Hungary finally seals South Stream role

By bne IntelliNews November 1, 2012

bne -

Putting to rest reports that problems in Budapest may divert the project to Croatia, Gazprom agreed a joint venture to build the South Stream gas pipeline through Hungary on October 31.

The Russian energy giant signed the JV agreement with Hungarian energy wholesaler MVM. "The decision to build the Hungarian stretch of the gas pipeline is now final," Gazprom deputy CEO Alexander Medvedev told a news conference, reports Reuters. "It will contribute to the security of natural gas supply for the whole of Europe."

The joint venture, South Stream Hungary, will build and operate a 229km stretch of the pipeline that will transport Russian gas to southern Europe. The pipeline will have a capacity of 30bn cubic metres per year, which is enough to cover Hungary's import needs as well as provide the necessary transit capacity, Medvedev said. It will cost more than €600m, 30% of which will be covered by the companies, with the remainder to be sourced through bank financing, MVM CEO Csaba Baji said.

Hungary gets nearly all of its gas from Russia under a long-term import agreement with Gazprom, which shipped 6.26bn cubic metres to the country last year. The current gas pipeline that transports gas from Russia to Hungary via Ukraine will remain operational, the executives said.

South Stream is part of a wider Russian target to plug European markets more deeply into its gas supplies. The EU is pushing to develop alternative routes along the "southern corridor" which will tap Caspian gas while avoiding Russian transit routes.

Hungary's participation in South Stream has been under question this year due - according to the official version - to technical problems with setting up the country's project company. However, it's notable that Hungarian state-controlled energy company MOL drove the final nail in the stuttering, EU-backed Nabucco project earlier this year, complaining over costs and a lack of supply.

That pipeline plan has now however been granted a new lease of life after being shortened and renamed Nabucco West, and is in the final bidding to carry gas from the Turkish border to Austria. However, MOL continues to refuse to fund the project, and Hungary's stake has started to shrink.

The problems concerning Hungary's participation in South Stream - and the lucrative transit fees it stands to collect - had seen Gazprom in talks with Croatia over possibly running the route around its northern neighbour. However, Medvedev added that while there is an option to build a side branch of the pipeline to feed Croatia, the country will not be part of any gas transit.

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