ICIS EXPLAINS: Halt to Russian-sourced gas flows via Ukraine

Additional reporting by Aura Sabadus

LONDON (ICIS) — On 1 January 2025, Russian gas transit flows via Ukraine stopped amid the expiry of a five-year agreement between the two countries which have been in conflict since February 2022.

The transit stop has been the base case view of the majority of market participants and it was priced in well before 1 January 2025.

Therefore it had little impact on European gas and power prices in recent sessions.

Despite the expectation that flows would cease to transit Ukraine, the end of the agreement resulted in an immediate supply drop to the Czech Republic and Austria.

However, the scrapping of the German storage levy from 1 January 2025 incentivized flows from Germany to the region, partly offsetting the supply drop via Ukraine.

The below infographic shows the shift in flows to the region after the transit halt on 1 January, drawing a comparison between flows on 31 December 2024 and on 3 January 2025 across the key interconnection points.

In particular, the halt to the Russian gas transit through Ukraine halted flows to Slovakia and Moldova, and therefore from Slovakia to the rest of the region.

Conversely, German gas exports to Czech Republic and to Austria increased to offset the drop in Russian gas flows reaching the region via Ukraine.

Romanian exports also increased to support Moldova’s gas supply, as flows from Ukraine ceased.

Nevertheless, ICIS data also indicates that since 2022 a strong LNG supply intake has rapidly replaced the drop in Russian gas flows to Europe, with flows via Sudzha remaining among the latest available Russian volumes via pipeline reaching Europe until 31 December 2024.

Currently the only remaining source of Russian gas supply via pipeline is the TurkStream2 gas corridor, transiting via Turkey and delivering gas to Europe through the Bulgarian and Serbian infrastructure up to Hungary.

Europe still receives Russian gas in the form of LNG supplies.

ICIS ANALYSTS VIEWS

“We expect gas storage withdrawals to be strong in the first quarter of 2025 and we will have a close look at them. ICIS Gas Foresight expects Austrian storage to deplete from current 80% levels towards 63% in April 2025 in the new base case absent Ukrainian gas transit” ICIS gas analyst Andreas Schroeder said.

ICIS data showed that EU gas storages were 66% full as of 6 January.

“LNG imports to Europe should increase again after a relatively weak 2024. Austrian OMV has secured capacity at LNG terminals to provide Austria with gas via Germany” Schroeder added.

Security of supply in Europe is guaranteed and ICIS Gas Foresight estimates that LNG imports into the eleven EU countries considered in the model (Austria, Belgium, Czechia, France, Germany, Hungary, Italy, Netherlands, Poland, Slovakia and Spain) plus Great Britain will increase year on year by 232TWh (15 million tonnes of LNG or 21bcm) in 2025. In January, LNG imports are set to increase 7% year on year.

ICIS Gas Foresight forecasts the fullness level for the EU11+GB region to fall by 12 percentage points month-on-month by the end of January.

On European power markets, increases in the gas price will likely be reflected in increased power prices, particularly in those countries where gas-fired generation is still a large component of the power supply mix.

“For the February ‘25 contract across pretty much all European power markets we saw prices higher on 21 November 2024 than they were on 2 January 2025. The primary reason for this is that coal prices have fallen since that point” ICIS power analyst Matthew Jones said.

“Electricity flows from Slovakia to Ukraine continued on 2 January, which is relevant as Slovakia’s PM Fico had threated to stop flowing power to Ukraine in the event of no new gas deal. Slovakia tends to export to Ukraine, so stopping those flows would have been bearish for Slovakian power prices” Jones added.