Hungary is well stocked with gas supplies, yet it could further diversify its existing sources and become less reliant on Russian gas if planned infrastructural and market developments in the region finish. The diversification of supplies, however, is not coupled with higher number of market players: as of this October there is one universal service provider only.
With Tigáz’s 1.2 million universal clients taken over by Főgáz by October 1, the renationalization of the household gas market has come to end and the state-owned company is the sole provider of the 3.2 million customers eligible for universal gas service. Following on from Magyar Telekom, E.ON and GDF Suez, Tigáz – the local subsidiary of Italian energy giant Eni – also surrendered its universal service provider license to supply gas to households.
The process started in 2015 after the Hungarian government mandated a series of utilities price cuts for households and established the First National Utilities Company (ENKSZ), with the aim of providing utilities at predictable and lower prices. (Customers of universal service receive gas at a set price using a formula defined and controlled by the state.) However, due to a drop in natural gas prices in Europe that ENKSZ has not followed, the controlled prices household customers pay have since become less competitive.
Since eligibility to universal gas service is based on meter reading, companies not exceeding 20m3/h have the opportunity to choose ENKSZ and take advantage of state-controlled prices. They also have the option to enter the free market, which, considering the above could result in a better deal. Ever milder winters and more energy-efficient buildings have softened demand for gas as a heating fuel. Better interconnections between regions, thanks to a booming liquefied natural gas (LNG) market, has increased supply. As a result, natural gas prices worldwide have tumbled. Due to crashing oil prices, gas contracts pegged to crude oil may even have a temporary edge over spot market prices, as it would take several months for the effects of oil price rebound in the first half to trickle down into contracted European gas prices.
Despite milder conditions, Hungarian gas consumption in the first half of 2016 increased by 300 million m3 to 5.4 billion m3 from a year earlier, according to the calculations of the Regional Center for Energy Policy Research (REKK). Experts asked by the BBJ put this down to the increased activity of gas-fired power stations in Hungary. Falling gas prices has again made the use of these plants affordable after a period during which many lay idle or were used less as electricity often turned out to be cheaper to import. Last year, however, the share of electricity imported decreased to 31.28% from 31.44% a year earlier, according to the data of Hungarian transmission system operator Mavir.
Households also consumed more: average piped gas consumption per consumer was 950 m3/household in 2015, up from 834 m3 a year earlier, and breaking a downward trend in previous years, according to the data of the Central Statistical Office (KSH). If it hadn’t been for a mild winter, consumption could have even been higher, experts say. Customers eligible to universal service used roughly 3.5 billion m3, while the amount of gas sold on the free market totaled 4.5 billion m3.
When it comes to sources, the country is well supplied. With the exception of Slovenia, it is now connected with all its neighboring countries; although not all of them carry gas into the country. The two main sources of gas imports are the Austria-Hungary and the Ukraine-Hungary pipelines. Gas imports through these two in the first six months came to 3.8 billion m3, of which approximately 1.8 billion m3 came from Ukraine (Beregszász) and 1.9 billion m3 from Austria (Mosonmagyaróvár), according to the data of Natural Gas Transmission Company (FGSZ). Due to missing infrastructure or inadequate capacities, flow of gas is only one-way (outbound) between Hungary and Romania, Serbia and Croatia. There has been no notable commercial activity via the Hungarian-Slovakian interconnector built in 2014 either.
The situation is about to improve, though. The missing technical developments that would allow two-way flow in the interconnectors between Hungary and Croatia, as well as Hungary and Romania, could be completed before the end of the decade with funding from the European Union. The building or extension of maritime sources, such as a floating LNG-terminal in Croatia or off-shore sources at the Black Sea in Romania, could also be finished before 2020, according to agreements recently signed by the above countries at the Central and South-Eastern European Gas Connectivity (CESEC) meeting, which took place in Budapest in early-September.
Here, the energy ministers of the countries involved in the development of the “Vertical Corridor”, a pipeline running from Greece through Bulgaria, Romania and Hungary, and the so-called BRUA-pipeline, a network connecting Bulgaria, Romania, Hungary and Austria, agreed on completing missing infrastructure. They also pledged to clear major obstacles in the way of the region- and Europe-wide wholesale trade. These go beyond infrastructural shortcomings, and include protectionist policies, high entry-exit and transmission tariffs, the market power of the incumbent operator which hampers access to retail customers and a low number of competitors on either wholesale or retail level, just to name a few. Should all these issues be solved in the next four-five years, Hungary could better diversify its natural gas sources, which also means the country would become less dependent on Russian gas.