Slovakia: natural gas supply diversification with a government misunderstanding

Slovakia has condemned unequivocally Russia’s attack on Ukraine and is now consistently in favour of introducing an embargo on the import of energy resources and oil products from Russia. The country’s high dependency on natural gas supplies necessitates the creation of a more diversified structure of imports, which, however, in current market conditions, will be a serious challenge. The public statement of the Slovak deputy prime minister and minister of the economy, Richard Sulík (SaS), in which he allowed the purchase of Russian natural gas in Russian rubles, came in opposition to these actions. This has been criticized both by his own political community and by other government coalition representatives.

Plans and opportunities of natural gas supplies diversification. The energy situation in Slovakia in the context of an attempt to become independent from Russian natural gas supplies is extremely difficult, as almost 100% of the demand is met by deliveries coming from the East (85% directly via Ukraine, and 15% from the Czechia, which is still mostly from Russia). Therefore, a problem for Slovakia may be the transit suspension of supplies from Russia via the territory of Ukraine. This situation, due to the ongoing military operations, may occur at any time.

Importantly, in the case of Slovakia, the mere limitation of supplies will mean not only problems with providing heat to households, but most of all, problems with the functioning of enterprises. In this country, natural gas is used in industry (approx. 30%), mainly for the production of oil products at the Bratislava refinery, as well as for the production of chemical fertilizers and steel. Currently, there is a contract between SPP (Slovenský plynárenský priemysel a.s.) and Gazprom Eksport in force until 2027 for the supply of natural gas (6.5 bcm per year), as well as a contract between Eustream a.s. and Gazprom.Export for gas transit (50 bcm), which will also end in 2027.

There are few solutions to fill the gap left by Russia, or for building natural gas supplies diversified structure. Currently, it is possible to import this commodity from Czechia (point in Lanžhot) – and this route is used frequently. Nevertheless, the source of the supplies is largely Russia, which provides the natural gas to Czechia via the Nord Stream 1 gas pipeline. Deliveries can also be provided from Austria (point in Baumgarten) and Hungary (point in Veľké Zlievce). The key project for diversification will be the Poland-Slovakia interconnector (Strachcina-Veľké Kapušany), which is to be put into operation in mid-2022 (transmission capacity to Slovakia is expected to be 4.7 bcm per year). The natural gas pipeline and connection with Poland would enable Slovakia, which has no access to the sea, to import natural gas from the LNG terminal in Świnoujście. So, it would be a real diversification, not only a technical one.

Slovakia is also considering replacing Russian natural gas by increasing domestic production (limited capacity) and biogas production. High hopes are connected with the second of these solutions, which could provide up to 10% of the domestic demand for this commodity. Nevertheless, as in the case of domestic production, the problem is the time needed to start up the appropriate installations, which will not happen quickly. Under these circumstances, Slovakia will accept an embargo as long as the EU guarantees the supply of natural gas under a joint purchasing mechanism which is currently under development.

Slovakia (not) open to fees for natural gas in Russian rubles. In connection with the already imposed sanctions (see “IEŚ Commentaries”, no. 539 and “IEŚ Commentaries”, no. 540), Russia is trying to counteract the unfavourable trends, and one of the manoeuvres is an attempt to persuade European companies to pay for gas in Russian rubles. The relevant decree was signed by Vladimir Putin at the end of March 2022 (from April 1, 2022). In this way, the Russian authorities are trying to minimize the effects of imposed economic sanctions, inter alia, by EU countries and save their own currency.

On April 3, 2022, on the air of the public television RTVS, Richard Sulík, Deputy Prime Minister and Minister of Economy of Slovakia, stated that paying for natural gas in Russian rubles is one of the options that the Slovak side is currently considering. According to him, Slovakia cannot be cut off from Russian gas, as this would pose a threat to the country’s energy security. Sulík said in the interview that he supports the diversification of natural gas supplies but believes that it will take several years. In his opinion, there are about six weeks left to resolve the current situation (until the next invoice is due for payment, which is May 20, 2022). He is counting on the adoption of a common position on the purchase of natural gas by the entire EU by then.

Importantly, Sulík’s position has been criticized by members of the government coalition. Prime Minister Eduard Heger (OĽaNO) stated that Slovakia would not break out and that it would follow the arrangements of other EU countries when purchasing natural gas from Russia. In his opinion, the unity of the EU and Russia’s compliance with the terms of the contracts relating to payments for natural gas in euro are important in this respect. Andrej Stančík (OĽaNO), MP from the government coalition, considered the words of the deputy prime minister as a great mistake, especially since it was made at a time when the public learned about further massacres committed by Russia on Ukrainian civilians. He also stated that Sulík’s speech was immediately noticed by Russian media (including the RIA Novosti news agency), which then spread it as pro-Russian propaganda.

The coalition party Za Ľudí also distanced itself from Sulík’s statements. According to her politicians, the statements of the deputy prime minister broke the common European approach to the issue of payments for an energy commodity and thus threatened the long-term security of Slovakia. According to the Deputy Prime Minister and Minister for Investments and Regional Development of Slovakia, Veronika Remišova, it is in Slovakia’s vital interest to have a common EU position on strategic issues, especially energy security.

Also noteworthy is the criticism by deputy prime minister of some important politicians in his home SaS party. Martin Klus, Deputy Minister of Foreign and European Affairs, stated in one of interview that he understood Sulík’s attitude. He is looking for solutions that could counteract the collapse of the Slovak economy. Klus, however, found the words about paying for natural gas in Russian rubles unfortunate because, in his opinion, they undermined the unity of the EU. He also negatively assessed the fact that it was Slovakia that was the first to break out of the common EU policy in this respect. A similar position was also expressed by Klus’ superior, Ivan Korčok, the minister of foreign and European affairs, and some members of the SaS. In internal party discussions, Sulíkov was ordered to remain silent on foreign policy issues. It was also indicated that these issues should be dealt with by people who are “more familiar with the subject”.

A surprising stance on the deputy prime minister’s statements was taken by the chairman of the opposition Hlas-SD party, who is considered to be pro-Russian, Peter Pellegrini. He called on Sulík not to agree to the purchase of natural gas in Russian rubles, as it could harm Slovakia during the negotiations on the joint purchase of this commodity at the European level. He also raised concerns about paying for natural gas in Russian rubles. According to Pellegrini, currency conversion by the Russian side could be carried out at a very unfavourable exchange rate for Slovakia. In his opinion, this would cause a further increase in the price of purchased natural gas. By the way, the leader of Hlas-SD criticized the government for its lack of action to mitigate the significant increase in electricity prices in Slovakia.

Conclusions

• The controversial position of the deputy prime minister and minister of the economy, Richard Sulík, was not previously reviewed by other members of the government and was criticized in solidarity by politicians representing the parliamentary majority. This is another unfortunate statement by this important Slovak politician. In the past, he undermined support for extending EU sanctions against Russia. He also publicly stated that Crimea is irrecoverable for Ukraine.
• The government coalition is of the opinion that Slovakia cannot act on its own when it comes to purchasing natural gas from Russia. According to the ruling party, a common position of the entire EU is necessary. At the same time, it should be noted that energy security and related energy prices (including electricity) may soon become an important element of public debate in Slovakia. Therefore, further disputes within the coalition and between the government and the opposition cannot be ruled out.