Gas and its use are at the heart of the war in Ukraine. Ukrainian President Volodymyr Zelensky has repeatedly urged the Europeans to extend their economic sanctions to gas and oil and halt their purchases from Moscow.
The European Union (EU) has, for the time being, refused. Several countries, including Germany in particular, have claimed that they are not in a position, in the short term, to do without Russian gas. What about Ukraine, which ensures the transit of part of Russian gas to the EU? Is it also dependent on its neighbor for its supplies or could it survive without the transit of gas from Russia to the West?
How dependent is the Ukrainian economy on gas?
Ukraine is one of the most energy-consuming countries in Europe. Gas accounts for nearly a third of this consumption, followed by coal (30%) and nuclear (21%), of which it is the world’s seventh largest producer. Although it produces some of the gas it uses, Ukraine is historically dependent on the outside for its supplies: in 2013, it imported almost 60% of the gas it consumed.
However, this dependence on imports has tended to decrease. Ukraine’s energy needs have fallen considerably over the past twenty years, after a already dizzying fall in the ten years following its independence. Measures against energy waste were taken after 1991. The successive economic crises that hit the country, particularly that of 2009, as well as the conflict in the Donbass, from 2014, also reduced economic activity and industrial production. Finally, the loss of Crimea, of part of the Luhansk and Donetsk regions in the east of the country, and the damage caused by the war also mechanically reduced its consumption.
In 2019, its gas needs had thus halved compared to 2006, and its national production covered 70% of its needs. For the remaining 30%, kyiv continues to import.
Does Ukraine buy gas from Russia?
Legacy from Soviet times and the period when Ukraine benefited from reduced gas prices, the country is historically very dependent on Moscow for its supply. In 2013, kyiv bought 92% of its imported gas from the Russian giant Gazprom. In 2016, this percentage fell to zero. After the annexation of Crimea and the gas crisis which opposed the two countries in 2014, Ukraine has indeed stopped its purchases from Moscow and has not supplied itself directly from Russia since 2016.
She now buys her gas to European countries, notably Slovakia, Poland and Hungary. These supplies are the result of what are called “reverse flows”, ie going from west to east, whereas gas historically transits from east to west.
These “reverse flows” from the EU have long been much more expensive for Ukraine than the gas sold by Russia. In 2014, however, Russia ended the price reduction granted to the Ukrainian government of Viktor Yanukovych and made buying from Europeans more economically attractive for Kyiv.
These flows can be physical (the gas is actually sent from a European country to Ukraine in a gas pipeline), but also “virtual”. The volume of gas bought by Ukraine then does not actually go the other way, it is taken by kyiv from the flow of gas which transits on its soil between Russia and the EU. In any case, the result is the same: the gas imported by Ukraine may be purchased from European countries, but it is nevertheless largely Russian gas – although it is difficult to know in what proportion.
Does Ukraine still ensure the transit of Russian gas to the European Union?
With its 38,600 kilometers of gas pipelines inherited from the Soviet era, Ukraine has the largest transit infrastructure in the world and remains crucial for the transport of Russian gas to Europe, Moscow’s largest customer. For the time being, Russian gas continues to be transported to the EU through the gas pipelines of the Brotherhood network which crosses Ukraine.
In 2019, kyiv and Moscow signed a new transit contract which provides that Gazprom will deliver to Europe, via Ukraine, 40 billion cubic meters of gas per year until 2024. The resulting rent for the Ukraine – Gazprom having to pay it “transit fees” – is a little over $7 billion (6.7 billion euros) over the period.
These quantities of gas are, however, minimal in view of the importance that the Ukrainian gas artery initially had. In 2006, for example, more than 128 billion cubic meters of Russian gas passed through Ukrainian gas pipelines. At the time, Gazprom still depended on kyiv’s infrastructure for more than 65% of its exports to Europe.
The economic showdown over the price of gas and transit as well as the geopolitical tensions between kyiv and Moscow have, however, pushed the latter to search for bypasses of Ukraine to sell his “blue gold”. Over the past twenty years, the construction and commissioning of the Yamal gas pipelines, which passes through Belarus and Poland, Nord Stream, which reaches Germany via the Baltic Sea, and, more recently, Turkish Stream, which crosses the Black Sea and Turkey to Bulgaria, have considerably reduced the weight of the Ukrainian network.
In 2021, the latter ensured a little over a quarter of gas supply to the EU, where the Nord Stream pipeline’s share was 40%. Brotherhood remains however, in the absence of Nord Stream 2, the network whose capacity is – by far – the most important those of all the gas pipelines linking Russia to the EU.
Could Ukraine cut off the supply of Russian gas to its territory in retaliation for the war?
Ukraine did not mention this threat, the application of which would have multiple implications. The contract signed with Gazprom and which provides for the payment of transit fees to Ukraine would, in fact, be cancelled. The EU, kyiv’s partner in this war, would also be deprived of part of its gas supply. “As long as the Europeans buy Russian gas, the interest of the Ukrainians in terms of commercial credibility, economic gains and security of supply is to preserve the continuity of transit”summarizes Sami Ramdani, doctoral student at the French Institute of Geopolitics.
The intensification of the fighting in the Donbass could however jeopardize the gas supply, according to Yuri Vitrenko, CEO of the Ukrainian gas company Naftogaz. “We estimate that a third of the gas exported from Russia to the European Union through Ukraine will be lost if the forces [russes] of occupation continue to disrupt the operation of stations in the recently occupied territories” from Doneskt and Luhansk, he warned on Twitter.
Could Ukraine have the means to get out of its dependence?
The country is rich in natural resources. Apart from Russia, it has the second known reserves of natural gas in Europe, behind Norway. However, its potential remains partly unexplored and largely under-exploited. The rate of exploitation of Ukrainian natural gas reserves is for example 2% per year.
“Resolute exploitation of already known and accessible Ukrainian resources could substantially increase Ukrainian gas production” and “would not only allow the country to fully cover its domestic gas needs, but also make Ukraine largely self-sufficient from an energy point of view”, observed the Harvard International Review in 2020. The exploitation of this energy potential would have a considerable cost, estimated at 19.5 billion dollars (18.4 billion euros) per the Ukrainian Institute for the Future in 2016.
The loss of Crimea and its offshore gas fields in 2014, however, forces us to revise the estimates of Ukrainian reserves downwards. War also threatens the areas where the main hydrocarbon resources of the country : the Dnieper-Donetsk region, in the east, represents 90% of Ukrainian natural gas production and 80% of its proven reserves. Around 6% of the reserves are also in the Black Sea and Sea of Azov region, which Russia aims to gain full control of.
In the shorter term, to no longer depend on the gas flow from Russia, from which it takes part of the volumes it buys from the Europeans, Ukraine secures and increases physical flows coming from the West and over which Russia has no control.
Physical flows allow diversification of supplier countries (they make it possible, for example, to transport liquefied natural gas arriving from the United States or Qatar to European countries with terminals). Coupled with very large storage capacities of Ukraine (the third in the world), they strengthen the country’s energy security. But these purchases from the EU will only be a real guarantee of independence if Europe, as a whole, reduces the weight of Russia in its imports.