Business 8 October 2024, 9:30am

Hungary MVM may divert Russian transit gas, sees Azeri, Turkish deals possible by year-end

Portfolio

"We do not see any obstacle to the one billion cubic metres entering the country via the southern import pipeline, if necessary," the CEO of Hungary's state-owned MVM Group told economic news portal vg.hu in response to a question about what will happen to Hungary's contract with Russia for the transfer of one million cubic metres of natural gas if Ukraine does not extend its gas transit deal with Russia beyond 2024. Károly Mátrai also noted that, in the spirit of diversification, MVM may conclude new supply agreements with Azeri and Turkish gas companies before the winter sets in, and that the winner of the tender for the construction of two flexible gas power plants may be announced before Christmas. He also indicated that the preliminary results of the study on the pumped storage power plant are very positive, and that 100 megawatts of geothermal power are being considered, as well as the construction of 400 megawatts of energy storage. Károly Mátrai will also be speaking at Portfolio's Energy Investment Forum conference this Thursday 10 October, for which it is not too late to register here.

Highlights o the interview:

No gas is coming directly from the Shah Deniz field to Hungary for the time being, but "we hope to report further discoveries by 2029, and the volumes that will be brought onstream and not yet sold could be brought to Hungary." However, because of the high costs, this may not mean direct pipeline supply, "but a swap deal for gas available closer in Europe".

If there will be a terminal expansion at the Krk LNG terminal, in addition to the current regasification capacity of 1 billion cubic metres per year, "we would like to tie contract for additional volumes, but for that to happen we need the cooperation of the Croatian side". He added that "for the time being, the timing of the expansion and the amount of additional capacity are uncertain, but negotiations have started".

Asked whether, if Russian gas transit through Ukraine is stopped from January 2025, the annual supply of one billion cubic metres from Serbia could arrive, i.e. whether the parties could divert the volume, he replied:

"Capacity is available and it is in the Russian side's interest to maintain sales. So, although other options are available, we see no obstacle to the one billion cubic metres coming into the country via the southern import pipeline if necessary."

As Portfolio reported about two weeks ago, this one billion cubic metres per year does not currently enter Hungary after transit through Ukraine, as MVM sells the Russian gas on the Slovak, Austrian, Czech and other markets, so Károly Mátrai was referring to the fact that the group would transfer this volume to the southern route.

Ukraine will not extend its gas transit agreement with Russia after it expires at the end of 2024, Ukrainian Prime Minister Denys Shmyhal told Slovak Prime Minister Robert Fico on Monday. "Ukraine's strategic goal is to deprive the Kremlin of profits from the sale of hydrocarbons which the aggressor uses to finance the war," Shmyhal said. It is unclear what deal will replace the current framework.

Mátrai pointed out that with Russian pipeline imports of 4.5 billion cubic metres and Krk LNG imports of 1 billion cubic metres per year, domestic production is increasing while domestic gas consumption is falling.

"We expect Hungarian consumption in 2024 to be less than 8 billion cubic metres, down from 10 billion cubic metres a year previously," he said, adding that "we want to reduce the import ratio by increasing domestic production".

He said that "in the spirit of diversification, last year we signed our first deals with Socar of Azerbaijan and Botas of Türkiye. This year, before the winter sets in, we want to agree again with the Azeris and the Turks on new deliveries, negotiations are under way, diversification is important."

Of the flexible gas power plant construction tenders announced last year, binding bids have already been submitted in the tender for the power plant to be built on the territory of the Mátra Power Plant. For the Tisza Power Plant, "we are expecting [binding bids] in October, after which they will be evaluated. If all goes well, we could announce the results before Christmas".

Of the planned renewable energy portfolio of 3000 MW, 880 MW of solar capacity is now in place. Mátrai indicated important directions for the remaining 2000 MW. "We are working on expanding solar or wind capacity, but we are also looking at the conditions under which we can add 100 MW of geothermal capacity".

On wind capacity, he noted: "We would not rule out expanding our wind capacity. However, we are not focusing only in Hungary, we are also looking for wind investment opportunities - construction and acquisition - in the region."

Regarding the two new blocks of the Paks Nuclear Power Plant, he said that due to EU regulations, "the power plant must be independent from MVM during the implementation of the project. However, once it is built, it will be worth examining who can operate it most efficiently".

According to the intergovernmental agreement signed in 2014, the Paks II project will be implemented by Rosatom and 80% financed with a loan of €10 billion granted by Russian banks, which Hungary is to repay by 2046. The agreement provides for the construction of two more VVER-1200 reactors with a total capacity of 2400 MW next to the Paks NPP, which consists of four units with a total capacity of 2000 MW and has been in operation since the 1980s. This power plant currently accounts for about half of the country’s electricity production.

The feasibility study for the 600 MW pumped storage power plant will be completed by the autumn, but "I can tell you that so far we have very positive results and we are optimistic about the establishment of a domestic PHES" [pumped hydroelectric energy storage].

"In addition to the PHES, we aim to install 400 megawatts of chemical storage, different types of batteries, in line with market trends and opportunities. Of this, 100 megawatts will be built in 2026, thanks also to the tender that was completed this summer."

As regards MVM's foreign expansion plans, Mátrai said: "In the Czech Republic we are now also looking for productive investments. Slovakia, Serbia and Romania are also priority targets. In Serbia, we are a minority owner in a company building electricity grids, and we will increase our stake to a majority next year. Our presence in the other two countries is still small, but we are constantly looking for opportunities."