Hungary seeks to fill South Stream-shaped hole

By bne IntelliNews January 27, 2015

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Hungary is pushing to establish a project to collect gas from Russia's proposed "Turk Stream" pipeline and ship it to Central Europe, Foreign Minister Peter Szijjarto said on January 26. 

At a news conference in Turkey, Szijjarto said Budapest has already kicked off talks with Greece, Macedonia and Serbia over a potential route to carry some of the gas that Moscow wants to deliver to a gas hub on the Turkish-Greek border.

Hungary and Serbia are still smarting over the cancellation of Gazprom's South Stream gas pipeline. The 63bn cubic metre (cm) South Stream pipeline was designed to transport gas to Europe from Russia under the Black Sea, bypassing Ukraine. It was planned to go across Bulgaria, Serbia and Hungary, ending in Austria, but eventually fell victim to its dodgy economics and the rising tensions between Moscow and the EU.

At the same time as sounding South Stream's death knell in December, Russian President Vladimir Putin surpisingly said Gazprom would instead look to pump European exports via Turkey.

The annual capacity of this new route, dubbed "Turk Stream", is also planned at 63bn cm, according to Gazprom. Turkey would take 14bn cm, with the rest transferred to a hub on the border with Greece for onward transit to other European countries.

That has set heads spinning in former South Stream partners - as well as others - as they tot up the options of clambering back on board the gas gravy train before others manage to.

If or when Moscow and Ankara come to a final agreement on the new gas pipeline to Turkey, Budapest will start talks on the transit of Russian gas from Turkey to Europe, the Hungarian official said. "Our task now is to prepare investments through which gas supplied to Turkey can be shipped to central Europe," Szijjarto explained, according to

"We have already started negotiations with Serbia and Macedonia about a possible new delivery route. And we would like to get in touch with the new Greek government as soon as possible," he continued. "We are consulting with the European Commission on what financing help the European Union could provide."

Hungary was perhaps the most enthusiastic of the potential host states for South Stream, and is now looking, it says, for alternative options to secure gas deliveries. Currently Hungary gets most of its gas from Russia via Ukraine. At the same time, it is also hunting for ways to secure the huge transit fees and other benefits that would accrue to the economically struggling southeast corner of Europe. Hungarian Prime Minister Viktor Orban's government had prepared for the now-defunct project by taking over the bulk of the country's gas infrastructure at a high cost to state coffers.

Obstacle course

However, there's more than one potential obstacle. Hungary – like fellow disappointed South Stream host Bulgaria and Slovakia, which sits on the mainline route from Ukraine to Europe – is jostling to offer to solve the main issue: there is no European infrastructure right now to collect the gas from the Turkish border.

The EU's deputy energy chief, Maros Sefcovic, told the Wall Street Journal on January 22 that the Russian plan "would not work". Gazprom CEO Alexei Miller reportedly told the European Commission at a meeting in Moscow earlier this month that the EU must start building pipelines to the Turkish-Greek border "today" if it wants to receive Russian gas beyond 2019.

Sefcovic also claims that the capacity of Turk Stream is far greater than demand in Turkey and Southeastern Europe. 

At the same time, Gazprom is also busy extolling its new gas deal with China. Signed last year after over a decade of talks, the agreement offers the Russian company its first significant chance to diversify away from supplying European customers.

Yet building supply routes both east and south at the same time could be challenging for Gazprom. "[F]inancial sanctions may prevent the company from being able to simultaneously finance a number of very large pipeline export projects", suggest analysts at The Oxford Institute for Energy Studies.

Meanwhile, Ankara and Moscow have some disagreement over the route of the project. The Turkish side has cautiously noted that only a memorandum of understanding has been signed at this point.

Southern Corridor

Russia's announced plan to divert all gas exports from Ukraine to the new Turkish route reinvigorates discussion over the EU's "Southern Corridor" project to tap non-Russian gas, as well as energy security in Southeast Europe.

Slovakia, relieved to see the demise of South Stream, has moved quickly to propose Eastring, which would link its network to Romania and on to Bulgaria to offer supplies from the EU.

Bratislava officials, meanwhile, met with peers from gas producer Azerbaijan on January 26, where the pair spoke of huge potential in energy transit. Azerbaijan is set to start pumping 16bn cm of its gas via Turkey and across the Balkans to Italy in 2019. Eastring would potentially allow Slovakia to link to Turkey's planned Tanap pipeline that will carry the Azeri gas across Turkey.

Meanwhile, Russia's proposal to shift gas deliveries to the south has Central European consumers on edge. Hungary is seeking to more than double the amount of Russian gas it stores. Under an existing agreement, Russian gas giant Gazprom can store up to 700mn cm in the country.

It remains to be seen whether Hungary will secure a deal to store more Russian gas, with the issue will likely be one of the main topics discussed during next month’s visit of Putin in Budapest. Budapest's desire to link up with Turk Stream is also presumably on the agenda.

The Russian president's February 17 trip to Hungary is surrounded by speculation, with reports circling that Budapest is ready to sell some of its gas assets to Moscow. Officials have flatly denied any such plan.

However, on top of the controversial invite to Putin, Hungary's enthusiastic encouragement of Turk Stream will do little to improve Orban's standing with the US and EU, which want to secure as much of Ukraine's leverage over Russia as possible as the war in Donbass intensifies once again.

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