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The contract for Russian gas is toxic. The gas is replaceable. Let’s move on.
That’s the logic many European officials have adopted as a multibillion dollar deal keeping Russian gas pumping through Ukraine into the European Union nears expiration at year’s end. And the data shows they’re broadly right: The EU can generally go elsewhere for that gas.
Yet for a few countries — primarily Austria, Slovakia and Hungary — the prospect poses a costly dilemma that could ripple across Europe.
Unlike much of the bloc, the three haven’t yet weaned themselves off Russian gas. For reasons both political and pragmatic, each country has stayed connected to Moscow’s energy, reaping cost benefits in the process. The Ukraine pipeline has provided the critical link.
With that link now on the chopping block, the trio may soon need alternatives. While options exist, any change from the status quo will incur costs.
Below, POLITICO breaks down how Europe’s energy market has changed since Russia invaded Ukraine, revealing why it no longer needs a once-vital pipeline but can’t escape the financial cost of ending its flows.
Europe’s changing energy map
Following Russia’s all-out assault on Ukraine in early 2022, Europe’s heavy reliance on the aggressor’s gas became an immediate problem as Moscow cut off flows via the Nord Stream and Yamal-Europe pipelines — two key energy connections to the EU.
Europe swiftly rebalanced. Coastal countries built out capacity to bring in liquefied natural gas (LNG) from places like the United States, while new contracts were drawn up. By 2023, Russian pipeline gas made up only 8 percent of the EU’s energy imports, down from over 40 percent in 2021.
The deal that survived the war
Yet a few pipelines kept pumping, including one winding through Ukraine and operating under a prewar contract.
For the EU as a whole, the route was mostly vestigial — only around 5 percent of the bloc’s 2023 gas imports came via the Ukraine route.
But for Central and Eastern Europe, the path is vital. Boxed in from the seas, the countries didn’t pivot as easily to LNG imports and kept drawing Russian gas.
“It’s not a huge chunk of [the] overall European gas supply, but it is a really important source of supply to where it goes,” said Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution.
On the two-year anniversary of the war, Austria made news for still being 98 percent reliant on Russian gas, with much of that coming via Ukraine. Slovakia has also received several billion cubic meters of gas through the pipeline, while Hungary takes in less Russian gas through Ukraine, but is deeply reliant on Moscow’s energy overall.
The International Energy Agency warned last week that the potential demise of the Ukraine pipeline represented a “key uncertainty” for Europe this winter.
“While Russian gas transited via Ukraine met only a small share of total EU gas demand in 2023, the halt of these transit flows would significantly affect some Central and Eastern European markets and Moldova,” it said.
Benefitting from Russian gas
Currently, the EU countries relying on the Ukraine pipeline are essentially getting Russian gas as cheaply as they can without depending on middlemen who resell for higher prices.
“If that gas is cut off, they are connected to the rest of Europe, [so] it [will be] possible for them to get to supply,” Gross said. “But instead of being at the front end of the pipe … they’re going to be at the tail end.”
Getting bumped to the back of the (pipe)line would be a major inconvenience. New contracts would be needed, new routes designed — whether for LNG snaking its way from the coast or for pipeline gas from other countries to replace the lost Russian inputs. Either way, the costs would be substantial.
“If that gas is coming into Europe as LNG, it’s almost certainly going to be more expensive than the Russian pipeline gas was,” Gross said. “The important reason why Europe was so reliant on Russian pipeline gas to begin with is it was cheap.”
Ultimately, it’s “more a price, less a volume issue,” said Christoph Halser, a gas and LNG analyst for RystadEnergy.
Proposed solutions
Already, Slovakia and Austria have found alternative gas sources through deals with nearby countries like Turkey. Hungary, meanwhile, could kick the can down the road and continue its reliance on Russian gas through Serbia.
These alternatives all come at a price, whether that be more expensive LNG or, in Hungary’s case, reliance on a single pipeline. Either way, though, the gas will keep flowing.
While the closure would be felt most acutely in Central and Eastern Europe, the entire EU could feel “ripple effects,” Gross said. As existing gas infrastructure is run harder, markets will get tighter, with less room for error if there are supply issues.
The Ukraine pipeline may also continue to pump gas. While Kyiv has refused to negotiate a renewal directly with Moscow, talks are underway with fossil fuel-rich Azerbaijan to take over the contracts.
However, questions remain as to whether Azerbaijan can produce sufficient gas to replace all former Russian exports — or whether it would merely serve as a middleman, rebranding “Russian gas” as “Azeri gas” before sending it on through the Ukraine pipeline.
“It’s highly unlikely that any gas sold as gas originating in Azerbaijan will in fact be of Azeri origin,” said Aura Săbăduș, a gas markets expert at commodities intelligence giant ICIS. “Azerbaijan doesn’t have the production capacity to meet demand in Southern, Central and Eastern Europe and is unlikely to be allowed by Russia to use its pipeline network to transit the gas.”
Still, even in that scenario, prices would likely rise slightly.
And, of course, Russia would profit.
