Slovak Prime Minister Robert Fico made a surprise trip to Moscow on December 22 to hold rare face to face talks with Russian President Vladimir Putin, as he seeks to secure gas deliveries ahead of the end of the Ukrainian gas transit deal next week, which the International Energy Agency (IEA) warns could spark a new energy crisis.

Fico said in a Facebook post the discussion with Putin included "exchanging views on the military situation in Ukraine, the possibility of an early peaceful end to the war, and mutual relations between the Slovak Republic and the Russian Federation, which I intend to standardise."

Kremlin spokesperson Dmitry Peskov described the meeting as a "working visit" and included a formal meeting and a photo opportunity with Putin.

The Slovak leader said the trip was prompted by Ukrainian President Volodymyr Zelenskiy’s recent remarks opposing gas transit through Ukraine to Slovakia, where he claimed that the EU was funding Russia’s bloody war in Ukraine by buying Russian gas.

Fico claimed Putin "confirmed Russia's readiness to continue supplying gas to Slovakia," though he acknowledged that any agreement would depend on Kyiv’s stance.

Gas business

Despite repeated calls for the end of the trade, Europe remains hooked on Russian gas and this year, the imports have actually increased from 15% of the total imports at the start of the year to overtake the US in recent months and become Europe’s biggest supplier accounting for 21.2% now, ahead of the United States (19%) and second only to Algeria (21.6%) in November.

According to Reuters calculations, Gazprom's total pipeline gas exports to Europe via all routes in 2024 have increased to 32 bcm from 28.3bcm in 2023, when they collapsed to the lowest level since the 1970s.

EU countries paid €701.5mn for Russian LNG in September, up by 28% month-on-month and by 26% y/y. This is the highest amount since November 2023, when €719mn was spent on payment for supplies of Russian LNG. The main buyers were France (€366mn), Spain (€141.5mn) and the Netherlands (€93.6mn).

In September, the EU also imported Russian pipeline gas worth € 547.8 million in October, the highest level since June 2024. Among the leading purchasers were Hungary (€231mn), Greece (€150mn) and Slovakia (€124mn).

In all, the European Union paid €1.3bn for Russian gas in October, up 6% month-on-month and up 21% y/y. The share of gas supplies from Russia in the total volume of Europe’s gas imports from countries outside the Union stood at 21.2%, compared to 23.76% in September.

In January-October 2024, the European Union paid over €6bn for Russian pipeline gas and €5.7bn for Russian LNG. Ukraine still earns $0.8-$1 billion in transit fees per year from Russian gas transit.

Gas continues to enter Europe via the TurkStream pipeline in southeastern Europe, the Ukrainian pipelines that transmit some 15bcm of gas a year – a bit less than half the pre-war volumes – and an increasing amount of LNG, either delivered to European ports or re-sold by Asia when demand is less than expected.

This year, the EU has gradually increased the share of Russian gas in total gas imports as it comes under pressure due to colder-than-expected weather. Europe’s gas tanks were emptying faster than expected as the heating season got underway at the start of December. The level of gas storage on December 1 was 85.5% full as of December 1, having peaked at 95.3% full on October 29, down about ten percentage points from the 94.8% and 92.3% on the same day in 2023 and 2022, according to Gas Infrastructure Europe (GIE).

Russian gas deliveries to Europe have slumped since the start of the war in the first quarter of 2022, with Russia’s share of total gas imports falling from 34% -- making Russia the largest supplier with Norway in second place with 25% -- to 14% in the second quarter of 2023.

However, in the first quarter of this year, the share of Russian gas grew again to 19%, as countries like Germany struggle to find alternative sources of energy. Today Russia is only behind Norway (34%) and the US (20%). Among the largest buyers of piped gas are Austria, Slovakia, and Hungary that have received exemptions from the ban on importing Russian gas as they remain so dependent on it.

In addition, the volume of Russian LNG arriving in Europe has been growing steadily. Spain, France, Belgium, and the Netherlands import Russian liquefied natural gas by tanker. Some of it is mixed with gas from other sources in the European pipeline network and then arrives in countries like Germany via the backdoor, despite their pledged to end direct imports from Russia.

Countries like Turkey have proposed setting up a gas hub as a long-term solution to Europe’s shortage of gas that could handle some 100bcm a year, about two-thirds of the pre-war Russian exports to Europe. More recently, Ukraine and Poland announced plans to create an Eastern European gas hub that will replace the transit of Russian gas for Europe. Further down the road, the change of regime in Syria has reignited plans for a pipeline from Qatar to Europe that could transform Syria into a major energy hub.

In the meantime, Hungary has become a trading centre for Russian piped gas coming into the EU, while Belgium, France and Spain are the centres for Russian LNG shipped to Europe.

Russia's overall gas exports despite the stoppage of flows from Gazprom to Austria's OMV in mid-November over a contractual dispute, and legal wranglings as other buyers stepped in to buy the volumes. Austria still receives most of its gas via Ukraine, while Russia accounts for around two-thirds of Hungary's gas imports. Slovakia takes around 3 bcm from energy giant Gazprom per year, also about two-thirds of its needs. The Czech Republic almost completely cut gas imports from the east last year, but began taking gas from Russia in 2024.  

In October, the country's Foreign Minister Péter Szijjártó announced that Hungary would increase its annual gas imports from Russia by more than 2bn cubic metres per year. Under a long-term gas contract signed in 2021, Hungary already purchases 4.5bn cubic metres of gas from Gazprom per year. The country's gas demand is about 8.3bn cubic metres per year, but last year 17bn cubic metres passed through the country, establishing its growing transit role.

End of the Ukraine transits

Ukraine has promised to stop the transit of Russian gas beginning January 1, 2025, causing a major headache for the Central European customers, who are scrambling to find alternatives. Zelenskiy said on December 23 that he would be open to continuing gas transits but on condition that Russia is not paid until after the war – a condition the Kremlin is unlikely to accept. 

If the contract for the transit of Russian gas through Ukraine is not extended at the end of the year, the volume of Russian-supplied gas to the EU will be reduced by 50% next year, Bloomberg notes.

According to the head of the Gas Transmission System Operator of Ukraine (GTSOU), Dmytro Lippa, Slovakia will guarantee daily supplies of 42mn cubic metres of gas a day to Ukraine – the amount that currently transits Ukraine -- until the end of winter 2026. With this, Ukraine receives trunk access to gas from Germany, the Baltic Sea basin, and other sources.

"This means that, if necessary, Ukraine can receive the necessary gas volumes," Lippa said as cited by UBN. In addition, the GTSOU is in the final stage of negotiations with the Polish GTS operator Gaz System SA regarding the provision of guaranteed supply capacity from Poland, Lippa added.

However, as the end of the transit deadline looms, no deal has been closed. Another plan to swap Azeri gas for Russian gas and deliver it to Europe via Ukraine is also being discussed, but that deal has not been closed either. Slovakia's largest gas company, the state-owned Slovensky plynarensky priemysel (SPP), concluded a pilot deal with Azerbaijani national gas company Socar in November. But a senior source at Azeri energy company Socar told Reuters on December 20 that Moscow and Kyiv have failed to agree on the deal brokered by Azerbaijan to continue Russian gas exports to Europe via Ukraine.

With no realistic solution on the table, Slovak, Hungarian, Austrian and Italian groups signed a declaration backing continued gas transit through Ukraine on December 17 to get through 2025 until a solution to the energy shortage is found.

Slovakia says it is conducting "very intense" negotiations to extend the transit agreement. Slovakia would be hit hardest from the halt in gas flow, as it relies on Russian supply through Ukraine to cover roughly 60% of its demand.

Gas prices in Europe have already risen by 45% this year, according to Bloomberg, due to a cold snap and growing fears of a shortage. Europe can get through the current heating season using stored reserves, but the winter of 2025–2026 may be difficult, experts believe. At normal temperatures this winter, Europe may end the season with storage facilities filled at 45-55%, which is lower than in past mild winters (about 60%). And in the event of a colder winter, reserves may decrease to 35%.

And Russia is keen to sell as much gas as it can to Europe. Gas production in Russia in January–October 2024 increased by 8% y/y to 578bcm, Vedomosti reported at the start of December, much of which it uses domestically. Most of the increases were by Gazprom which produced 370bcm, followed by LNG producer Novatek which increased production in January–October by 5% y/y to 68.4bcm.

EU leaders unhappy with the visit

EU leaders were unhappy with Fico’s unsanctioned visit to the Russian capital, but few condemned it publicly. Fico’s trip follows on from an earlier solo “peace mission” by Hungarian Prime Minister Viktor Orban to meet Putin in July, just after he took over the rotating chairmanship of the European Commission (EC). Fico and Orban are allied in their support of Russia in defiance of most of the rest of the EU. Orban was blasted for his “freelance” diplomatic tour at the time.

Fico is only the third EU leader to meet Putin since Russia’s full-scale invasion of Ukraine began nearly three years ago. Previous visits by Austrian Chancellor Karl Nehammer, also to do a gas deal, in addition to Orban.

Serbian President Aleksandr Vucic, another Putin ally, hinted at Fico’s Moscow visit earlier in the week, warning of the backlash it could provoke among EU leaders. "I don’t have to tell you what kind of reaction [this] will cause among other European leaders from the EU," Vucic said.

Fico stated in his Facebook post that "the highest representatives" of the EU had been informed about the visit in advance. The Council of the EU confirmed that European Council President António Costa had been briefed but had declined further remarks, according to Politico reports.

The trip will almost certainly be slated by Ukrainian President Volodymyr Zelenskiy, who objected to Orban’s visit saying it legitimises Putin, who he called a “dumbass” last week and claimed he was “crazy” as he “likes to kill” in remarks made during a trip to Brussels.

Zelenskiy has ruled out extending the deal, which facilitates the transit of natural gas to Slovakia, Hungary, and other Central European countries. Putin has also indicated the contract is likely to end. Gazprom’s recently released investment plans for 2025 also fail to mention the transit deal.

Slovakia also has a commercial interest in maintaining the deal, from which it reportedly earns around $500mn annually from re-exports of Russian gas to the rest of Europe. Fico, known for his Russia-friendly stance, has promised "very intense" behind-the-scenes negotiations to extend the arrangement.

Fico’s consistent praise of Putin and Russia has drawn criticism, though the Kremlin has responded warmly, with Peskov describing an assassination attempt on Fico in May 2024 as a "great tragedy" and wishing him a "speedy recovery."