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Hungary balances strategic pipelines

Rumors that Hungary is considering switching allegiances to Russia’s Blue Stream pipeline extension from the Nabucco pipeline have emerged recently.

It has emerged that Hungary may switch its support from the Nabucco to the Blue Stream project. These rumors are worrying to both the project’s sponsors and EU officials, especially given Hungary’s already strong relationship with Russia, and highlight the fact that domestic politics are still capable of trumping EU security of supply concerns. Content The European Union’s increasing reliance on foreign, mostly Russian, gas is well known. The Nabucco pipeline project was specifically proposed as an antidote to this trend. The €4.4 billion ($6 billion) project, due to begin construction late this year and be completed in 2011, will take central Asian gas to Europe.

The Nabucco consortium currently consists of Austria’s OMV AG, Hungary’s Mol Nyrt, Turkey’s Botas International, Bulgaria’s Bulgargaz and Romania’s Transgaz. Nabucco was looking for a sixth partner, but talks with France’s Total SA have recently fallen through. In this light, the rumors around Hungary’s position are troubling. The Nabucco pipeline has been identified as an energy project of strategic priority for the EU. Despite this, the EU only paid for the pipeline’s feasibility study, but will not provide funding for any construction costs. When faced with EU criticism for considering the Blue Stream proposal, Zsolt Hernádi, the CEO of Mol, pointed out that the EU should back up its words with funding.

Hernádi’s comments underscore the real powerlessness of the ‘prioritization’ of energy projects by the EU. Hungary’s energy supply is heavily dependent on OAO Gazprom, the current Hungarian government has built very warm relations with Russia, and the inducements from Gazprom to participate in a Blue Stream extension project are no doubt strong. Hungarian prime minister Ferenc Gyurcsány has stated that he would prefer to keep all options open. The reality, though, is that Russia already supplies 76% of Hungary’s gas.

Should Gazprom choose to play a strong hand, the verbal prioritization of Nabucco by EU officials is unlikely to stand up very well. Many would argue that Hungary’s strategic interests lie in having the Nabucco project completed and brought to its doorstep. But the current Hungarian government may not see things that way, and moral suasion by EU peers may not be enough to tip the balance in Nabucco’s favor. (