Austrian election puts Russian gas habits and a sputtering economic in focus

After the general elections on Sunday, the government in Austria that comes to power will be under increasing pressure to diversify their energy supply and move away from dependence upon Russian gas. This is happening at a time when Austria's economy is in reverse.

A majority is not expected from any party. Opinion polls show that the far-right Freedom Party (FPO), which is friendly to Russia, has a slight lead. This could affect the speed of energy transition.

Since Moscow invaded Ukraine 2022, the European Union is moving to replace Russian gas imports. Alternative energy sources tend to be more expensive. This is in addition to the costs already raised by the impact of inflation and war.

Austria has become one of the countries most dependent on Russian gas in the EU. In the last two years, Austria's inflation rate has exceeded the EU average. At the same time, the Austrian economy has contracted, due to a decline in Germany, its largest trading partner, who is struggling with energy transition and the competition from China.

Stefan SchimanVukan is a senior economist with the Austrian Institute of Economic Research. He said that other countries were not happy about Austria's continued consumption of Russian gas.

The political pressure is great to pull out.

Austria's Green-run energy minister wants to speed up the process. The EU has pledged to phase out Russian gas in 2027. Austria imported 83% of its gas in July. In 2023, the EU's gas imports from Russia will be down to 15%.

Greens, the junior government players, have been leading efforts to tap into alternative supplies. The Greens' partner, the conservative Austrian People's Party of Chancellor Karl Nehammer (OVP), also promised to wean Austria off Russian gas.

The energy ministry pointed out that Austria has taken steps to become independent from Russian gas on a long-term basis, pointing to the supplies coming from Norway and other sources. It also noted the country's sufficient capacity to import non-Russian gases via Germany and Italy and its large gas storage facility was more than 90% filled.

The ministry issued a statement saying that Austria's high dependency on Russian gas is a significant economic and security threat. It is essential to the security of our country that we reduce our gas consumption further and stop purchasing Russian gas.

FPO: Russian gas should remain in Austria's energy mix despite its decreasing lead.

Opinion polls indicate that the FPO is supported by around 27-29% of voters. Its lead over OVP has slipped to just one point, and three other parties are expected to gain close to or above 10%.

Other parties have refused to serve under Herbert Kickl as leader of the FPO, which may open up the possibility for coalitions that are more determined to distance themselves from Russia. It appears that the OVP will be a major part of a coalition formed after the elections.

The central bank predicts that the economy will contract by 0.7% in this year. This will be the second consecutive year of contraction.

DIVERSIFICATION

Diversification of energy sources is gaining momentum.

Wien Energie, Vienna's largest power company, announced this month that it will stop using Russian gas by 2025.

The risk of an energy shortage has been looming since Ukraine announced it would not renew a deal that expires at the end 2024 with Gazprom, which transits Russian gas into Austria.

Walter Boltz (former head of the utility regulator E-Control) said that a sudden end to Russian gas supplies could cause wholesale gas prices to rise by 20% in two to six month's time.

Austria can manage, officials say, pointing to a recent government-commissioned study that states imports through Italy and Germany, as well as its reserves, could cover its needs.

Politicians want to boost demand or find additional resources to boost the economy. FPO and OVP have pledged tax cuts. The centre-left Social Democrats are third in the polls and propose wealth and inheritance taxes.

Gunter Deuber is chief economist of Raiffeisen Bank International. He said that Austria is a prime example of the consequences of high inflation. If you are not competitive in terms of wages and costs, then people will stop investing. It becomes less attractive to manufacture in Austria.

(source: Reuters)