Hungary and Slovakia – a future without Russian gas?
Two countries set to be most impacted by the EU phaseout of Russian gas are Hungary and Slovakia. Hungarian Foreign Minister Peter Szijjarto has said this week that it will be impossible for Hungary to decouple from Russian oil and gas by 2027, triggering Hungary to challenge the European Commission’s latest decision at the European Court of Justice. But what is the reality of Hungary and Slovakia’s options for diversifying away from Russian gas?
While both Hungary and Slovakia have sufficient interconnection capacity to draw from other suppliers, the key issue remains gas availability and midstream pipeline bottlenecks from Croatia, Romania and Poland. Other suppliers with spare capacity (Austria and Czechia) offer cross-border opportunities but have high transportation costs.
In 2024, Hungary received around 60% of its gas from Russia and for Slovakia the figure was even higher at 70%. Under the EU’s current plan to phase out Russian gas, both Hungary and Slovakia have until the end of 2027 to phase out Russian volumes.
Difficult but not impossible for Hungary to replace Russia
Hungary currently imports around 7bcm of Russian gas via Turkstream through Bulgaria and Serbia. Of this, around 2.5bcm was re-exported to Slovakia, leaving approximately 4.5bcm for domestic use. With Hungary’s total gas demand estimated at around 8bcm, this implies that around 60% of Hungary’s supply comes from Russia. The remainder of the balance comes from domestic production (1.2bcm), Romania (1.6bcm), Croatia, Austria and storage withdrawals.
Based on our analysis of Hungary’s gas balance, the country will need to secure around 4.5bcm of alternative supply starting in 2028, assuming the country’s overall gas balance remains stable until then.
Several options now exist for Hungary to replace current volumes from Turkstream, each with its own respective limitations. Overall, our analysis shows that the cheapest route for Hungary would be to source gas from Croatia or Romania, with transportation costs ranging from €0.89/Mwh to €1.27/Mwh. Deliveries from Austria would be marginally more expensive and those from Greece via Bulgaria and Serbia also in the higher cost range. The most prohibitive route would be to source gas from Turkey.
Hungary’s gas interconnection point transportation costs and capacities
| Transportation route | Transportation costs (€/Mwh) | Border capacity (entry into Hungary), Bcm/yr |
|---|---|---|
| Croatia-Hungary | 0.89 | 1.7 |
| Romania-Hungary | 1.27 | 2.6 |
| Germany-Austria-Hungary | 1.54 | 5.2 |
| Italy-Austria-Hungary | 2 | 5.2 |
| Germany-Czech-Slovakia-Hungary | 4 | 4.4 |
| Greece-Bulgaria-Serbia-Hungary | 4.12 | 8.5 |
| Turkey-Bulgaria-Serbia-Hungary | 8.85 | 8.5 |
Source: REA
But are there any challenges?
The Croatian route, while cheapest, currently only offers around 1.7-1.8bcm/yr of capacity. While Croatia has recently expanded its LNG technical capacity from around 3bcm/yr to 6bcm/yr (following installation of a new regas unit), the terminal’s ability to send gas into the network remains restricted until additional pipeline infrastructure is completed. Earlier this year, Croatia’s gas transmission operator (Plinacro) secured EU funding to build four gas pipelines that will connect gas from the Krk Island LNG terminal to Slovenia, Hungary and other countries in Southeastern Europe. It is expected that cross-border capacity between Croatia and Hungary will increase from 1.7bcm/yr to 3.5bcm/yr. Already, Hungary is banking on the timely construction of the pipeline expansion as Hungary’s MVM signed a 10-year contract with Shell to receive 0.2bcm/yr of LNG through Croatia’s terminal starting from 2026. The deal adds to an existing six-year agreement with Shell for 0.25bcm/yr of LNG through the same terminal until late 2027, bringing Hungary’s total contracted volume to around 0.5bcm/yr. Croatia’s growing midstream interconnectedness offers some opportunities, in our view, for Conoco to either conduct offtake negotiations with MVM or book regas capacity at Croatia’s terminal.
What about Romania? The Romanian route offers around 2.6bcm/yr of capacity, of which around 60% is currently in use. That leaves around 1bcm of spare capacity. While Romania exported around 1.6bcm of gas to Hungary in 2024, export volumes are unlikely to grow until gas production increases with the Neptun deep project. Operated by OMV, first gas from the project is expected in 2027 and production is expected to reach a peak of 8bcm/yr at plateau. Hungary and Romania plan to expand cross-border capacity from 2.7bcm/yr currently to around 3.5bcm/yr by Q226 and later up to 5bcm/yr in the late 2020s.
In our view, given the lower transportation costs of the Croatia-Hungary route and Hungary’s reluctance to by over-reliant on Romanian volumes, we expect there is still opportunity to strike offtake deals with MVM via the Croatian terminal.
Austrian and Serbian routes are costlier alternatives
After Croatia and Romania, the next best alternative for Hungary is via Austria, with gas sourced from either Germany or Italy. While the Serbian route from Turkey is currently the most expensive, it does offer the largest available capacity. REA understands that MVM are discussing with Turkey over whether exit fees by the Turks can be reduced, but it remains unclear if this will happen. Any reduction in transit fees could be offset by Turkey’s wave of gas renegotiations it is currently involved with, particularly two pipeline contracts with Gazprom and another with National Iranian Gas Company (NIGC). Turkey – like China – is using its menu of LNG options to put pressure on Gazprom gas pricing to secure a better deal.
What about Slovakia?
As previously mentioned, Slovakia remains heavily reliant on delivered Russian gas volumes. Of Slovakia’s 3.6bcm of gas demand last year, around 70% was supplied by Russia. For Slovakia, the cheapest alternative to Russian gas is to source gas via Poland which offers enough cross-border capacity to cover Slovakia’s gas needs.
The key bottleneck however remains Poland’s LNG capacity. Currently, the country’s LNG terminal has been operating at a high utilisation of around 90% (based on current capacity of 8.3bcm/yr).
Of note however, Poland plans to expand its LNG capacity with a 6.1bcm/yr floating storage and regas unit (FRSU) in Gdansk, scheduled to begin operations in early 2028. This addition will raise Poland’s total LNG capacity to 14.4bcm/yr starting from 2028 – coinciding with the phase out plans for Russian gas.