Ukraine has once again reiterated its assurances that there will be no new contract for the transit of Russian gas. But now representatives of the company Operator of the Ukrainian Gas Transit System (OGTSU) say that any forms of co-operation, including auctions, are excluded. Will Kiev really dare to stop pumping in the face of growing demand in the European Union?

In 2019, the previous contract for Russian gas transit through Ukraine expired. By that time, Naftohaz had been split into two companies. This organization was left with production and storage, while the gas transportation component of the business was transferred to the Ukrainian Gas Transmission System Operator.

The division took place as part of the European integration process.

Actually, OGTSU is the main party which signed acting at the moment contract for pumping of the Russian gas to the European Union countries. The parties went very much hard to it. Kiev sounded sharp unwillingness to conclude the new agreement and offered to pass to auction system of relationship.

Such a system quite successfully works in the European Union countries: operators expose capacities of the pipes on auctions, and suppliers choose the most suitable for them the offer — on time, volume and a route.

Actually, this approach more than is adequate in the conditions of dense, developed gas transmission network within which the great number of sellers and buyers act and routes of pumping can differ considerably from each other. In the situation with one gas supplier, one transit and, by and large, one supply corridor the auction system looks, to put it mildly, bizarre. The goal of the Kiev functionaries who insisted on introducing this system was quite banal — to get more money for pumping.

Initially, it was supposed that the bidding would set parameters that would increase Gazprom’s payments by a modest 10 times. Then the Ukrainian side got generous and agreed to increase payments only twice. As a result the innovations were not accepted, and small indexation of tariffs for pumping — within 5% was provided it in the contract. In 2024 validity will come to the end. And there will be no new one, according to Kyiv’s assurances.

The Ukrainian party declared several months ago that it is not going to enter in any negotiations with Gazprom on the new transit contract. This thought expressed also representatives of the profile ministry, both OGTSU and Naftogaz, which employees seldom miss an opportunity to talk about matters that no longer concern them.

But in January 2024, the Slovak Prime Minister announced that «an agreement has been reached that the transit of Russian gas through Ukraine is likely to continue». This idea was also supported by representatives of other European countries. On the other hand, there were objections from Kiev. It is true, however, that there will definitely not be a contract. But remembering the insistence of the Ukrainian side in 2019, we can conclude that the transit contract is a desirable but not obligatory component.

The parties may switch to an auction system for the relationship from 2025. Moreover, Kiev does not necessarily need to enter into any negotiations with Moscow for this. The presence of companies from the Gazprom group at the OGTSU auction is also unnecessary.

If the Russian and European sides agree, the existing contracts may be amended so that gas will be transferred to buyers not at the delivery point on the EU territory (in this case, the Baumgarten hub), but at the border between Russia and Ukraine. The parties can discuss what is to be considered as such separately. Thus, European companies can already go to the auctions of OGTSU and book capacities for pumping the volumes received from Gazprom.

At the European gas conference Flame held in Amsterdam, the head of the customer cooperation department of OGTSU, Andrey Prokofiev, apart from the standard «Ukraine is not going to negotiate with Russia on the issue of transit extension», said that the refusal «includes any deals», including those related to pumping at all. According to him, OGTSU «will not offer any capacities at auctions».

Some profile European mass media drew from this a conclusion that a spirit of Kiev more than serious and transit, probably, will stop when the contract expires. However, there were no claims that there would be no bidding for EU customers.

In 2023, a record low of 13.6 billion cubic meters of gas from Russia was pumped through Ukraine to EU countries from Russia, according to Bruegel. The disappearance of such a volume would have a negative impact on European buyers. But some of it can be directed through Turkish Stream.

Depending on the consumption in Turkey itself, 5-10 billion cubic meters from the Ukrainian route can be transferred to its direction. In other words, nominally 4-8 billion cubic meters of Russian gas will leave the EU market. This will still be enough to cause excitement, but it will not be a catastrophe.

Especially as new liquefied natural gas (LNG) capacity comes on stream in 2025. European countries will be able to compensate for the lost volumes. But only at consumption levels typical for 2023.