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    Hungary and South Stream: EC Position an Obstacle

Summary

The European Commission has clearly stated that it is not in support of South Stream in its current form and indeed it is obliging everyone to reconsider, re negotiate or cancel the existing agreements, according to Hungary's State Secretary for Energy Affairs, Pál Kovács.

by: Drew Spencer Leifheit

Posted in:

Natural Gas News, Hungary, South Stream Pipeline

Hungary and South Stream: EC Position an Obstacle

At South Stream: The Evolution of a Pipeline in Budapest, Hungary the country's State Secretary for Energy Affairs, Pál Kovács, said Hungary backed the building of the pipeline, but remained realistic about a very real hurdle that stands in its way.

“South Stream enjoys the support of the Hungarian government, so it has priority status in our strategy,” he said. “The complete capacity will be 63BCM/year – 32BCM going through Hungary. The commissioning date is in early 2017.

“Security of supply is increased through reducing the transit country risk,” he explained.

However, Minister Kovács was blunt: “The [European] Commission has clearly stated that it is not in support of this project in its current form and indeed it is obliging everyone to reconsider, re negotiate or cancel the existing agreements – it does not want to actively participate in resolving these issues.

“So we consider that the Commission's attitude has risks involved in it and does not even accept the proposal of the Russian party as a basis for negotiation, but only wants to negotiate on the basis of the EU's energy strategy,” he continued.

But, he stated, Hungary did not want a solution in 5 years, but tomorrow. He added that the EU was also addressing similar problems with the Opal and Nord Stream projects, but for South Stream the rhetoric never really went beyond threats.

The issues of contention, he emphasized, were 3rd party access and tariff calculation.

“Even if we are working towards a solution, we can't really see any light at the end of the tunnel right now, but I hope we don't have to wait another decade to solve the energy problems of this region,” said Mr. Kovács, who admitted that Hungary was vulnerable in terms of where it sat with energy.

“It is one of the most vulnerable countries in Europe in this respect.”

He noted that the majority of primary energy consumption – 39% - was represented by natural gas.

“We cover 80% of Hungarian natural gas consumption from imports. Our imported gas comes almost entirely from Russia, he explained. “Our Russian natural gas consumption began to grow following some pressure from the Soviet Union, and our increased reliance on natural gas increased our dependence on the Soviet Union,” he recalled.

According to him, households comprised the largest consumer of natural gas in Hungary: “More than one third of the consumption relates to households, followed by power stations and then the commercial uses. The role of natural gas in transportation is negligible at this time.”

Another problem, Mr. Kovács noted, was the rather old state of power generation facilities in Hungary, meaning that the country needed to come up with a survival strategy.

“To address this, we prepared the National Energy Strategy, which focuses on promoting energy efficiency, increasing the share of renewable energy sources, the use of safe nuclear energy, the improvement of market operations as well as energy infrastructure, and the use of domestic conventional resources.”

In terms of infrastructure development, Minister Kovács said that the energy strategy including considerations like diversification of resources and, if not possible, the diversification of supply routes, interconnection of markets, increasing liquidity, better utilization of the entire system and storage facilities, using regional and local ones.

“The security of supply can be increased, he said, “through the North-South energy corridor, which can reduce our reliance on our eastern supply sources by facilitating the transport of energy between the Baltic Sea and the Black Sea.”

Poland's Świnoujście LNG terminal as well as Polish shale gas, he said, were the two sources from which Hungary could expect diversification in the North. “We have already signed framework agreements for establishing the necessary facilities.

“We can expect sources of diversification from the Caspian sea, but that is not to be expected for a few more years to come,” he added.

Although LNG might not be competitive under present market conditions, as a result of faster global rearrangement of conditions, he said Hungary hoped to capitalize upon it in the near future.

The main project for the eastern direction of gas, he said, was South Stream.

“The flagship of the North-South corridor is the Hungary-Slovak pipeline, which has received funding from the EU and will be compliant with all regulations. It has capacity of 5BCM/year and is on schedule. The first capacities will be available for purchase in 2015. This pipeline will contribute to security of supply and towards establishing a regional market. We expect the new interconnector to contribute to reducing current wholesale price levels by 10-15% through intensifying competition.”

Finally, he said, the construction of infrastructure would not be sufficient in and of itself; there were other things that needed to be done.

“A competitive gas market can be created through international infrastructure development which is in everyone's interest. The spot market will increase liquidity, the gas exchanges will increase transparency, rates will become more transparent and we will be able to reduce the lack of a gas market behind electricity,” explained Mr. Kovács, who reminded the delegates of the problems of the power generation sector because of low electricity and high gas prices.

One of the problems, he said, was that integration of the electricity market was years ahead of that of the gas market. “To resolve this issue, we need to ensure bi directional flow of all border points in the gas pipelines, ensure access to natural gas on a market basis which will happen from 2015 on. The government is in support of channeling at least 15-20% of the wholesale turnover going through the exchanges and we should like to see a European platform for handling gas trade and do hope that a successful pilot project will be followed by Austrian and Slovak relations as well.”

“We need solutions rather than promises,” concluded Secretary of State for Energy Affairs Pál Kovács.