GAS, WAR & MONEY
The last months of this year will have seen another major change in the war’s economics.
On the 31st December Ukraine will end a five year deal signed in 2019, that allows Russian gas to pipeline through Ukraine to Slovakia, Hungary, Austria and Czechia. Most of this comes from the Yamal Europe pipeline connected to the Northern Lights line.
The war started in February 2022. Very quickly any hope of the famous Russia-Germany Nordstream pipeline being of any value came to an end when allegedly, Ukrainian operators blew it up. It was a sensible strategic move, if it was Ukraine. It instantly forced Germany to re-evaluate its position on gas and cut it off from one of its biggest and easiest go-to sources.
All of western Europe with a few exceptions – notably the land locked four above, swallowed the bitter pill and during the period 2022-23 they cut down on Russian gas imports by some 80%, reducing that still further in the next twelve months. It also stimulated a huge increase in renewable energy infrastructure. The result was a staggering 15% cut in all of Europe’s overall gas use by mid 2024.
The energy shock of 2022 is now in the rear view mirror but it cost anyone using gas for cooking and heating dearly.
Somehow though, the vast majority of European natural gas supplies were re-sourced from countries like Norway and the United States, Qatar and others. Much of it shipped in by sea as LNG. But the point is Europe managed a staggering turn around far beyond anyone’s expectations in a very short time frame. The Russians were perplexed – they just didn’t think Europe had it in it.
Yet even so billions of Euros had carried on flowing into Russia funding the very war we were helping Ukraine fight.
By the end of 2023, what had been a near $227 billion a year income stream and 45% of the Russian Federal budget, had collapsed. Gas exports fell from 146 billion cubic meters a year to just 27 billion now – and at far cheaper prices.
That is about to drop further when Ukraine, sick of allowing Russia a $7.5 billon per year income stream, shuts down the pipelines for good.
Slovakia and Hungary are fuming. Hungary just doesn’t want to give up Russian energy because its a cheer leader for Putin in the EU. It’s made little effort to diversify its energy sources. Ukraine has little sympathy because Hungary has obstructed aid for Ukraine to fight against the invasion from the moment it started. Hungary does have access to Croatia’s LNG terminal, as well as Turkstream Russian gas via Serbia.
Slovakia is now ruled by a Pro-Russia party that finds the realities of its situation hard to deal with. Its a small country, the government isn’t especially popular, it too has made little effort to diversify its gas supply. Its leadership thinks Ukraine will be beaten and should stop the war but it seems shocked that its been put in this position and blames Ukraine. Its also made it clear it doesn’t want Russia as a neighbor. Fico and his government want their cake and eat it too. There’s no resolution in sight. The pipeline is closing, end of.
Czechia isn’t making a fuss. It’s position is an embarrassing one. The government is staunchly pro-Ukraine and feels bad about using and paying for Russian gas. Its been difficult to get around the supply problems, demand in Europe is high and the pipelines into Prague head west into Germany and stop, which means there’s been no gas line from the coast or anywhere else that can be reversed to go west-east. However measures to use the Oberkappel point are in place and the import of LNG originated gas is high on the agenda.
Austria is a whole different case. It’s not in NATO but is in the EU. It has been a major user of Russian gas on the Transgas line that runs through Slovakia, Czechia into Germany and branches into Austria running through much of the country into northern Italy.
