The West still needs Russian gas that comes through Ukraine
Summary
- Austria, Hungary and Slovakia are particularly dependent on it
When Ukrainian forces stormed into Russia early in August, Europe’s energy markets took fright. Russia’s gas exports to the EU are a fraction of what they once were. Still, news that Ukraine had captured Sudzha—a town in Russia that hosts its last major terminal for exporting the fuel to Europe via Ukraine—was enough to send the continent’s benchmark gas price to its highest level this year.
Ukraine and Russia have agreed—for now—to keep gas moving through Sudzha. But whether it will continue next year is less certain. The deal whereby Russian gas is delivered westward via Ukraine was signed by the two countries alongside the EU in 2019. It is due to expire at the end of this year. The EU, which aims to phase out Russian gas by 2027, does not want to renew it. Nor does Ukraine. “We don’t want to extend the gas contract," said Volodymyr Zelensky, Ukraine’s president, in July. “We don’t want them making money here."
Europe’s transition away from Russian energy has been fairly smooth. In 2023 just 8% of the bloc’s pipeline imports were from Russia, compared with 40% before the war. New supplies, especially of liquefied natural gas (LNG) from America, now make up the difference. But some countries still depend heavily on Russian gas and would be hurt by a sudden end to supplies via Ukraine. EU officials are worried.
Three countries are most at risk. Russian supplies made up around 47% of Hungary’s gas imports in 2023. For Slovakia they made up 89%. Austria depended even more: in January 97% of its gas imports were from Russia. Some of this gas, particularly Hungary’s, comes by TurkStream, a pipeline to the Balkans, and will continue next year. But the lion’s share still passes through Ukraine. “They’re really not in a great position," says a European diplomat.
This trio of countries are hooked on Russian gas thanks to geography. Whereas Germany and Italy have offshore terminals for shipments of LNG, Hungary, Slovakia and Austria are landlocked and rely on pipelines designed to carry gas from east to west. For Austria, where a number of pipelines meet, bottlenecks are less menacing. But it would be costly for Hungary and Slovakia to reverse the flow of gas to get it from the west. An expensive gas-transit levy charged by Germany was dropped this summer after complaints from the EU but deterred countries from booking orders from new suppliers.
Local firms in the three affected countries are bound to Russia by a thicket of long-term agreements. In 2008 Slovakia’s state-owned gas company signed an import agreement with Gazprom, a Russian energy giant, which is not due to expire until 2028. In 2021 Hungary made a similar 15-year deal with Gazprom. Austria’s biggest gas firm, OMV, is tied up in a contract due to last until 2040. The cost of reneging on such deals has discouraged the trio from switching to other suppliers. Termination fees in Austria could be €1bn ($1.1bn).
Politics are another problem. Since Russia’s invasion, Hungary’s Kremlin-friendly government has doubled down on its deal with Gazprom. Last year it even proposed to buy more Russian gas. Robert Fico, Slovakia’s prime minister, says Russian deliveries via Ukraine will continue in 2025—a claim Ukraine’s government has contradicted. Austria’s coalition government’s energy minister, who is a Green, wants OMV to break its contract with Gazprom, but so far the company won’t budge.
European officials are frustrated. “If they had done more to get off Russian gas two years ago, we wouldn’t even be having this conversation," sighs the diplomat. Ukraine is exploring the option of getting gas delivered from Azerbaijan to keep supplies flowing, though this scheme’s feasibility is unclear. Two winters on from the invasion, Russian gas is still rattling Europe.
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