Despite the ongoing war in Ukraine, Europe continues to import significant volumes of Russian gas. These imports directly support Russia’s military actions in Ukraine. In response, European ministers are gathering in Luxembourg to discuss the gas situation for the upcoming winter. Their discussions are particularly urgent due to the expiration of a crucial gas transit agreement between Ukraine and Russia, which is set to end on December 31, 2024. Currently, Europe’s energy security is stable, but unexpected market changes could lead to shortages. Additionally, tensions in the Middle East, particularly between Israel, Hezbollah, and Iran, are putting pressure on LNG supplies from Gulf Cooperation Council (GCC) countries.
The European Union (EU) is actively seeking new suppliers for natural gas and LNG on the global market while grappling with high gas prices. The urgency to reduce reliance on Russian energy sources is evident, but achieving this goal remains challenging. Concerns are growing in Brussels as EU member states continue to import Russian oil and gas, despite a perceived push to limit these imports. As the expiration date of the Ukraine-Russia gas transit agreement approaches, some European politicians seem unaware of the risks involved. Russian LNG continues to flow into Europe at historic levels.
Insiders in Brussels have indicated that discussions are ongoing between Russia and Ukraine regarding a possible solution for the gas transit agreement’s expiration or the potential involvement of a third party, such as Azerbaijan, in future pipeline operations. Pressure is mounting from several EU countries, especially Austria, Slovenia, and Hungary, as they rely heavily on gas transported through Ukraine. Talks are underway about which Russian gas might be replaced by Azerbaijani gas, but the pipeline capacity for Azerbaijani gas is limited. Thus, any deal would likely be a swap, potentially supporting Russian production indirectly.
To maintain the attractiveness of the Ukrainian pipeline system, it is estimated that a total volume of 10-11 billion cubic meters (BCM) of gas per year is needed. Failure to meet this volume could put the system under financial strain.
European leaders are also applying pressure on Ukraine. EU Commission President Ursula von der Leyen recently stated that Ukraine must take responsibility for how it manages the pipeline situation. This remark has not been well received in Kyiv, as it suggests European pressure to negotiate with an invading country. The situation is complicated for Brussels. Not only does Europe still need Russian gas, but it also faces pro-Russian actions from countries like Hungary, Austria, and Slovenia.
While Brussels claims it can cope without Russian gas, especially if Ukraine does not reach a deal with Russia, such statements should be viewed skeptically. Many European politicians highlight the current high levels of gas storage but overlook that these reserves are not fully intended for winter demand. Instead, they are meant to address shortfalls in daily supplies. If another 5% of gas supply is cut off and additional sanctions on Russian LNG are implemented, Europe’s dependence on alternative suppliers, such as Norway, Algeria, Qatar, and the USA, will increase significantly.
As the situation unfolds, EU countries, including France and the Baltic states, are advocating for stricter reporting rules on Russian LNG imports. This move could hinder Russian gas imports by focusing on the identities of importing entities. Proposed regulations would require LNG terminal operators to disclose the share of Russian LNG in their cargoes by March 2025. This initiative is supported by a coalition of countries, including Lithuania, Austria, the Czech Republic, Finland, Estonia, Latvia, Luxembourg, and Sweden.
Meanwhile, Hungary is seeking to operate independently. Hungarian Foreign Minister Péter Szijjártó announced that Budapest is negotiating additional gas purchases from Russian energy giant Gazprom for 2025. On October 10, Gazprom and Hungary’s MVM signed a memorandum of understanding (MOU) to potentially increase Russian gas supplies. Szijjártó noted, “In fact, we are increasing the volume. We have already signed one additional agreement for the last quarter of this year.” He added that future supplies might flow through the TurkStream pipeline, which brings Russian gas to Turkey and Bulgaria. Hungary’s increased gas imports could lead to renewed tensions with Brussels in the coming months.
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