Exports through Ukraine fell last week after the deal was agreed to allow fuel from Gazprom to its main markets in the west for the next five years.
Under the agreement, Russia will gradually reduce its use of Ukraine’s pipelines over the next five years as it switches to its new Nord Stream 2 and TurkStream pipelines.
Gas volumes are due to decrease through the Ukrainian system from the 2019 volume of 90 billion cubic metres (bcm) to 65 bcm in 2020 and 40 bcm in 2021. As the infrastructure ages, income is expected to fall and maintenance expenditure increase.
Oil and gas output remain a key earner, accounting for about 40 per cent of Russian state revenues.
Russia is a top-three crude oil producer and the world’s second-largest gas supplier.
Velke Kapusany in Slovakia is an entry point for gas from Ukraine which has become the most important EU compressor station, according to its operator, Eustream. Its capacity is about 195 million cubic metres per day, the equivalent to about 80 per cent of the daily UK demand.
Russia shut off gas exports to Ukraine in the mid-winter cold snap of 2006 and in 2009 amid price disputes with its former Soviet colony.
Ukraine had been earning approximately US$3 billion annually in transit fees from Gazprom, providing a key source of revenue for the struggling economy, despite the worsening of relations in 2014 with Russia’s seizure of the Crimean peninsula and invasion of eastern Ukraine.
Flows of Russian gas through a separate route to Belarus have also declined in the last month.
Europe is experiencing a particularly mild winter, reducing gas demand.
The new contract agreed between Ukraine and Russia cuts the requirement for Gazprom to send at least 110 billion cubic metres (bcm) per year to 65 bcm.
Russia agreed to fix transit fees over the next five years at a higher level to allow Ukraine to sustain its US$3 billion in transit revenues even though volumes were expected to fall by around 50 per cent, according to Stratfor.
Gazprom said last week that sales to the European Union, Turkey and China fell by 1.3 per cent in 2019. Russia exported nearly 200 bcm to Europe last year.
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