No, Russian Gas is Not Europe’s Solution (2024)

Ukraine and its Western allies are stumbling toward a serious failure that would feed the Kremlin’s war machine and strengthen its ability to conduct energy blackmail.

Let’s set out how this might happen, the consequences, and how it can be stopped.

The current Ukraine-Russia gas transit agreement ends on December 31. The push by some — primarily Slovakia and Hungary — for a new Ukraine-Russia agreement or alternative mechanisms to allow Russia’s state-owned Gazprom to utilize Ukraine’s transit infrastructure seems to have stalled. President Volodymyr Zelenskyy has stated that renewing the agreement with Gazprom is out of the question.

So that’s that, then? Not really. In place of direct Russian gas transit, a new concept has emerged:supplyingAzerbaijani gas to Europe through Russia and Ukraine. This would mean using Russian pipelines to send the gas — it amounts to a thinly disguised effort to permit Gazprom to continue using Ukraine as a transit route to Europe, allowing the Kremlin to keep earning about $5bn annually.

There’s another problem. The plan is impossible.

Azerbaijan supplied about 12 billion cubic meters (bcm) of gas to Europe through the Southern Gas Corridor (SGC) in 2023. While the joint EU-Azerbaijan goal is to increase this to 20 bcm annually by 2030, achieving this depends on new investments in both upstream production and the SGC itself.

With growing domestic demand, Azerbaijan simply has no excess gas available in the near term. Indeed, it has been importing gas from Russia and Turkmenistan in recent years. So, where exactly would any additional Azerbaijani gas be sourced? And why would Russia be eager to facilitate the transit of competitive Azerbaijani gas via its territory to Ukraine and then onto its former customers in Central Europe? What exactly does the head of Slovakia’s SPP gas company expect when heconfirmsongoing negotiations about transiting Azerbaijani gas through Ukraine?

Under the current agreement, Gazprom supplies large amounts of gas annually to Slovakia (89% of its 2023 consumption), Austria (97%), and Hungary (47%.) Of course, these countries could have weaned themselves off Russian gas at any point since the all-out invasion of Ukraine in 2022 but chose not to. Whether that’s because they face costs in terminating long-term agreements because they negotiated cheap deals with the Kremlin or because these governments harbor pro-Russian sentiment is not clear. Perhaps all three.

Whatever the reason for Central Europeans putting themselves in this position (almost every other EU state has slashed its reliance on Russian energy), it cannot reasonably be solved by rebranding Russian gas as Azerbaijani.

The blatantly transparent nature of this scheme does not seem to trouble Slovak and Hungarian officials, who are actively lobbying for the continuation of gas supplies through Ukraine. They have even begun to invoke the association agreement between Ukraine and the EU, claiming that Ukraine is obligated to facilitate the transit of oil and gas to EU countries, includingSlovakia and Hungary.

This won’t wash. Article 472 of the agreement clearlystates: “Nothing in this Agreement shall prevent a Party from taking any measures which it considers essential to its security in time of war or serious international tension constituting a threat of war.” Ukraine has a clear EU-sanctioned legal right to end the deal.

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Simultaneously, some Hungarian and Slovak officials issuedsotto vocethreats after adisputeover crude oil shipments, hinting at possible disruption in supplying goods to Ukraine, including fuel and electricity. Without public support from the EU and the US, Ukraine remains vulnerable to such pressure — indeed, that may be why itreversedthe oil ban in September. It’s very possible they would try it on again with the gas deal.

Not for the first time, the EU has been made powerless by its illiberal member states. Hungary and Slovakia have ensured that no collective action has been taken to impose sanctions on Russian pipeline gas imports, as such measures require unanimous consent from all member states. Nevertheless, even without sanctions, the share of Russian gas in the EU’s total imports has fallen from 40% to 14%. Gas transiting through Ukraine accounts for about 4% of total imports. The loss of this relatively small volume is unlikely to create significant price pressures on the European gas market and can be readily replaced by other sources.

Moreover, since 2021, Hungary has not received gas through Ukraine but via Turkey. Slovakia, with an annual consumption of 4–5 bcm, can easily procure gas through Poland, Hungary, Austria, and the Czech Republic. Austria faces no technical limitations and can additionally source gas through Italy. Therefore, the desire of certain countries to extend transit is not driven by technical necessities but rather by a preference for cheaper Russian products.

There is also a significant risk that continuing the transit of Russian gas by labeling it Azerbaijani would create a dangerous precedent. Pro-Russian forces could exploit this in the future to bring Russian gas back to the European market. It is worth noting that Ukraine has the capacity to transit up to 89 bcm annually to the EU.

If aggressively dumped, Russian gas would instantly displace some LNG supplies from the US and elsewhere. In the worst-case scenario, Germany could take advantage of this scheme to supply “Azerbaijani” gas through the one operational branch of the Nord Stream 2 pipeline, with a capacity of 27.5 bcm annually. Germany’s right-wing populist AfD party has already begun lobbying for the return of Russian oil and gas imports.

In addition, the uncertainty surrounding the continuation of transit and the risks of its resumption could also create significant challenges and uncertainties for LNG terminal developers not only in the EU but worldwide. With more than 100 bcm of gas in Russia that might enter the EU market at any moment, LNG developers might prefer to wait for greater clarity on the prospects for Russian gas supplies to theEU.

It is crystal clear that Europe and the US should prevent Russian gas transit to the EU through Ukraine.

Allowing this because of the irresponsible choices made by three Central European states would have serious consequences, including the undermining of solidarity and unity among EU member states.

Moreover, it is unacceptable that during such a significant confrontation between the West and Russia, some NATO countries (Slovakia and Hungary) continue to send billions of dollars annually to the Kremlin to grease its military machine.

There are concerns about how the transition might be managed, and both Brussels and Washington can assist with this.

Ukraine must be supported in doing the right thing, and the Central Europeans must have it explained that they face costs for putting self-interest above all else. Most of all, the issue of addiction to cheap Russian energy must be confronted now — if not, the problem will worsen and may well cause a worse crisis further down the road.

Sergiy Makogon was CEO of GasTSO of Ukraine from 2019-2022.

Daniel D. Stein is a former senior advisor with the Bureau of Energy Resources at the US Department of State.

Europe’s Edgeis CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or viewsof the institutions they representor the Center for European Policy Analysis.

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No, Russian Gas is Not Europe’s Solution (2024)

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