Austria mulls how to break free from Russian gas

Austria mulls how to break free from Russian gas
The share of Austrian gas imports that comes from Russia has risen to 98%. / bne IntelliNews
By Newsbase February 13, 2024

The Austria government is finally considering trying to cut its reliance on Russian gas.

Austrian Energy Minister Leonore Gewessler announced on February 12 that her government would look to end national gas company OMV’s long-term gas supply deal with Gazprom, in a push to free the country from near total reliance on Russian energy.

While the EU as a whole has greatly reduced its reliance on Russian gas, primarily because of the Kremlin’s own cuts to supply in 2022, this is not the case for a number of countries in Central Europe. In the case of Austria, the share of its imports that comes from Russia has actually risen to 98%, versus 80% on February 24, 2022, when Moscow invaded Ukraine.

Gewessler, a member of the Greens party, stated the intention to end the contract as the government prepares for a national election this autumn.

“The diversification of our gas imports is progressing far too slowly,” she told journalists in Vienna on February 12. “This culminates in a new record share of Russian natural gas in December of 98%.”

However,  the drive will face opposition even inside the Austrian government as the centre-right Austrian People's Party (OVP) argues that it would result in higher energy costs at a time when Europe’s economic situation is difficult. The far-right Freedom Party, which leads opinion polls, will also say that the plan will increase household energy bills, exacerbating the cost-of-living crisis that countries across Europe are struggling with.

Chancellor Karl Nehammer, of the centre-right Austrian People's Party, stressed last year that maintaining the contract with Gazprom was in the interest of taxpayers. “It is a matter of securing state assets and keeping existing contracts as long as possible," he said, in a reference to the government’s 31.5% interest in OMV.

A factor behind increased dependency on Russia is falling gas demand in Austria. Consumption dropped to 75 TWh in 2023, according to energy ministry data, versus 100 TWh in 2022. This is chiefly the result of high prices, which have led to reduced usage by households and weaker industrial output.

Meanwhile, OMV is bound by its long-term contract with Gazprom, which was renewed in 2018 and will not expire until 2040, to “take-or-pay” for at least 60 TWh per year of gas. Notably, prices under the contract are currently cheaper than spot purchases from neighbouring Germany, which has itself replaced Russian gas supply with LNG imports.

In other words, OMV and smaller energy utilities in Austria have every reason to buy more Russian gas in present market conditions, even though alternative sources of supply exist. In addition to imports from Germany, Austria can also access gas from Italy, brought ashore as LNG or piped from North Africa.

Austria’s government also wants to convey its commitment to cutting Russia’s revenue stream from gas sales that it can use to finance its war in Ukraine. This is a marked change in position compared with late 2023, when Austria’s government reprimanded the European Commission’s envoy to Austria, Martin Selmayr, for saying that Austria’s continued dependence on Russian gas was akin to sending “blood money” to Moscow.

Yet Gewessler made this same link.

“With our energy bills, we are indirectly financing a heinous war in Ukraine,” she told reporters.

Austria imported gas worth €7bn ($7.6bn) in 2022, when prices were sky high as a result of the energy crisis. Prices have since fallen, but the bill still came to €3bn last year.

The three-point plan

The EU’s aspiration is to eliminate Russian gas from its energy system entirely by 2028, but Austria will not be able to meet that goal itself as long as the OMV-Gazprom contract remains in force. However, Gewessler has a three-point plan to tackle Russian gas dependency.

Firstly, the minister wants local utilities to demonstrate that they can do without Russian supply and start expanding the share of alternative supply in their mix, ideally by purchasing volumes on the EU’s joint purchasing platform launched last year, known as AggregateEU. Secondly, she is looking to break the long-term contract with Gazprom. Gewessler said her ministry had hired economic think-tank Wifo to produce a study by this summer to weigh up the economic impact of terminating the contract, as well as the dangers of continued dependence on Russian gas.

Finally, she wants to put natural gas and independence from Russian energy front and centre in the country’s national security strategy.

The plan is likely to face stiff opposition from businesses, which will complain that having to buy more expensive alternatives to Russian gas will weaken their profitability. The hardest hit will be energy-intensive industries, where the price of natural gas is one of their largest input costs.

There is also the legality of severing the contract with Gazprom, but with the countless legal cases already underway between Russian and European companies in the wake of sanctions and other fallout from the war in Ukraine, this is unlikely to be viewed as a serious consideration.