GAS MANEUVER: HOW RUSSIA IS BYPASSING THE UKRAINIAN BLOCKADE

Russia has lost some revenue after Ukraine shut down its Russian gas pipeline. But Moscow already has fuel transportation options that will protect it from a major economic blow. It plans to expand liquefied natural gas exports by shipping pipeline gas to other buyers like China

“We will continue to increase our share of global liquefied natural gas markets” even despite sanctions aimed at halting that growth, Putin said at his annual press conference on Dec. 19. He also expressed confidence that Russian gas giant Gazprom will survive the cessation of transportation through Ukraine.

Europe Buys Record Volumes of LNG from Russia. Source: Bloomberg

The European Paradox

Europe continues to buy record quantities of liquefied fuel from Russia, mainly from the Novatek-led Yamal LNG plant. Despite calls to ban such supplies, their volumes have already exceeded those sold by Russia through Ukraine before January 1, when Kiev closed the 50-year-old gas route through its territory.

The situation shows how difficult it is for Europe to sever ties with Russia, which has strengthened itself as a key supplier of raw materials to the continent over the past decade. The military conflict with Ukraine, which began in February 2022, has forced Russia to constantly adjust its trade network. But practice has shown that when one route to markets is closed, others often remain open.

Russia’s total exports of liquefied natural gas hit a record high last year, ship tracking data shows. Before the conflict, Russia sold about 155 billion cubic meters of pipeline gas to Europe each year. In 2024, the country exported about 30 billion cubic meters of gas to the region, more than half of which passed through Ukraine. Since most of Russia’s pipeline has already stopped flowing to Europe, stopping the Ukrainian line won’t have a big impact on the economy, said Oxford Economics economist Tatiana Orlova.

“Europe still needs gas, and all its efforts to move away from Russian gas have been unsuccessful,” Orlova said. “The region will likely buy more Russian liquefied natural gas to make up for the decline in natural gas imports from Russia.”

Bloomberg calculations show that Gazprom sold about $6 billion worth of gas through Ukraine in 2024. However, most economists and researchers believe that the loss of this sales channel would reduce revenues equivalent to 0.2-0.3% of gross domestic product, with little impact on the country's economy.

"The numbers are too small to cause any harm," David Oxley, an economist at Capital Economics, said in a note last week. "For comparison, Ukraine will lose about 0.5% of GDP on gas transit fees.

Slovakia, which is heavily dependent on Russian gas and also earns from transit fees, will lose 0.3% of GDP.

Alternative routes

Supplies to China, which is overtaking Europe as the largest market for Russian gas, are expected to reach a record 31 billion cubic meters in 2024. They are expected to rise to 38 billion cubic meters this year when the Power of Siberia pipeline reaches full design capacity. That would make up for half of the volumes lost when transit through Ukraine was cut, according to estimates by Sergei Vakulenko, an expert at the Carnegie Endowment for International Peace.

Gazprom can sell more through the Turkish Stream, a direct pipeline between Russia and Turkey under the Black Sea that also helps supply some European customers. In 2025, Gazprom can sell 25 billion cubic meters of gas to Turkey and 15 billion cubic meters of gas to Europe through the Turkish Stream, Vakulenko believes.

Russia plans to redirect some of the fuel to Central Asian countries and will work to increase the capacity of the Soviet gas pipeline from Russia to Uzbekistan through Kazakhstan.

Political games

Politically, the gas issue is an opportunity for the Kremlin to demonstrate that Russia has not become a pariah, said Sergei Markov, a political adviser close to the Kremlin.

“It is extremely important for Moscow that the diplomatic blockade is broken for the second time,” Markov said, referring to Slovakian Prime Minister Robert Fico’s surprise visit to Moscow on December 23 to discuss gas, among other issues. He became the second European leader to visit Moscow since hostilities broke out in Ukraine. Hungarian Prime Minister Viktor Orban visited Russia in July.

Putin said last month that Russia was ready to supply gas to Europe, but warned that any new deal would likely be difficult, especially given rising prices amid supply shortages Europe faces. However, plans for both the pipeline and liquefied natural gas could face other challenges. Although Russia plans to start exporting through a second pipeline to China within two years, negotiations for a third pipeline have stalled due to disagreements over terms.

Outlook for Russian LNG Ambitions

Russia aims to triple its liquefied natural gas exports to 100 million tonnes in 2035 from 33 million tonnes last year, but Western sanctions on all major future projects and its LNG tanker fleet are complicating that goal.

“The natural gas and LNG landscape has changed dramatically for Russia in the last three years,” said Claudio Steuer, an energy consultant and educator at the IHRDC in Boston. “There’s a lot more investment and effort now needed in the less profitable businesses,” as Russia needs to connect with more price-sensitive buyers.

Sanctions have already stifled Russia’s LNG growth ambitions. Novatek’s latest project, Arctic LNG 2, was able to launch limited exports last year, but sanctions imposed by the United States and its allies have limited the facility’s access to the ice-class tankers needed to navigate the frigid northern waters and discouraged foreign buyers of the gas.

The focus in 2025 will be on what Donald Trump decides to do about sanctions against Russia. The picture is clouded by U.S. ambitions to increase supplies of liquefied natural gas to Europe.

A ban on the movement of Yamal LNG cargoes in European ports could also complicate the logistics of Russian supplies to Asia now that the Northern Sea Route is closed, but the sanctions could actually lead to more of those supplies being sent to Europe itself.