find new sources of revenue and energy, which will require a lot of effort and investment. For Russia, it could exacerbate the ongoing energy dispute with Europe, which is already trying to reduce its dependence on Russian gas. And for Europe, this scenario increases the risk of energy instability and the urgent need to diversify sources of supply.
Ultimately, the future of the Ukrainian gas pipeline system depends on a complex mix of factors, including political will, economic rationality, technical capabilities and international support. Addressing this issue requires careful analysis and a balanced approach to avoid negative consequences for all parties involved.
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