Debunking Fico's Ukraine gas transit myths
A week after his secretive visit to Moscow, the Slovak prime minister Robert Fico has threatened to cut electricity exports to Ukraine if Kyiv refuses to continue transiting Russian gas after the expiry of the current agreement on 1 January 2025.
He’s also just sent a letter to European Parliament and Commission presidents Antonio Costa and Ursula von der Leyen, warning of economic catastrophe based on exaggerated and unverified claims.
The letter drives a visible pro-Russian agenda at a time when Russia continues to kill Ukrainians, destroy the country’s energy infrastructure and reportedly engages in acts of sabotage, jeopardising the energy security of the Baltic countries and Finland.
In this blog post, my colleague Sergiy Makogon, former CEO of the Ukrainian gas grid operator GTSOU and I would like to debunk the unverified claims presented in his letter:
The letter points out that the end of the transit would lead to a €10-€20/MWh increase in gas prices.
In fact, risks associated with the transit loss have already been factored in next year’s gas prices as next year’s summer prices are (unusually) at a premium over winter prices. The volatility of gas prices recorded in 2024 has been largely linked to global geopolitical instability, the trading activity of international hedge funds and the availability of renewable generation which influences gas-fired electricity production.
The prime minister argues the loss of transit would cost the EU more than €120bn by 2026. It’s unclear how exactly he came up with this figure, which contradicts the EU’s finding that the impact of losing the transit would be ‘negligible.’
Contrary to Fico’s argument, Europe’s soaring cost of living is directly attributable to the Kremlin. The Russian-provoked 2022 energy crisis forced the EU to fork out €850bn in consumer subsidies to mitigate the impact of the supply crunch caused by Gazprom’s decision to cut 80% of its exports to Europe.
To put this in context, the value of the subsidies to deal with the Russian energy crisis was nearly seven times higher than the total financial support disbursed by the EU to Ukraine since the full-scale invasion.
Even if we accept Fico’s dubious argument that the cost of losing the transit would be €120bn by 2026, it would still be seven times lower than the EU’s cost of dealing with the Russian-created energy crisis in 2022.
While Fico pleads for the continuation of the transit to bolster security, a new deal would in fact limit Europe’s ability to diversify away from Russian gas and ultimately fossil fuels.
Greece provides a telling example, as its LNG imports halved year-on-year in the first nine months of 2024 because Russia has been selling pipeline gas via Turkey to the region at 10-15% discounted prices, effectively stifling competition.
Renewing the transit through Ukraine would do the same for central Europe, opening the gates for Russian gas to flood the region, blocking importers of LNG and Norwegian pipeline gas such as Poland from offering access to alternative sources of gas.
Given Ukraine’s vast transmission network, which could transit over 100billion cubic meters annually, it would also give Russia a free hand to rebuild its lost market share in Europe, countering the EU’s objective for diversification.
Implausibly, the Slovak prime minister notes that while the loss of transit would deprive Europeans of billions of euros, it would impose only a limited financial loss on Russia.
Firstly, the prime minister himself suggested earlier that it would cost Slovakia around €200m million to buy alternative gas supplies to replace Russian gas. For a country of 5.5 million people, this translates to an extra €3.30 per person per month — the price of a cup of coffee.
Secondly, Russia earns around $6.5bn annually from the Ukrainian transit while Ukraine has been raking in a $800m annually, much lower than it should be getting under the terms of the expiring ship-or-pay deal because Russia itself has cut the volume of transit gas since May 2022.
The real beneficiaries of the transit have been and would continue to be Slovakia’s state company SPP and gas transmission system operator, eustream, which collectively earn between $1.2bn-$1.5bn in transit and gas resale annually.
While Robert Fico warns of doom-and-gloom if the transit stops on 1 January, the European Commission described the loss as “negligible,’ while the winter 2024/25 outlook produced by ENTSOG states that Europe could still reach 40% underground stock levels at the end of the winter season for the reference winter case even without Russian pipeline gas, demonstrating the independence of the EU gas system from Russian pipeline supply.
In his last-ditch attempt to persuade the EU to lobby in favour of the transit, Robert Fico has also threatened to cut electricity supplies to Ukraine at a time when the country depends on imports from neighbouring EU countries to partially offset the loss of capacity damaged by Russia.
Since Ukraine is part of the European Network of Transmission System Operators for Electricity, an integrated system of 36 countries, his unprecedented threat is directed not only against Ukraine but also against all other member countries.
According to ENTSO-E policy, no member country can cut supplies without providing proof of security of supply risks, while decisions to do so need to be discussed and approved by the entso-e board. With 77% of Slovak gas storage facilities full at the end of December 2024, what security of supply risks could Fico possibly invoke?
The EU is yet to respond to Fico’s letter but supporting the continuation of the transit would be a betrayal of Ukraine’s children, its traumatised population and its efforts to sever all links to its aggressor.