Zakonyi Botond: Hungary is an active promoter of the North-South Gas Corridor

Zakonyi Botond, Hungarian ambassador in Bucharest

Energy demand in Hungary is primarily covered by fossil fuels like oil products or natural gas. Hungary is heavily dependent on these types of fuels. Most of the hydrocarbons are imported from the Russian Federation. Despite the higher import share of oil, there is a higher risk of disruption for natural gas supply as the methods of stockpiling and transportation of oil make its supply more reliable. In addition, the crude oil pipeline between Hungary and Croatia enables us to reach the global oil market.

The disruption of natural gas supplies in 2006 and 2009 spurred the Government of Hungary to find alternative supply sources and to diversify the supply routes. Right after the gas crisis in 2009, in order to secure energy supply of the households and industry in Hungary we enhanced our gas storage capacity to reach 6.1 billion cubic meters with a ca. 80 million cubic meters per day declared total maximum technical withdrawal capacity. The Hungarian storage capacity is the 4th biggest in the European Union.

Hungary is looking for workable solutions to diversify the gas supply of the region

Secondly, the Government backed the development of cross border interconnection capacities with our neighbours. Today we have natural gas pipelines towards most of our neighbours: Austria, Slovakia, Ukraine, Romania, Serbia and Croatia. The next important step is to ensure bidirectional or reverse flow on the Romanian and Croatian gas interconnectors and to start the commercial gas supplies on the Slovakia-Hungary gas pipeline.

Thirdly, on the regional and EU level, Hungary is an active promoter of the North-South Gas Corridor, enabling the flow of gas between the planned LNG terminals in Poland and Croatia through the Visegrád countries. The development of our bilateral interconnectors is an integral part of the realisation of this Corridor. It seems only logical that other countries in the region make full use of their connecting facilities, which we strongly support.

From a wider angle we can see that Hungary is looking for workable solutions to diversify the gas supply of the region, namely the following:

  • The EU concept on the Southern Corridor aims to transport natural gas from the Caspian to Europe. Its flagship project, the Nabucco pipeline was backed by Hungary, but after the decision of the Sah Deniz Consortium in 2013 its realization got out of reach. To get access to the gas volumes shipped through the Trans Adriatic Pipeline, the first project implemented in the Southern Corridor, Hungary must work in close cooperation with Romania and Bulgaria.
  • The other possible way to get access to non-Russian natural gas is the AGRI project aiming to bring gas from Azerbaijan via pipeline to the planned LNG terminal in Georgia and ship the extreme low temperature gas in special ships to the scheduled regasification terminal in Constanta. From the Romanian port the gas will be fed into the pipeline system and transferred to Hungary.
  • South Stream as a tool of route diversification offers increased supply security for its participating countries – just like North Stream does for Germany. Our goal is to realize the South Stream project on time in conformity with European legislation – that is why we gave mandate to the Commission to negotiate the legal framework of the operation of the pipeline with the Russian side.
  • The planned liquefied natural gas (LNG) regasification terminal planned on the shores of Croatia will give access to the global market of LNG not only for Croatia but also for the whole region.

The realization of these projects could enable a more secure supply of gas as well as more gas-to-gas competition on the regional market.

Dependence on the import of Russian natural gas can also be decreased via fuel switch in the power generating sector. Hungary took measures to sustain and enhance nuclear power generation capacities at the nuclear power plant located in Paks. The prolongation of the period of operation of the current 4 reactor blocks has been started. The lifetime of the current reactors will expire in 2030s. In order to sustain the nuclear power generation capacities Hungary signed an agreement with Russia on expanding the Paks plant with two new blocks. Under the agreement Russia is lending Hungary 10 billion euros at variable rates of 3.95-4.95% interest to cover 80% of the project’s costs.

Hungary’s government cut gas, electricity and district heating prices by a combined 20% last year

The Hungarian interpretation of energy security is not limited to safeguarding the steady supply of energy but also includes ensuring an affordable price level for the households as well as for the industry. In this spirit, Government-mandated price cuts have made the household cost of gas and electricity among the lowest in the European Union. Household gas prices averaged 4.2 euros per 100kWh in the second half of 2013, the second-lowest rate in the EU after Romania. Household electricity prices were 13.3 euros per kWh during the period. Prices were lower only in Romania and Bulgaria. The price of gas was down 14.6% and the price of electricity fell 13.8% from the same period a year earlier, calculated in euros. Hungary’s government cut gas, electricity and district heating prices by a combined 20% last year. This year, Parliament approved legislation cutting household gas prices by 6.5% from April 1 and electricity prices by 5.7% from September 1.

The Government has announced the plans of Hungary’s new state-run non-profit public utility holding which will be set up by March next year at the latest. The new company, based on Budapest’s gas provider FŐGÁZ, which is now state-owned, will start its operations by distributing power, gas, and district heating, while later on it will also take care of the water supply, sewage, and waste management. The company will offer high-level services at competitive prices and win households over from competing electricity, gas or district heating providers. The government would not apply administrative means to force competitors out of the market.

The Government is to start creating conditions for an overhead reduction for the industry sector and, will set up a dedicated non-profit public utility company.

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