By Vaibhav Tandon

Most of us like to ring in the new year with fresh energy.  The Europeans appear to have made good on this resolution. 

Russian natural gas exports via Ukraine to other parts of Europe came to a halt on the first day of 2025 after Kyiv refused to renew the five-year transit deal that facilitated those flows.  While this action will be costly to Ukraine, it will be costlier to Russia.    

Fears of shortages pushed European natural gas prices to a 14-month high of over €50 per megawatt hour, contributing to concerns of a renewed energy crisis.  Inventories of natural gas on the continent have been depleting at the quickest rate in the last seven years.  Storage levels have dropped to about 70% full, compared to 86% at this time in 2024.  Reserves are still abundant, but colder conditions this winter could lead to faster withdrawals.  This would make the task of refilling stocks to at least 90% of capacity more difficult and costly ahead of the next heating season.  Unplanned outages could also impact the delicate balance and increase price volatility.

But a power crisis is not imminent.  Current natural gas prices in Europe are far below the levels seen in 2022 and 2023.  In Germany, which is the continent’s biggest gas consumer and acts as a regional storage hub, inventories are 80% full.  Most European nations have been either weaning themselves off Russian supplies or increasing reliance on alternative energy sources.  Moscow’s share of European gas imports has declined sharply, from 43% in 2021 to about 18% last year.  Norway has replaced Russia as the bloc’s biggest source, with the U.S. also gaining share.  Wind has replaced gas as the top source of electricity in the U.K.

Austria and Slovakia were among the last remaining buyers of Russian gas, and both have alternative supplies in place.  Vienna has not only boosted imports from Germany and Italy, but also shifted to other sources such as liquified natural gas.  Slovakia, on the other hand, has started to buy from Azerbaijan. 

The expired deal represented only about 5% of the European Union’s total gas imports, and Ukraine earned about $1 billion annually from transit fees.  The consequences for Russia are more severe; they will lose an estimated $6.5 billion a year in revenue.

Europe has moved off Russian gas through a combination of decisive actions and some luck with warm weather.  Maintaining this new energy through 2026 will allow Europe to take its destiny back into its own hands.