Hungary reaches new energy agreements in Moscow

Hungary reaches new energy agreements in Moscow
Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto signed energy agreements in Moscow on April 11. / Facebook
By Tamas Csonka in Budapest April 12, 2023
Hungary signed new energy agreements in Moscow to ensure the uninterrupted supply of Russian gas and crude oil to Hungary and to amend the financing of the Paks nuclear power plant expansion, Minister of Foreign Affairs and Trade Peter Szijjarto said after talks in Moscow on April 11.
The new agreements once again fly in the face of efforts by other EU and Nato states to reduce their dependence on Russian energy and avoid direct contacts with Russian President Vladimir Putin's regime.
Hungary’s top diplomat discussed the security of the TurkStream pipeline with Russian Deputy Prime Minister Alexander Novak, who is in charge of energy matters.

Representatives of the finance ministry, energy ministry, Rosatom and Transneft also attended the talks.

Hungary receives Russian oil through the Druzhba (Friendship) pipeline, and gas through the TurkStream through Bulgaria and Serbia based on a 15-year agreement with Gazprom signed in late 2021. The agreement allows the annual shipment of 4.5 bcm of gas, but last year Hungary secured an additional 700 mcm. Last year, it imported 4.8 bcm of gas from Russia.

Szijjarto announced that an agreement was reached on extending an option for Hungary to buy gas over the volume stipulated in its long-term purchase contract, if necessary. He noted that 80-85% of Hungary's gas comes from Russia and its continuous, uninterrupted delivery is of "critical importance".

"Russia has always been a reliable supplier of energy resources, in the future we are also ready to provide reliable supplies to Hungary," Novak said.

An agreement was also reached allowing Hungary to defer payments of its gas over a €150 price threshold in preparations for "extreme situations", according to Szijjarto.

In spite of sanctions, the Russian side offered assurances that all technology, know-how and parts are at its disposal to ensure the maintenance of the TurkStream pipeline, through which Hungary gets most of its gas.

The parties agreed on the continued delivery of Russian crude to Hungary's MOL through the Druzhba pipeline that runs through Ukraine. The Hungarian oil and gas company will negotiate direct transit fees with the Ukrainian operators of the pipeline, he added.

Hungary is one of the most dependent countries on Russian energy. The Orban government has come under criticism for not speeding up the process of reducing its dependence on Moscow.

"The Hungarian government is not willing to give up the security of the energy supply for any political reason," Szijjarto said at an energy conference in Bosnia last month, adding that Budapest is counting on Russian gas for at least 5-8 more years.

While other European countries have successfully found alternatives to Russian gas supply, Hungary is planning to build three combined cycle gas turbines (CCGT) in a couple of years with a total capacity of up to 1,650 MW to meet the energy needs of new industrial facilities.

An agreement has been reached to amend the contract for the construction and financing of the Paks 2 expansion, Szijjarto said, adding that the two new 1,200 MW blocks should be built as quickly as possible.

"We have been through a long negotiation, but today we have agreed on all the necessary issues that will guarantee that the investment could go ahead", he added.

"We hope that the European Commission does not wish to jeopardise the long-term security of Hungary's energy supply, which can be guaranteed by the construction of the new blocks at Paks," he added.

The Russian nuclear sector has been spared from EU sanctions, but Poland and Lithuania are pushing to impose sanctions on the country's nuclear energy industry as part of the 11th round of sanctions. Hungary, which heavily relies on Russia supply of fuel rods, would receive exemptions, according to reports.

In recent weeks, Hungarian officials openly acknowledged that the government is reviewing the €12.5bn expansion of the country's sole nuclear facility, a project led by Rosatom and financed by a €10bn Russian state loan, as the project suffered delays and following the German government's blocking permits to Siemens for the delivery of the control equipment for the new reactors. The German industrial giant has a contract for delivering the equipment together with Framatome, France’s state-owned nuclear reactor maker.

France was offered a bigger role, but Budapest is not planning to abandon the project led by Rosatom and replace the main Russian reactor design with other ones as that would involve a new licensing procedure with the EU and the International Atomic Energy Agency as well as local nuclear authority, a process which could drag on for years. The largest greenfield investment is behind schedule by at least 5–7 years and even if everything goes according to plan, the two new blocks won’t go operational before 2030.

On his Facebook page before the trip, Szijjarto recalled a report of the International Energy Agency, which warned of rising global energy needs due to rise in demand in China and said that Europe may face supply difficulties due to the slow pace of development of energy infrastructure.