On New Year’s Day the Ukraine cut off Russian gas supplies to a number of European countries, ending Moscow’s dominance on Europe’s energy market for decades.

Gazprom, the state-owned Russian energy company, confirmed that gas exports from Russia to Europe via Ukraine ceased at 8 a.m. local (5 a.m. London) time on Wednesday.

This move was widely anticipated and marks the end to a transit agreement that lasted for five years between Russia, Ukraine, and the Ukraine. Neither side is willing to sign a new contract amid the ongoing conflict.

Last month, Ukrainian President Volodymyr Zelenskyy stated that Kyiv is not willing to extend the transit of Russian Gas, and added, “We won’t allow the possibility to earn additional billions on our blood.”

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Russia, which has been supplying gas to Europe through Ukrainian pipelines via Ukraine since 1991, claims that European Union countries are the ones most affected by the shift in supply. Moscow can still send its gas through the TurkStream pipeline that connects Russia with Hungary Serbia and Turkey.

According to Reuters the Ukraine could lose up to one billion dollars a year from Russia in transit fees due to this stoppage. Gazprom will also lose out on close to five billion dollars in gas sales.

The European Commission (the EU’s executive branch) said that it worked with EU member countries most affected by the termination of the gas-transit agreement to prepare the entire 27 nation bloc for such a situation.

The countries at greatest risk are Slovakia, Austria and Moldova. According to Rystad Energy they were the European nations most dependent on transit volumes from Russian gas in 2023. Slovakia imported roughly 3.2 billion cube meters, Austria received 5.7 billion cube meters, and Moldova got 2 billion.

Austria insists that it is prepared, but other countries are more concerned.

Robert Fico warned that the termination of the transit gas agreement by Ukraine would have “dramatic” effects on the EU without harming Russia. Fico has also threatened to cut off electricity to Ukraine’s neighbor.

Shortly before Christmas, the prime minister, who has been vocal in criticizing the EU’s continued support of Ukraine, paid a surprise trip to Moscow and met with Russian President Vladimir Putin.

Last month, Moldova, which does not belong to the EU, declared an emergency state for 60 days due to concerns about energy security.

The government claimed that 56 of the 101 members of the parliament of Moldova voted for a state of national emergency. This would have allowed the country to take a number of measures in order to mitigate and prevent the threat of inadequate energy resources.

“A historic event”

Herman Galushchenko, Ukrainian Energy Minister, described the cessation in Russian gas flow via Ukraine as an “historic event.”

According to Google, Galushchenko stated via Telegram that “Russia will suffer financial loss” on January 1, 2019.

“Europe has already made the decision to stop using Russian gas.” “And the European initiative Repower EU allows Ukraine to do exactly what it has done today,” said he.

Separately Radek Skorski, the Polish Foreign Minister, hailed this development as a victory for politics, accusing Putin of trying to “blackmail Eastern Europe by threatening gas supply cuts.”

Gas Infrastructure Europe’s latest data shows that the EU gas storage facilities are 73% full. Gas inventories in Germany, Europe’s largest economy and gas consumer, are at around 80%.

In a recent research note, Christoph Halser said that the EU would need to source about 7.2 [billion cube meters] of LNG from the market if Azerbaijan, or another third-party, does not transit the gas after a swap agreement with Russia.

The terminals in Poland and Germany could send these volumes to the most impacted counties such as Slovakia and Austria.

Energy security in Europe

Henning Gloystein is the practice head for the energy, climate, and resources team of Eurasia Group. He said that Ukraine’s decision not to allow Russian gas into the EU was no surprise, given the fact that both Kyiv, and Moscow, have said in the past they were unwilling to renew an agreement under the current war conditions.

Gloystein, in a research report, said that the expiry date of the agreement does not pose a threat to the winter energy security of the EU. He cited the steps taken by EU-importers to prepare for reducing supply, and the mild weather experienced across Europe.

Gloystein stated that the gas prices would be influenced by the political situation in the Russia-Ukraine conflict and the weather conditions.

On the political front there are ongoing discussions between certain EU members (e.g. Slovakia, the country where many Ukrainian pipelines enter into the EU, Russia and Ukraine are trying to reach a compromise which could allow some supplies to resume. Gloystein stated that there was no progress made in the negotiations at the beginning of the year.

He added that “on the weather front”, he expects temperatures to be above average for the rest of Europe’s Winter, which means the impact of cuts will be minimal.

According to the Intercontinental Exchange in New York, the front-month gas prices at TTF, a European benchmark hub for natural gas trading was last seen at 49.49 euro ($50.78 per megawatt-hour) on Thursday. This represents a 1.2% increase.