The new government in Austria, following the general election on Sunday (September 29), will encounter increasing demands to diversify its energy sources away from reliance on Russian gas, especially as the economy struggles to gain momentum.
No party is anticipated to secure enough seats for a clear majority. Opinion polls suggest a slight advantage for the opposition far-right, pro-Russian Freedom Party (FPÖ), and the outcome could impact the pace of the energy transition.
Since Moscow’s invasion of Ukraine in 2022, the European Union has worked quickly to replace Russian gas imports. However, alternative energy sources tend to be more expensive, contributing to costs that have already been driven up by pandemic-related inflation and the ongoing conflict.
Addict to Russian gas
“Other countries are concerned that Austria continues to consume such significant amounts of Russian gas,” stated Stefan Schiman-Vukan, a senior economist at the Austrian Institute of Economic Research.
“The political pressure to withdraw from it is high.”
The EU has pledged to eliminate Russian gas by 2027, and Austria’s Green-led energy ministry aims to speed up this transition. However, as of July, Austria was still sourcing 83% of its imported gas from Russia. In contrast, the share of EU gas imports from Russia dropped to 15% in 2023.
The Greens, who are junior partners in the government, have spearheaded initiatives to explore alternative energy supplies. Their coalition partner, Chancellor Karl Nehammer’s conservative Austrian People’s Party (ÖVP), has also committed to reducing the country’s dependence on Russian gas.
Highlighting supplies from Norway and other sources, the energy ministry stated it has taken measures to achieve long-term independence from Russian gas. It noted that Austria has adequate import capacity for non-Russian gas through Germany and Italy, and that its extensive gas storage facilities are over 90% full.
“The high dependence on Russian gas supplies is a major economic and security risk for Austria,” the ministry said in a statement. “It is therefore essential for our country’s security to further reduce gas consumption and stop buying Russian gas.”
The FPÖ says Russian gas must remain part of Austria’s energy mix, although its lead is narrowing.
Opinion polls indicate that support for the FPÖ is around 27-29%, with its lead over the ÖVP narrowing to as little as one percentage point. Additionally, three other parties are expected to secure close to 10% or more.
The other parties have declined to align with FPÖ leader Herbert Kickl, potentially paving the way for coalitions more dedicated to distancing themselves from Russia. Currently, it seems very likely that a post-election coalition will include the ÖVP.
Whoever takes charge will need to contend with an economy that the central bank predicts will decline by 0.7% this year, marking a second consecutive year of contraction.
Diversification
Efforts to diversify energy supply are gathering pace.
Vienna’s main power company Wien Energie said this month it would ditch Russian gas from 2025.
However, the threat of an energy crisis has been on the horizon since Ukraine announced it would not renew a deal with Gazprom, set to expire at the end of 2024, which facilitates the transit of Russian gas to Austria.
A sudden halt to Russian supplies could potentially increase wholesale gas prices by around 20% for a period of two to six months, according to Walter Boltz, former head of the utility regulator E-Control.
Officials assert that Austria can cope, citing a recent government-commissioned study that indicates imports from Italy and Germany, along with its reserves, could meet the country’s needs.
Politicians are keen to stimulate demand and discover additional resources to boost the economy. The FPÖ and ÖVP are promising tax cuts, while the center-left Social Democrats, currently polling in third place, are advocating for wealth and inheritance taxes.
“Austria serves as a prime example of the consequences of high inflation and its negative impacts,” said Gunter Deuber, chief economist at Raiffeisen Bank International. “When costs and wages become uncompetitive, people cease to invest, making Austria a less attractive place for production.”
