Hungary, Serbia, Turkey haggle over Russian gas as Europe's winter squeeze tightens

Russia's last pipeline gas customers in Europe are haggling over price and terms as the continent's storage drains at a record pace and prices top $1,000 per 1,000 cubic metres.

Hungary's Prime Minister Peter Magyar said his government does not consider Russian gas cheap, with transit making up a large part of its cost, and that Budapest keeps shopping for alternatives to get the best price, which he said strengthens its hand in negotiations, TASS reported on November 11. In May he had told Poland's Rzeczpospolita that he expected the whole EU to go back to cheaper Russian gas once the war in Ukraine ends.

The buyers are weighing their options as the EU prepares to end Russian gas imports. The EU's ban is set to cut Russian gas sales to the bloc by 30bn cubic metres in 2027, according to the International Energy Agency, which leaves Gazprom (MOEX: GAZP) more dependent on the TurkStream route and the customers at the end of it: Turkey, Serbia and, until the EU deadline, Hungary. Each of them is now using that dependence to push on price or contract length, while Europe's own gas crisis keeps Russian molecules valuable.

The heating season in Europe began as gas injections flipped to withdrawals in the first week of November and immediately saw Europe's gas withdrawals hit record highs as Gazprom's deliveries to Turkey nearly quadrupled.

Hungary has a deadline

Hungary gets most of the gas it burns from Russia through TurkStream and its branches across Bulgaria and Serbia. The ban leaves Budapest no long-term option: Economy and Energy Minister Istvan Kapitany said on September 18 that the government would be ready to stop using Russian gas by October 2027, the EU deadline, TASS reported. The deals signed so far cover about 12% of demand, and Foreign Minister Anita Orban has pinned hopes on more US LNG after signing a non-binding agreement with Washington on October 29.

Magyar took the same message to Berlin on November 10, where Chancellor Friedrich Merz offered access to Germany's LNG infrastructure. His Tisza party's election platform promised to end energy dependence on Russia by 2035, eight years later than Brussels now demands.

Serbia wants a long deal

Serbia, outside the EU and not bound by its ban, wants the opposite: a long contract. Talks on future supplies and a long-term deal are continuing and Moscow remains committed to all its earlier agreements, Foreign Minister Sergei Lavrov said at a meeting with Aleksandar Vulin, chairman of the supervisory board of state gas company Srbijagas, TASS reported. Vulin said in Moscow last week that he would ask every senior Russian official he met to back an extension of the supply deal.

Belgrade has lived on short extensions since Moscow refused Aleksandar Vucic a three-year contract last year, and the Student List movement that won the October 25 election has also called for a multi-year deal.

Turkey is buying more, and complaining

Turkey's purchases are rising even as Ankara complains. Gazprom's operational data show deliveries to Turkey in the first five days of November were almost four times those of the same period in October or September, and October's total was 78% above September's. Yet Energy Minister Alparslan Bayraktar said on November 5 that Russian gas is too expensive, eight weeks before two Gazprom contracts covering 22bn cubic metres a year expire.

Europe's squeeze

The bargaining is taking place against Europe's worst winter start for gas in years. Europe's underground storage was 72% full on November 9, 17.26 percentage points below the five-year average for the date and down from 82.55% a year earlier, according to TASS calculations based on Gas Infrastructure Europe data. Sites peaked at only 74.96% this autumn, short even of the 80% target the European Commission had been ready to accept, and 4.15bn cubic metres has been withdrawn in the 13 days since, 2.1 times the five-year average for the period.

December TTF futures in the Netherlands traded at $1,002.59 per 1,000 cubic metres on November 11, back above $1,000 for the first time since November 5, TASS reported, citing ICE data. Gazprom chief executive Alexei Miller has said prices could reach $2,500 in a cold winter, and Putin has suggested $1,500. Higher energy prices have cost the EU €127bn since the start of the year, up from €106bn in mid-October, European Commission President Ursula von der Leyen said. Equinor chief executive Anders Opedal said this year's low reserves leave Europe more exposed this winter than in earlier years.

The gas crisis that began with the closure of the Strait of Hormuz has kept prices high into winter, and it is shaping every one of these talks. The EU's ban on Russian LNG under long-term contracts starts on January 1, 2027, short-term contracts have been banned since April, and pipeline gas must stop by September 30, 2027, with an extension to November 1 for countries that have not filled their storage. Hungary has 23 months to replace most of its supply; Serbia and Turkey, outside the ban, have every reason to wait for Moscow to blink.