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Energy agency calls on Hungary to diversify gas supplies

Claude Mandil, the head of the International Energy Agency, on Tuesday called for Hungary to diversify its sources of gas, which currently come largely from Russia.

Hungary, which receives 80% of its gas from its former overlord, was one of the countries most affected by the gas outages in January 2006, which occurred when Russian gas deliveries through Ukraine were disrupted. Since then, the government has been pursuing three different routes to ensure there is no repeat of such events, and Mandil said that it would be wise to continue down this path. One of the options has proven to be controversial, however, drawing fire from the EU and domestic sources alike. Hungary's gas behemoth Mol Nyrt has agreed to team up with Russia's Gazprom on extending the Blue Stream pipeline, which carries gas across the Black Sea to Turkey. If the plan is carried out, the pipeline would extend into Europe. Mol has also agreed to cooperate on building a 10-billion-cubic-metre storage facility in Hungary.

Hungarian Prime Minister Ferenc Gyurcsány has faced accusations of undermining the Nabucco pipeline by backing the Blue Stream project. At home, the leader of the main opposition party Fidesz has accused Gyurcsány of inviting the nation's former communist rulers back into the country. MOL and Gyurcsány have refused to rule out the possibility of buying into both pipelines, although both have criticized the Nabucco project for taking too long to get underway. There has also been talk of building a pipeline from Croatia to bring gas in from a Liquefied Natural Gas terminal set up on the shores of the Adriatic.

This decision by the Hungarian government created concerns not only in Europe but also in Turkey given that this project will increase Turkey's strategic importance ahead of the country’s EU membership. „We are closely monitoring the situation with Hungary. Even though it is not very likely Hungary to violate the EU's energy policies, we still have some concerns,” said an official from the Ministry of Energy to the TDN on the condition of anonymity. „Having set this as a policy, the EU should be more engaged with the Nabucco project and put more pressure on Hungary,” the official added. However, according to the Turkish official, Russia's main aim is not to stop building the pipeline but to sell its natural gas from this line, in order to have a direct route with its European consumers that by-passes Ukrainian and Belarusian territories. But this scenario, too, which needs Turkey's contribution, is threatening the Turkish position of being a credible transit country.

„The motto in the energy world is „security and diversity.” If we sit on the table with Russians agreeing to sell Russian gas via Blue Stream II, Turkey would be considered an unreliable partner by the EU. We've got to work on transferring Caspian and Central Asian natural gas to Europeans,” said a high-level Foreign Ministry official. On the same subject, the energy ministry official said, „The Blue Stream I project with Russia, in 1997, blocked Caspian and Central Asian natural gas, and now if we realize Blue Stream II with Russia, it would certainly kill these countries.”

The Blue Stream pipeline is seen as a rival to the EU-backed Nabucco pipeline. Nabucco is a multinational project involving Turkish, Bulgarian, Romanian, Hungarian and Austrian gas pipeline companies. Its feasibility studies were funded by the EU's TEN Program. Construction of the pipeline is scheduled to start in 2008 and the first flow of natural gas from the Caspian to Eastern Europe to start by 2011-2012. The project would help diversify Europe's energy resources and decrease its dependency on Russia. The EU, which is around 60% dependent on Russian gas, is trying to diversify its energy resources mainly with Caspian, Central Asian and Middle Eastern gas supplies.

Russia's move will not be left unanswered by the United States and other major Western companies. „Russia's weakest link is Turkmenistan. The United States is trying to convince Turkmenistan to cancel its agreement with Russia that involves the purchase of two trillion cubic meter of natural gas by 2028. If Turkmenistan decides to sell half of this volume to Western markets, it would irk Russia, which isn't able to invest in its own natural gas fields to produce gas to sell,” the Foreign Ministry official added. (Turkish Daily News,