Hungary’s Orban government likely to target Romanian gas

13 April 2018 06:17 Source:ICIS

LONDON (ICIS)--Romanian offshore natural gas reserves will play a significant role in Hungary’s long-term energy strategy following the re-election of the Fidesz party government in parliamentary elections in April.

All 4.4 billion cubic metres (bmc)/year of natural gas capacity offered into Hungary on the planned Romania-Hungary interconnector was sold from gas year 2022 up to gas year 2036, according to open season results published by Hungarian grid operator FGSZ in December 2017.

The re-elected government headed by prime minister Viktor Orban may try to meet around one third of the country’s supply mix by flowing gas via the planned Romania-Hungary interconnector, the director of the Regional Centre for Energy Policy Research (REKK) Peter Kaderjak told ICIS.

Hungary’s annual gas consumption is between 9-10.5 billion cubic meters (bcm), according to demand data collated by ICIS.

The Romanian Black Sea production would potentially allow imports of 2-4 billion cubic meters of natural gas per year to Hungary.

Hungary’s flagship project the Romania-Hungary interconnector, designed to flow gas from the Romanian Black Sea reserves will be high on the new government’s agenda.

As it stands now, the Romanian government and the American and Austrian investors, ExxonMobil and OMV are set to enter into an agreement at the end of this year.

Romania agreed to build compressor stations to enable the transport of 1.75bcm/year of gas by 2020, said the Hungarian foreign ministry in February. Further upgrades to the Csanadpalota border point will allow flows of up to 4.4bcm/year of gas produced by US-based Exxonmobil and Austria’s OMV by 2022.

At this stage, it is still unclear how the extracted volume will be sold due to ongoing parliamentary debate over the Romanian gas law. If everything goes as planned Hungary will be able to receive Romanian gas in 2020, at the earliest date, Kaderjak said.

The Hungarian gas import contract currently in place with Russia is due to expire by 2021.

The Hungarian government has been long vocal about its supply diversification efforts by linking the Hungarian infrastructure to neighbouring markets and participating in regional network development projects.

Croatian LNG

Besides the Romanian pipeline project, the Fidesz party has signalled interests in Croatia’s planned LNG terminal.

The EU also backs the construction of an LNG terminal in the Adriatic and will finance one third of the €360 million development project.

Entering into a long-term gas supply deal with Croatia would mean a more flexible negotiation position for the Hungarian government against other suppliers in the centraleast European market. But Kaderjak said importing LNG from Croatia is unlikely to be profitable for Hungary on a purely commercial basis.

Further, the yearly capacity of the offshore floating storage and regasification unit is to be roughly just 2bcm.

Russian gas

Russian gas should continue to play a key role in Hungary’s supply mix.

Kaderjak expects 3.5-4bcm of gas to be imported from Russia after 2022.

Under the current contract, Hungary’s imports from Gazprom cover nearly half of the country’s demand. ICIS-collated grid operator data showed that around 11.5bcm of gas entered the Hungarian network along the Beregdaroc border point with Ukraine, of which around 3.5bcm transited to Croatia and Serbia.

Supply from Austria is the secondary supply source for Hungary. Throughput along the HAG pipe was 4.11bcm last year.

ICIS data showed that Hungarian domestic gas production reached 3bcm in 2017. Kaderjak expects domestic production to only add around 2-3bcm to supply after 2022.

The remaining volume of between 6.5-7.5bcm should arrive via the Austrian-Hungarian and Slovak-Hungarian interconnector, although it is likely to be Russian molecules. zsuzsanna.szabo@icis.com and david.simon@icis.com

By David Simon