Banning russian natural gas would increase heating costs for hungarian families by three and half times

Planned sanctions would double energy prices in Europe

Before the outbreak of the Russia-Ukraine war, Russia supplied more than 40% of the EU’s natural gas. As a result of the trade conflict emerging in the wake of the war, this share fell to below 20% by 2024, doubling the average price of natural gas on the benchmark Dutch exchange. The European Commission’s new strategy would completely ban Russian natural gas imports into the EU by the end of 2027, which would result in a negative shock similar to previous ones. According to the calculations by Századvég, assuming a linear price effect, such a reduction in supply would roughly double current prices, from EUR 35/MWh to almost EUR 70/MWh. It is important to note that, as the price explosion in 2022 has shown, large supply shocks often trigger other unexpected processes, such as speculation, which can cause prices to rise beyond linear trends, meaning that the Brussels plan could easily result in a price explosion even greater than the above estimate.

The burden on Hungarian families would increase dramatically

The resulting price pressure would significantly worsen the situation of the Hungarian economy. Hungary imports 4.5 billion cubic metres of Russian natural gas a year under its long-term natural gas contract, which accounted for more than half of total domestic consumption last year. With the increased prices, alternative procurement of this volume would increase domestic energy costs by approximately HUF 660 billion. However, significant additional natural gas quantities also arrive in Hungary from Russia.[1] If the entire annual import volume of 7.5 billion cubic meters were to be lost, the additional expenditure would amount to approximately HUF 1,100 billion.

Under such conditions, the competitiveness of the Hungarian economy would decline significantly, and the overhead cost reduction policy would become unfinanceable. Thanks to the official price regulations that form the basis of the programme, Hungarian families now pay the lowest prices in the EU:[2] an average household spends HUF 176,900 per year on heating. If the protective net were not in place, and the current stock market natural gas prices were applied to the rates, the amount would rise to HUF 355,310. Furthermore, if Brussels’ plans are implemented, market prices would double and be freely reflected in household energy bills, which would increase the average Hungarian family’s annual heating bill by three and a half times to HUF 625,000.

The European Commission’s action is particularly worrying given that the war and sanctions have already placed an extraordinary burden on Europeans. According to Századvég estimates, energy price increases since 2022, the loss of export markets, and the rising cost of funding have already cost the average Hungarian household HUF 2.2 million. The existing costs would increase by HUF 458,000 per year as a direct result of Ukraine’s accelerated accession, while the new target of banning Russian natural gas would result in additional expenditure of HUF 448,000 on average. It can therefore be stated that Brussels’ three highest priority objectives (arming Ukraine, accelerating its accession to the EU, and banning Russian energy) would place an unbearable burden on Hungarian families.