Central Europe makes progress towards energy independence

• Ample natural gas storage levels, strong efforts to reduce energy consumption, and accelerated electrification initiatives helped the Visegrad region (the Czech Republic, Hungary, Poland and Slovakia) avoid energy shortages in the 2022/23 winter.

• Within the central European region, Poland and Czech Republic have made the most progress towards diversifying energy imports away from Russia, while Slovakia and Hungary are lagging behind.

• Despite progress in diversifying gas imports, the region lacks a cohesive strategy to reduce dependencies on supplies of Russian crude oil and nuclear fuel. These are much harder to diversify owing to legacy infrastructure dependencies.

Energy security in the Visegrad countries has strengthened significantly since Russia’s invasion of Ukraine, with gas storage levels well above the EU’s recommendation of 80% ahead of the next winter heating season (2023/24). However, imports of other energy sources such as oil and nuclear fuel remain high as diversification would require substantial investment to reduce dependency on Russia.

In terms of natural gas, Poland and the Czech Republic are well ahead of the others

Poland has long been well ahead of other EU countries in diversifying its energy mix, opening its first liquefied natural gas (LNG) unit as early as in 2016 in Swinoujscie on the Baltic coast. It is currently receiving gas shipments from Qatar and the US, under long-term contracts, complementing auxiliary deliveries secured via the spot market. According to PKN Orlen (a Polish energy firm), LNG’s share in total gas imports increased from 24% in 2021 to 43% in 2022, while the share of Russian gas decreased from 61% prior to the outbreak of war to near-zero levels currently. The Baltic Pipe, which carries gas from Norway to Poland, was commissioned in November 2022, with capacity at about 10bn cu metres of gas per year, enough to meet the country’s gas demand.

The Czech Republic has managed to reduce its dependence on Russian gas dramatically, from 97% prior to the invasion to just 4% this summer. The country did not import any gas from Russia in the first quarter of 2023, pivoting towards Norwegian gas transported through German pipelines, and shipments of LNG via ports in Belgium and the Netherlands. Neighbouring Slovakia still imported about 60% of its gas supplies from Russia at end-2022, despite having started diversification talks with Lithuania as well as Italian and German companies, and signing a Memorandum of Understanding with Poland for more gas supplies via its new interconnector. Hungary’s diversification progress remains limited, with the country importing over 80% of its gas supplies from Russia, and the government choosing to take advantage of continued close ties with the Kremlin rather than pursuing the costly and lengthy process of diversification.

Oil and nuclear fuels are much harder to diversify

Hungary, the Czech Republic, and Slovakia are still heavily reliant on Russia for crude oil. All three received a temporary exemption from the EU embargo on Russian oil imports—until end-2024 for Hungary and Slovakia and June 2024 for the Czech Republic—but it is unlikely that they will meet this deadline. In the Czech Republic and Slovakia, oil refineries are mostly suited to process Russian crude oil, and will require significant investment to ensure compatibility with other, sweeter grades. EIU does not expect this to occur until 2025 at the earliest, in line with the expansion of the Transalpine Pipeline (TAL). In the case of the Czech Republic, imports of Russian oil have actually increased this year to take advantage of heavily discounted prices for Urals grade oil. Hungary has flat out rejected the EU’s 2024 deadline, calling it unacceptable. Only 10% of Poland’s total oil imports come from Russia, with its contract with Russia’s Taftnet set to expire by end-2024. 

In terms of nuclear fuel, the situation is more critical. Legacy Soviet nuclear reactors still rely on Russia’s Rosatom for nuclear fuel. Diversification requires capital-intensive investments into new technology and a long regulatory approval process. The Czech Republic has six Soviet-era reactors, Slovakia four, and Hungary one, necessitating exceptions from flight bans from the EU and Russia to fly in fresh nuclear fuel. Nevertheless, the process is already under way, with the Czech energy giant CEZ securing nuclear fuel from a US supplier, Westinghouse, for its Dukovany plant, while the major Slovak energy firm Slovenske elektrarne has signed supply contracts with both Westinghouse and France’s Framatome.

What next?

The Visegrad region will be put under more pressure in the coming years to place sanctions on imports of Russian oil and nuclear fuel. In Slovakia the potential for a nationalist populist government after the September 30th election could slow down the country’s progress on energy diversification away from Russia, although our core forecast is still for a centrist government to be formed. Hungary will continue to leverage its cosy relations with Russia by arguing that oil and gas imports from Russia are vital to Hungary’s energy security, despite continued criticism from its neighbours. The Czech Republic will advance its diversification measures, but will not hesitate to continue oil imports from Russia in the meantime. Poland is practically at the end of the process, having nearly completely diversified its energy sources away from Russia.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.