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No way around gas, for now

With reliable alternatives remaining a relatively distant dream, Hungary, one of the most gas-dependent countries in Europe, will have to rely on Russian sources in the foreseeable future.

Over the last months energy dependence has become a controversial topic taken on by both politicians and journalists, with right-wing opposition politicians warning an excessive reliance on Russian gas poses a threat to national security as Moscow is known for using energy as a foreign policy tool. Socialist government officials have expressed trust in gas prices remaining competitive in the medium term and have rebuffed accusations of dangerously siding with Russia, being instead keen on maintaining friendly relations with Moscow as the best means to ensure gas supplies. The position assumed by the socialists is similar to that of Germany, France or Italy but comes across as eccentric in the narrow post-socialist context where historical grievances still strain relations with the Soviet Union’s successor state.

“For the Prime Minister to be close to Russia is a point of possible attacks because of the socialist past of Hungary and because his party is the descendent of Hungary’s communist party,” Attila Gyulai, analyst at the Political Capital Institute told IPS. Political and economic relations between Russia and Hungary have been at an all-time best since the change of regime in 1989 and this has been noted in statements by officials from both countries and confirmed by statistics that show Hungarian exports to Russia have grown at a rate of 70% between 2005 and 2006. With a yearly natural gas consumption of 15 billion cubic meters (bcm), natural gas constitutes 40% of Hungary’s primary energy balance, one of the highest rates in Europe together with the Netherlands, and 85% of this gas is imported from Russia.

Gas was promoted and subsidized by the government throughout the 1990s, and its low price gradually made the 10-million country ever more dependent. Today, 90% of Hungarian households use gas for heating. “Using one source of resources is dangerous for security reasons,” Judit Barta, managing director at the Budapest-based GKI Economic Research Institute told IPS. It will take Hungary about 25 years to reduce considerably this dependency, she adds. However, the energy expert notes Hungary made a sound choice when the previous communist regime decided in the 1970s to gradually shift from coal to gas. But now Budapest is looking for ways to diminish its energy vulnerability by building more pipelines going across the country and a number of gas storage facilities which would allow it to obtain a better bargaining position vis-à-vis Gazprom, Russia's gigantic gas monopoly.

Storage facilities are currently just enough for a cold winter and building additional infrastructure would make Hungary less vulnerable to potential cut-offs or disruptions caused by price disputes between Russia and Ukraine, or even allow it to export surpluses. There are dreams of building a huge storage facility that would turn Hungary into a regional energy hub: Hungary’s advantageous geographical position, its geological conditions and the size of its domestic market give it considerable comparative advantages in the Central European region. Yet energy experts predict only smaller facilities of up to 3bcm will be built as Gazprom fears the possibility of a less sympathetic and conservative government taking over in Hungary and turning problematic.

The increased pipeline capacity would on its turn allow Hungary more flexible import and export possibilities, which would increase energy security, while it would bring tangible economic benefits in terms of transit fees. Budapest is also looking out for the revolutionary technology of Liquefied Natural Gas, which allows gas to be transported outside the inflexible pipeline networks and which would make Hungary less dependent on a single source. The incipient technology however remains scarce and expensive, as too many countries are interested in the yet few available resources. Moreover, it would be unpopular among consumers due to its high price. In the meantime Budapest will have to reduce dependency by changing the country’s relatively wasteful energy consumption patterns, says Barta.

Most gas in Hungary (32%) goes into electricity generation, which in Hungary will increase in all likelihood as electricity consumption grows hand in hand with improved living standards. According to Barta, unless Hungary switches to other forms of energy this will need to be balanced by improved infrastructure and better insulation. As in much of Europe, in Hungary the “nuclear renaissance” topic is on the rise, and parliament is backing long-term plans for the expansion of the country’s only nuclear plant in Paks, south central Hungary. The electricity provided by Paks is the cheapest in the country and nuclear energy poses no risks in terms of public opinion, but the expansion will take between one and two decades. Perspectives for other, allegedly cleaner sources of energy are however bleaker. While the European Union has asked its members to reach 20% of total energy production in renewables by 2020, Hungary’s flatness and its geographical position doesn’t make hydroelectricity or wind power viable. Moreover, “the goal will only be partially reached, and we cannot afford the investment in renewables because electricity consumers would have to pay for it,” Barta told IPS. (