Slovakia and Hungary Seek Azerbaijani Gas Swap as Storage Deficit Deepens

Slovakia and Hungary are negotiating to buy Azerbaijani gas that would be physically injected into Russian pipeline infrastructure and shipped through Ukraine, a workaround the two countries are pursuing after Ukrainian transit of Russian gas ended on January 1. Both countries sourced 65% of their supply through Ukrainian transit as recently as 2023, and neither has a straightforward alternative. The stakes are high enough to force the discussions. European gas storage stood at 36.3% of capacity on May 16, down from 43.64% on the same date a year earlier, according to AGSI data. TTF futures traded at $49.50 per MMBtu on Tuesday. The Strait of Hormuz closure in early March has blocked Qatari LNG that normally accounts for 12% to 14% of EU imports, compounding a deficit that predates the Gulf crisis. The core problem with the swap is supply arithmetic. Azerbaijan exported 12 bcm to Europe via the Southern Gas Corridor in 2023, and an EU-Azerbaijan memorandum sets a target of 20 bcm annually by 2030. But the corridor already operates near capacity. Between November 2022 and March 2023, Azerbaijan itself imported up to 1 bcm of Russian gas to cover domestic demand and honour existing export commitments—a fact that undermines the credibility of any nominally Azerbaijani volumes moving west through Russian pipes. Reaching 20 bcm requires upstream investment and pipeline expansion that has not been built. The gap between the target and physical capacity is where the swap arrangement runs into trouble, because the gas would need to exist before it can be swapped. Ukraine is the harder obstacle. Kyiv has said it will not permit Russian gas to transit its network under any arrangement, including swaps. Ukraine collected roughly $5 billion annually in transit fees—about 0.5% of GDP—before the agreement expired, but has held firm on the principle. The only alternative overland route runs through Turkey's TurkStream pipeline, which has limited spare capacity to absorb the volumes at stake. Russia's financial interest in a resolution is clear: EU assessments put the annual revenue loss from the transit halt at $6.5 billion. Russian pipeline gas fell from 40% of EU supply before the 2022 invasion to 6% by 2025, as Europe tripled U.S. LNG imports. A swap arrangement would partially restore transit revenue while allowing both sides to maintain the fiction of Azerbaijani gas—which is precisely why Kyiv has ruled it out. Winter 2026-27 supply contracts typically close by September, which sets the practical deadline for any deal. If the swap fails, Austria, Hungary and Slovakia face higher LNG import costs or outright supply gaps heading into next heating season. Europe needs roughly 130 LNG cargoes per month through October to reach 80% storage by November 1—about 10 more per month than last injection season—which will keep TTF and JKM under upward pressure regardless of how the Central European negotiations resolve. The next concrete signal will come from Azerbaijani state energy company SOCAR and Slovak transmission operator Eustream. Any formal announcement would require explicit Ukrainian government approval, making political developments in Kyiv the variable to watch.