Hungary is not cancelling Russian gas contract, wants to increase Croatian LNG supplies - MoFA

In his introductory speech, Péter Szijjártó pointed out that unpredictability has been the main feature of the recent period, and this has spilled over into the energy markets, affecting in particular those countries that are landlocked and lack substantial fossil fuel extraction capacity of their own. The Foreign Minister noted that energy supply in Europe is too politicised today, when physical realities should be taken into account.

Therefore, as in the past, we will continue to reject any kind of pressure that is politically motivated,

he said, referring to, though not naming, the Russian supply.

Szijjártó also said that security of supply should be the first priority in the energy market strategy for the coming years, with the second priority being favourable pricing.

Faced with stubbornly high Russian gas imports as the war in Ukraine rages on, Austria is seeking to take more radical steps, including ending energy company OMV's long-term contract to buy gas from Gazprom, Reuters cited Austria's Energy Minister Leonore Gewessler as saying in mid-February.

At a news conference called at a day's notice, Gewessler said the Russian share, opens new tab of Austria's gas imports actually increased in December to a new record of 98% from 76% the month before, even if the total volume of imports fell slightly.

"The market and the energy companies that are part of it are not fulfilling their responsibility to reduce the dependency on Russian gas sufficiently," Gewessler said. "The diversification of our gas imports is advancing far too slowly."

Gewessler said her ministry was tasking economic think-tank Wifo with producing a study by the summer on the economic impact of ending the contract and the dangers of remaining dependent on Russian gas."We must prepare to exit OMV's long-term contracts," she said.

OMV issued a statement saying Russian gas is not under sanctions in the European Union and various countries import it, adding: "If lawmakers wish to abandon Russian gas, the legal basis for that must first be created."

Referring to the above case Szijjártó said:

We do not want to give up any relationship that has proved to be reliable, and we will not cancel any contract that has proved to be favourable, so the Hungarian government will not give in to pressure to do so.

At the same time, he noted that gas market diversification is important, but that it is also important to clarify its content. He explained that, in the current situation, this means not giving up existing supplies, but complementing them with others, but Hungary's landlocked country status means that it is dependent on its neighbours and the supplies through them. For this reason, he also pointed out the importance of infrastructure development, of pipelines, because this is crucial for security of supply

Commenting on Hungary's energy policy in recent years, Péter Szjjártó called the issues highlighted below a success:

• He said the most successful project was the Turkish Stream, which "if it had not been built, we would be in serious trouble, especially if we think about the termination of the Russian-Ukrainian transit agreement early next year". He noted that 8.4 billion cubic metres per year of capacity is available from the south through the Turkish Stream.
• The second main success is that Hungary is the first country not neighbouring with Türkiye that will receive Turkish exported gas (275 million cubic metres this year).
• He also highlighted the construction of the Slovak-Hungarian interconnector, through which Hungary can buy natural gas from the north (referring to the German and Polish LNG terminals)
• He also highlighted the purchase of gas through the Croatian LNG terminal in Krk, and announced that the Hungarian government "wants to extend the contact with Shell because we consider it a reliable partner". In fact, as new information, he also indicated that the government wants an annual volume higher than the existing 1 billion cubic metres per year when the current 7-year contract expires (the expansion of the terminal's capacity will allow this, but there are further challenges to be addressed, see below).
• Regarding the purchase of gas from Azerbaijan, he said, without further specifics, that "in the very short term it will enter the Hungarian energy mix".

The Minister also mentioned the failures of Hungarian energy policy in recent years:

• He pointed out that although the Hungarian government had been negotiating for years with American and Austrian partners on the purchase of gas from the Neptun Deep field in Romania, the two parties had withdrawn from the project, which had an impact on the Hungarian gas purchase strategy. He added that based on recent developments, they are confident that the extraction project will be successful under the new framework, and the Hungarian government expects Romanian gas to be included in the Hungarian mix. He noted that the Hungarian side has already increased capacity on the Hungarian-Romanian interconnector.
• He also mentioned among the failures that, although both Hungary and the European Commission see the South-Eastern European region as an important source of gas supply, they do not provide funds for all the capacity development that is required, claiming that in 15 years' time gas will no longer be part of the energy mix. He critically remarked that the smartest people in the world must be sitting in the European Commission's Directorate General for Energy, but there will still be winters in 15 years' time.

Overall, he said that he hopes that Neptun Deep will start production and become part of the Hungarian gas mix, and also referred to the Hungarian-Slovenian interconnector investment that will make the Italian gas markets accessible.

He is also optimistic about the extension of the aforementioned Shell cooperation and the increase in the volume purchased, although he noted that the inbound side of the Hungarian-Croatian interconnector capacity still needs to be improved, as it is only 1.7 billion cubic metres, so it is useless for Hungary to buy more LNG at the Krk terminal if it cannot get this increased volume out of the country.

Cover photo: Portfolio