Hungarian Gas Supply: Streams and Interference

Energy Trade

quetions123/Shutterstock.com

Besides Ukraine and migration, certainly the most intensely communicated issue by Hungary’s Ministry of Foreign Affairs and Trade in 2019 was gas supplies. Recent months saw several key problems solved, while others generated further uncertainties and, in some cases, risks.

Russian President Vladimir Putin (left) and President of Turkey Recep Tayyip Erdogan, mark the completion of the offshore section of the TurkStream pipeline on November 19, 2018 in Istanbul, Turkey. Photo by quetions123/Shutterstock.com

In December 2019, an important agreement for European gas supplies, which had regulated the terms of Russian gas transit via Ukraine in the last 10 years, ended. A renewal of the agreement was in the interest of both sides, however, neither of them rushed to sign it, so much so that trilateral negotiations were envisaged between Russia, Ukraine and the EU to unblock the situation.  

Meanwhile, several others projects have been started, two of them designed to transport – again – Russian gas: North Stream 2 to Germany via Denmark, and TurkStream through Turkey, Bulgaria and Serbia, and Hungary, at a later stage.  

These infrastructure projects can handle huge quantities (an annual 55 billion cubic meters in the case of North Stream alone), and the revenues they generate will inevitably collide with the interests of other players on the gas market, not least, the United States, but more about that, later.  

Russo-Ukrainian relations have been heavily burdened since 2014, when Russia annexed the Crimean Peninsula and an armed conflict erupted along the Eastern border of Ukraine, resulting in military and civilian losses (including the 283 passengers of a Malaysia Airlines flight shot down by a surface-to-air missile in March 2014).  

No wonder that any agreement between the two countries should encounter severe resistance from both sides and be delayed until (literally) the last second before the deadline: The gas transit agreement was signed on the last day before the December 31 deadline. The most pressing issue on the European gas market has thus been solved, in a five-year deal costed at USD 7 billion.

Russia has reasons to be pleased in other areas, too. First, North Stream 2; the original concept behind the pipeline was to connect Russia with Germany via Denmark, starting in 2020. But construction was halted when Denmark refused approval for laying the pipeline on its territory, invoking environmental damage concerns.  

Obstacle Removed

This obstacle was lifted last year, with Copenhagen issuing the permit to build a section of the pipeline on the Danish continental shelf in the Baltic Sea. The project is expected, from somewhere around 2023, to double shipments of Russian gas to Germany, eliminating the risks of future disputes related to Ukrainian transit. Half of the project is being financed by Russian gas giant Gazprom, with the rest covered by private European companies.

January marked the opening of another important project for Russia, TurkStream. Leaders at the highest levels participated in the ceremony in Istanbul, Russian President Vladimir Putin, Turkish President Recep Tayyip Erdogan, Bulgarian Prime Minister Boyko Borissov and Serbian President Aleksandar Vucic.  

Russia’s Gazprom will ship an annual three billion cubic meters of gas to Bulgaria via TurkStream, replacing a route that formerly passed through Ukraine and Romania. In Hungary, both Prime Minister Viktor Orbán and Minister of Foreign Affairs and Trade Péter Szijjártó welcomed the news.  

But elsewhere, tensions are mounting. Back in November 2018, Secretary of Energy Rick Perry met Szijjártó in Budapest, where he unequivocally emphasized “the United States’ opposition to both the Nord Stream 2 and the multi-line Turkish Stream natural gas pipelines, both of which would extend and deepen Russia’s energy dominance in the region.”  

In welcoming the opening of TurkStream, Szijjártó is demonstrating, as he has many times before, a “Hungary first” position. However, confronting the United States on the Turk Stream issue might well be a red line for the U.S. administration, despite the spectacularly improving U.S.-Hungary relations since the arrival of ambassador David B. Cornstein.  

Meanwhile, the United States has stepped up measures to contain Russian gas sale expansion. On December 9, the U.S. House and Senate agreed a defense bill that would force Donald Trump’s administration to impose sanctions on companies involved in the North Stream 2 and TurkStream pipelines.  

Sanctions Threat

The bill requires the U.S. State Department to report back within two months with the names of companies and individuals involved in pipe-laying for North Stream 2 and TurkStream. The sanctions envisioned by the bill include asset freezes and revocation of U.S. visas for the contractors.

European politicians reacted swiftly: EU Trade Commissioner Phil Hogan said Brussels “opposes the imposition of sanctions against any EU companies conducting legitimate business.” German Foreign Minister Heiko Maas sent a much bolder Twitter message: “European energy policy is decided in Europe, not in the U.S. We reject external interference.”  

A less spectacular, but nonetheless important, issue for the future of the regional gas supply is unfolding in Romania. Below the Black Sea lie large, but expensive to extract gas deposits. Two Western companies enrolled for the project, dubbed Neptune Deep, one of them being America’s ExxonMobil.  

While things started well, after a while the project hit the buffers due to political reasons. It now seems that ExxonMobil aims to sell its share in the project. Romanian President Klaus Johannis recently stated that “the information that has been circulating for some time is not real,” adding that “Romania will have a heavy say in that.”

According to unconfirmed rumors, Russian oil company Lukoil is interested in buying the business, but Romanian Prime Minister Ludovic Orban said that the company only “asked for information” about the opportunity.  

The outcome is hard to predict, but Hungarian Prime Minister Viktor Orbán again expressed, during his annual press conference on January , that his country remains interested in buying Romanian gas, as one means of reducing its dependence on Russian gas. 

ADVERTISEMENT

Varga puts 2021 GDP growth at 7-7.5% Analysis

Varga puts 2021 GDP growth at 7-7.5%

Opposition parties to begin PM candidate primaries Elections

Opposition parties to begin PM candidate primaries

New managing director at the helm of Wolt Hungary Appointments

New managing director at the helm of Wolt Hungary

Budapest bike-sharing scheme boasts record ridership City

Budapest bike-sharing scheme boasts record ridership

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.