Europe still keeps importing vast volumes of Russian gas, even though the Ukraine war continues. Importing Russian gas directly finances the ongoing onslaught of Russia’s army in Ukraine. To find a solution to the latter, European ministers are meeting in Luxembourg to assess the upcoming winter gas situation of the union, especially in light of the expiration of a key Ukraine-Russia gas transit agreement on December 31, 2024. Energy security at present is not at risk, but unforeseen market fundamentals could still risk a shortage. Keeping in mind the ongoing Israel-Hezbollah-Iran confrontation and the expected Israeli military reaction to Iran’s missile attack in recent weeks is putting pressure on GCC-based LNG supplies.
The EU is also trying to find additional natural gas and LNG suppliers on the global market while addressing still very high natural gas prices at the same time. The need to shift away from Russian hydrocarbon supplies, including natural gas and LNG, is clear but still far from reality. Looking at the widely assessed Russian dark fleet and the continuing import of Russian oil and gas by EU member states is a concern for Brussels and staunch supporters of Ukraine. While some pressure is building up, especially in light of the expiration of the Ukraine-Russia gas transit agreement, most European politicians are sleepwalking. Russian LNG is still flowing into Europe, even at historic levels.
Brussels insiders are stating that Russia and Ukraine are still discussing a possible solution to the December 31 expiration date or setting up a possible third-party involvement, such as Azerbaijan, in filling the pipeline in 2025. Pressure from several EU members on Brussels and Ukraine has also increased, especially from Austria, Slovenia, and Hungary. Vienna and Ljubljana are still very dependent on natural gas via the Ukraine pipeline transit system. Discussions are in place on which Russian gas will be replaced by Azerbaijani gas. The reality is, however, that pipeline capacity for Azerbaijan is minimal, so such a deal will be a swap deal with Russian gas. It will not only be politically controversial but will indirectly support the stability of Russian gas production capacity. Overall, a total volume of 10-11BCM per year is needed to keep the Ukrainian system commercially attractive. If the latter is not met, the total is under financial pressure.
European leaders are also involved, sometimes putting heavy pressure on Ukraine. EU Commission President Ursula von der Leyen stated last month, «it is a Ukrainian decision how to deal with the pipeline, so it’s also their responsibility and right to deal properly and responsibly with that.» The latter has not been taken lightly by Kyiv, as it implies European pressure to set up a deal with a country that is currently invading its territory. For Brussels, the situation is also very troubled. Not only does Europe still need Russian gas supplies, but it also faces unilateral pro-Russian moves by Hungary, Austria, and even Slovenia. Statements by Brussels that it can deal with a total removal of Russian gas, especially if Ukraine does not reach a deal with Putin, should be taken with a truckload of salt. European politicians always refer to the almost filled-to-the-brim gas storage facilities at present while indicating that only 5% of EU gas supplies come via Ukraine pipelines. The latter, however, is a major disconnect from reality. Gas storages are not 100% winter demand but are only meant to be used in case of a lack of daily normal supplies. With another 5% removed and possible additional sanctions on Russian natural gas or LNG coming soon, Europe’s dependency on Norway, Algeria, Qatar, and the USA will increase substantially.
The pressure is additionally growing as EU members, including France and the Baltics, are calling for stricter reporting rules for importing Russian LNG (liquefied natural gas) across the bloc. The latter is a possible blow to Russian gas imports, as it will focus on the identity of importing parties, especially LNG. These stricter rules should be in place by March 2025, including requiring LNG terminal operators to provide all data on the share of Russian LNG in the cargoes unloaded. This request has been made in a document signed by Lithuania, Austria, the Czech Republic, Finland, Estonia, Latvia, Luxembourg, and Sweden.
At the same time, Hungary is again trying to go solo. In statements made by Hungarian Foreign Minister Szijjártó, he stated that Budapest is negotiating with Russian energy giant Gazprom for additional gas purchases by Budapest for 2025. On October 10, Gazprom and Hungarian energy company MVM already signed an MOU on the possibility of increasing Russian gas supplies to Hungary. In a plain but politically blunt statement, Szijjártó stated that «in fact, we are increasing the volume. We have already signed one additional agreement for the last quarter of this year, which covers additional volumes at a price that guarantees competitive pricing. We are now negotiating an agreement for next year.» The official also indicated that part of these additional volumes could be flowing via TurkStream, a gas pipeline built just before the Russian invasion of Ukraine, bringing Russian gas via the Black Sea to Turkey and Bulgaria. Hungary also indicated that the MOU signed in St. Petersburg with Gazprom is the basis for future long-term contracts. Increased Hungarian imports of Russian gas could again lead to a full-scale confrontation with Brussels in the coming months.