Austria wants to terminate the contract with Gazprom. How can it replace supplies?

Austria wants to terminate the contract with Gazprom.  How can it replace supplies?

The Austrian government considers it necessary to terminate the contract between OMV and Gazprom (MOEX: GAZP), valid until 2040. In 2023, Russian gas accounted for more than 64% of all gas purchases by Austria, reaching 98% in December. OMV says that in order to terminate the contract, it is necessary for the Austrian authorities to pass the appropriate law, since the purchase of gas from the Russian Federation is not subject to sanctions. Austria is one of Gazprom's largest remaining customers in Europe, which is still fulfilling long-term contracts.

The Austrian government is studying the possibility of exiting long-term contracts with Gazprom, valid until 2040, Austrian Minister of Energy and Environment Leonor Gewessler said on February 12. According to her, the country is seeking to diversify gas supplies in order to reduce dependence on the Russian Federation. The ministry plans to oblige Austrian companies to take specific measures to reduce Russian gas purchases.

Leonor Gewessler promised to analyze the legal basis for such a requirement. “The market and its energy companies are not fulfilling their obligations to reduce dependence on Russian gas at a sufficient level. Diversification of gas imports is going too slowly,” the minister believes. The ministry commissioned the Austrian Institute for Economic Research (WIFO) to conduct a study of the consequences of ending the contract and the risks of continued dependence on Russian gas.

Gazprom did not respond to Kommersant’s request. OMV told Kommersant that, if necessary, the company can supply its customers in Austria with 100% non-Russian gas. At the same time, the company emphasized that Russian gas is not subject to sanctions in Europe and is imported to Austria from several countries via pipelines or through LNG terminals. “If the legislator wants to phase out Russian gas, it is first necessary to create an appropriate legal framework,” they explained, refusing to comment on the financial consequences of breaking the contract, since “they are confidential for both parties.”

Pipeline gas from Russia arrives in Austria at the Baumgarten hub on the border with Slovakia in transit through Ukraine.

After the majority of buyers in the EU refused Russian gas, Austria still remains one of the largest consumers of Gazprom gas, choosing up to 8 billion cubic meters per year under the current contract.

Moreover, in total, Gazprom supplied 11.85 billion cubic meters to Europe through Ukraine in 2023. At the end of 2023, as OMV reported on February 1, the Russian Federation supplied all agreed volumes of gas under a long-term contract, while Austria became a net exporter of gas for the first time in two decades, supplying more to neighboring EU countries than it imported.

A sudden stop in Russian gas purchases will obviously have a negative impact on prices in the country, because the gas produced by OMV in Austria and Norway will not be enough, says Maria Belova from Implementa. The company also has a long-term contract to book capacity at the Gate LNG receiving terminal in the Netherlands and the ability to purchase pipeline gas in Norway, but this will also not be enough even taking into account spot purchases on the exchange, she adds. Deliveries from the Russian Federation on average for 2023 amounted to 64.7% of total gas imports to Austria, while in December the Russian share increased to 98%, although import volumes were then relatively small.

According to Sergei Kondratyev from the Institute of Energy and Finance, in 2023, gas imports to Austria amounted to 7.12 billion cubic meters, consumption - 7.02 billion cubic meters (less imports due to the accumulation of gas in underground gas storage facilities). Austria is trying to replace Russian pipeline gas mainly through supplies from Norway, as well as additional purchases of LNG. In July 2023, OMV CEO Alfred Stern stated that the company would continue to purchase Russian gas until it was prohibited.

Sergei Kondratyev believes that Leonor Gewessler’s statement is rather a call for stress testing and an attempt to understand what will happen if the transit contract with Ukraine is not extended after 2024. “Giving up Russian gas will not be an easy, but solvable task, including because demand for gas in the EU remains suppressed, reserves are high, and plans to increase gas imports from alternative sources are being implemented,” he believes.

Tatiana Dyatel

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