The role of Russia and Ukraine’s transit in Europe’s gas supply

The reliance of the European Union and (indirectly) the United Kingdom on Russian gas supplies has increased over the last decade. Natural gas consumption in the EU and UK remained broadly flat in aggregate over this period, but production fell by a third and the gap has been filled by increased imports. Consequently, the share of Russian gas supplies increased from 25% of the region’s total gas demand in 2009 to 32% in 2021.

Meanwhile, the importance of Ukraine as a transit country has lessened due to the build-up of additional transit corridors bringing Russian piped gas to the EU and UK (e.g. Nord Stream). Transit flows via Ukraine accounted for over 25% of Russia’s pipeline deliveries to the EU and UK in 2021, significantly down from more than 60% in 2009. Nevertheless, Ukraine remains an important conduit for Russian gas to Europe (transiting about 8% of the EU and UK combined gas demand) and also relies heavily on imported gas for its own domestic use. 

Share of Russia in European Union and United Kingdom gas demand, 2001-2021


Russia reduced gas supplies to the EU and UK markets during the heating season

As highlighted by the International Energy Agency in September 2021, Russia has been reducing its piped gas supplies to the EU market, while it did not fill its storage sites in the EU to adequate levels.

Pipeline deliveries from Russia declined by 25% year-on-year in Q4 2021. This decrease in Russian pipeline supply to the EU became more pronounced in the first seven weeks of 2022, falling by 37% year-on-year. The last pipeline deliveries to Germany via the YAMAL pipeline (which goes through Belarus) were on 20 December 2021. Gas flows via Ukraine to Slovakia have fallen from an average of over 80 mcm/d in December to just 36 mcm/d in the first seven weeks of 2022.

Altogether, Russian gas flows via Ukraine averaged 55 mcm/d during this period, well below the contractually available capacity of around 109 mcm/d.

Other pipeline suppliers, including Algeria, Azerbaijan and Norway, increased their deliveries during the heating season to the European market compared with last year, using commercially available supply routes.

Lower Russian pipeline flows have been compensated in part by higher liquefied natural gas (LNG) inflows, which increased by 63% year-on-year through October until year-to-date.  LNG inflows to the EU and the UK reached an all-time high of 13 bcm in January – almost three times their last year’s levels and about 70% higher compared to Russian pipeline flows that month. Strong supply and milder-than-expected temperatures in Northeast Asia helped to facilitate the redirection of cargoes towards Europe and limit the implications of strong European demand for LNG markets.

The United States supplied over half of the additional LNG imported by the EU and UK since the beginning of the heating season, accounting for 37% of total LNG supplies. This highlights the importance of the US LNG export industry and of strong transatlantic ties to European energy security. 

Year-on-year change in the European Union and United Kingdom natural gas imports by source, Oct 2021- Jan 2022


European storages are 30% below their 5-year average and are less than a third full

As a consequence of low inventory levels at the beginning of the heating season, and the sharp decline of Russian piped flows to the EU, gas storage levels fell to 30% below their working storage capacity (and standing 28% below their 5-year average levels for this period of the year).

Storage sites owned or controlled by Gazprom had particularly low storage levels at the start of the heating season, filled to just 25% of their working storage capacity. While Gazprom storages account for just 10% of the EU total working storage capacity, they accounted for half of the EU’s 5-year storage deficit.

Without the strong increase in LNG imports since October, European storage levels would be below 15% full by now (vs 31% at the moment), leaving Europe in a much more vulnerable position vis-à-vis late cold spells and/or supply disruptions. This demonstrates the complementary role of underground gas storage and LNG regasification capacity in the security of natural gas supply.

The security value of gas storage should be more strongly recognised in this context. As the IEA previously stated, minimum storage obligations on commercial operators coupled with robust market-based capacity allocation mechanisms are vital tools that can ensure the optimal use of all available storage capacity.

Inventory levels in EU underground storage sites, 2016-2022


European natural gas prices rose to all-time highs and remains extremely volatile

Reduced Russian pipeline flows, together with low storage levels and adverse weather conditions, contributed to strong upward pressure on hub prices in Europe, which averaged more than USD 30/MMBtu in Q4 2021

Natural gas prices moderated down to an average of USD 27/MMBtu in the first seven weeks of 2022. Unseasonably mild weather conditions weighed on distribution-network related demand (declining by 14% year-on-year according to preliminary estimates), while strong wind output (up by 20% year-on-year) reduced gas burn in the power sector, despite the lower nuclear and hydro availability.

European gas prices surged by 50% day-on-day on 24 February 2022 to USD 44/MMBtu, following the invasion of Ukraine by Russia. The strong increase in European gas prices supported Asian LNG spot prices which soared by 30% to USD 37/MMBtu. Natural gas flows via Ukraine to Slovakia have not been impacted as of 24 February 2022, with nominations rising to 75 mcm/d for 25 February 2022. Natural gas prices are expected to remain extremely volatile in the current context of market uncertainty.

Natural gas prices in Europe, Asia and the United States, Jan 2020-February 2022