Russian Strikes Disable 60% of Ukraine's Gas Production, Imports to Rise

Russian forces have significantly escalated their missile campaign against Ukrainian energy infrastructure over the past week. A strike on October 3 targeted gas production facilities in Poltava and Kharkov, deploying 35 missiles and at least 60 long-range drones. According to Bloomberg, this attack has resulted in approximately 60% of Ukraine"s gas production being taken offline.

In response, the Ukrainian government plans to increase gas imports by 30% over the winter, aiming to import at least 4.4 billion cubic meters during the season, which equates to $2.2 billion or 20% of the country"s typical annual consumption. This figure is expected to rise further.

Gas is essential for heating in Ukraine, with 78% of households relying on it as their primary heat source. Industrial usage varies between 1 billion cubic meters (bcm) and 6 bcm per quarter, depending on the season, and gas power plants contribute to 11% of the country"s electricity generation. Ukraine"s total annual gas consumption is around 20 bcm.

This year, Ukraine projects it will import 5.8 bcm of pipeline gas, more than double the amount imported before the war, despite a reduced population and lower consumption. Approximately half of this gas transits through Hungary, with additional amounts through Poland and Slovakia.

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Previously, Ukrainian pipelines facilitated the transit of Russian gas to Europe, generating significant transit fees. However, this agreement ended at the beginning of the year, and the pipelines now operate in "reverse flow," sending gas into Ukraine. The termination of the transit agreement has diminished Ukraine"s strategic position, making its gas storage facilities less accessible for EU countries.

The European Bank for Reconstruction and Development (EBRD) announced an emergency financing deal following the October 3 attack, which will need to be implemented rapidly. This follows a €500 million loan for gas purchases in August. Repairing damage from Russian strikes earlier this year is estimated to require at least $180 million, with total repair costs for the Ukrainian grid projected at $878 million.