Putin Has Options for Russian Gas After Ukraine Route Closed
Bloomberg January 6, 2025
Vladimir Putin might have lost a slice of revenue after Kyiv closed its gas pipeline to Russian supplies, but Moscow already has alternatives for shipping the fuel that stand to shield it from any serious economic hit.
Russia plans to expand exports of liquefied natural gas while routing pipeline gas to other buyers like China.
“We will continue to increase our share on world LNG markets” even as sanctions aim to halt this growth, Putin said during his annual press conference on Dec 19. He also expressed confidence that Russian gas-giant Gazprom PJSC would survive the end of pipeline transport through Ukraine.
Despite calls to ban such supplies, Europe is buying a record amount of the super-chilled fuel from Russia, predominantly from the Novatek PJSC-led Yamal LNG plant.
The volumes have surpassed what Russia was selling through Ukraine before Jan. 1, when Kyiv, refusing to allow any more transit that funds Moscow’s war machine, closed off the five-decade old route through its territory.
The situation highlights how hard it is for Europe to cut ties with Russia, which over the last decade entrenched itself as a key commodities supplier to the continent. It also casts a spotlight on how the February 2022 invasion of Ukraine has forced Russia to keep readjusting its trading network. Still, Moscow has shown that even when one avenue to markets closes, there are often others still open for Russia.
Russia’s LNG exports overall reached a record last year, ship-tracking data show.
Before the invasion, Russia used to sell about 155 billion cubic meters of pipeline gas to Europe per year. In 2024, the country exported roughly 30 billion cubic meters of gas to the region, with over a half of volumes going via Ukraine.
Since most of Russia’s piped gas had already stopped flowing to Europe, the discontinuation of the Ukrainian line won’t affect the economy much, said Tatiana Orlova, an economist at Oxford Economics.
“Europe will still need gas as all its efforts to wean itself from Russian gas have not been successful,” Orlova said. “It will probably end up buying more Russian LNG to make up for the drop in natural gas imports from Russia,” she said.
Gazprom sold about $6 billion worth of gas through Ukraine in 2024, Bloomberg calculations show. Yet, most economists and researchers foresee a muted effect on the economy from being deprived of those sales. Russia will lose an equivalent of about 0.2% to 0.3% of gross domestic product, according to various analyst estimates.
“The figures are too small to make a dent in Putin’s war machine,” David Oxley, an economist at Capital Economics said in a note last week. For comparison, Ukraine stands to lose roughly 0.5% of GDP, he said, stemming from an end to the fees it collected for transit of the gas.
Slovakia, heavily reliant on Russian gas and also earning from transit fees, is set to lose 0.3% of GDP, according to his estimates.
On top of LNG sales, Russia also has other pipeline options for shipping gas that will help make up for the loss of the route through Ukraine.
Shipments to China, which is overtaking Europe as the largest market for Russia’s pipeline gas, were forecast to reach around a record 31 billion cubic meters in 2024. They are set to rise to 38 billion cubic meters this year as the Power of Siberia link has reached the full design capacity.
That would compensate for half of the volumes lost when transit via Ukraine ended, according to estimates by Sergey Vakulenko, a scholar at the Carnegie Endowment for International Peace.
Gazprom may sell more through TurkStream, the direct gas pipeline between Russia and Turkey under the Black Sea that also helps supply some European clients. In 2025, Gazprom could sell 25 billion cubic meters to Turkey and 15 billion cubic meters to Europe through TurkStream, Vakulenko estimates.
Russia plans to re-direct some fuel to countries in Central Asia and will work to increase the capacity of a Soviet-era pipeline from Russia to Uzbekistan through Kazakhstan.
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