Hungarian gas: Devil or deep blue sea? | Business| Economy and finance news from a German perspective | DW | 07.12.2018
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Hungarian gas: Devil or deep blue sea?

Hungary says it wants to diversify the sources of its gas, with Polish and Croatian terminals potentially supplying US and Qatari gas. But its main focus remains Russia, as the Turkstream pipeline makes clear.

Russia provides 75 percent of Hungary's oil and 60 percent of its natural gas. Budapest, under self-defined illiberal Prime Minister Viktor Orban, has been an advocate of the expansion of Russian energy pipelines into Europe. His recent support for the Turkstream pipeline carrying Russian gas to Turkey with a planned extension to Austria via Hungary is a case in point.

A large long-term gas contract with Russia will expire in 2021, and there are several gas supply options within reach, including Romanian offshore gas and Croatian LNG.

"So it is fair to say that at least part of Hungary's future gas supply is currently at play, and decisions over the country's natural gas import mix will probably have implications across the wider CEE/SEE region (and possibly for Ukraine as well)," Hungary analyst Akos Losz told DW.

In 2017, Gazprom supplied Hungary with 7 billion cubic meters (bcm) of gas, up 21.9 percent from 2016. Gas consumption in Hungary was 10.3 bcm in 2017, according to data from the Hungarian Energy and Public Utility Regulatory Authority (MEKH).

Hungary plans to buy about 4.1 bcm of gas from Gazprom, some 40 percent of its annual gas consumption.

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"The importance of Russian energy is the main reason with which Hungary explains the necessity of keeping bilateral ties this close," Hungary specialist Peter Kreko told DW.

"But in fact, it is rather politics and private interests that drive energy deals and not the other way around. Hungary is rather increasing its dependence on Russian energy with the Paks nuclear power plant deal and the gas contracts," Kreko added.

"There are some discussions on the LNG supplies, but they are far from being serious governmental decisions and are rather favoring fossil fuels and nuclear coming from Moscow. And, despite the very good Hungarian-Russian relationship, this 'friendship' is not reflected in the price of the gas that we buy from Moscow."

Turkstream

Turkstream will extend from Russia across the Black Sea to Turkey, bringing Russian gas to European markets while bypassing Ukraine. Construction of its offshore section was completed earlier this week.

Hungarian governments had been strong supporters of Russia's South Stream project that would have shipped 63 bcm of Russian gas across the Black Sea to southern Europe and through Hungary until the project was blocked by the EU in 2014. Turkstream is part of Moscow's renewed efforts to bypass Ukraine as a gas transit route to Europe.

Turkstream project

The building of Turkstream is run with the world's largest construction vessel, Pioneering Spirit

The project is creating a "third gas corridor" in addition to the Ukrainian and Baltic Sea supply routes. Turkstream is not part of the EU's Energy Union plans as it does not contribute to diversification of supplies. Turkstream — with a final projected capacity to deliver 31.5 bcm of which 15.75 bcm would go to Europe — is a relatively small component of the wider gas supply chain to the EU, just over 6 percent of the EU's imports at 2017 levels.

One of the Turkstream pipeline's routes is expected to carry gas to Hungary from Bulgaria, via Serbia, for which Budapest has said it is ready to invest €50 million ($59 million).

Nuclear options

In 2015, Russia invested $10 billion in the expansion of Hungary's Paks nuclear power plant, which supplies about 40 percent of Hungary's electricity. Orban picked state-owned Rosatom for the expansion of the plant. The EU tried and failed to block the Hungarian deal, citing the bloc's strict procurement rules.

"Orban needs the Russian loan to boost economic demand once EU Cohesion Funds money runs out next year," Zoltan Pogatsa, an expert on Hungarian affairs, told DW. "He has brought all the EU Cohesion Funds money forward to the last couple of years from the rest of the seven-year programming period, therefore he will need another form of outside financing."

Infografik Karte stationierte russsische Truppen am schwarzen Meer EN

Viktor Orban has been vocal in his support for the Russian Turkstream pipeline

EU funds have amounted to some 7 percent of GDP each year, which has caused an average growth rate of 2.2 percent. "You can imagine what happens to growth if they disappear from one year to the next," Pogatsa points out.

Playing both ends

Two-way interconnectors with Slovakia, Croatia, and Romania have been established in recent years. Orban even declared that the interconnector allowing deliveries of 4 bcm from Romania would end the era of Russia's gas monopoly in Hungary from 2021 or 2022. But Hungary is clearly also using alternative sources as a ballast to leverage lower prices from Gazprom.

US

US Energy Secretary Rick Perry toured Central and Eastern Europe in November, parading America's credentials and warning countries against deepening their ties to Russia. Ostensibly arriving as a salesman for the US liquified natural gas and nuclear industries, Perry signaled that Washington was ready to step up in a tussle that has long pitted Russia against the EU.

Poland

The Poland-Slovakia interconnector will give Hungary direct access to a Polish LNG terminal in 2021. Slovakian transmission system operator Eustream and its Polish counterpart Gaz-System are ready to start construction on an interconnector between Slovakia and Poland.

Croatia

Budapest has also begun talks on supplies from a planned Croatian LNG terminal on the island of Krk, if it is completed as planned in the second half of 2020. Hungary and Croatia have been talking about the construction of a compressor station that would enable gas flows between the two countries. The terminal may also supply gas to Bulgaria and Ukraine, while Bosnia-Herzegovina, after the scrapping of South Stream, could turn away from Russian supplies and connect to the terminal.

Italy

Hungarian transmission system operator FGSZ said in September it was launching a market assessment on an Italy-Slovenia-Hungary bidirectional gas corridor together with its Slovenian counterpart, Plinovodi. The pipeline includes the development of a physical connection between Pince in Slovenia and Tornyiszentmiklos in Hungary.

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