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Energy Policy is Based on Hard Facts, Not on Ideology: The Case of Hungary

The TurkStream pipeline, under construction before 2020.

Hungary has made headlines again, this time for not supporting the planned radical European sanctions on energy imports from Russia. In addition to the fact that the full suspension of natural gas imports in the affected countries would be disastrous for the economy and for the population alike, it should be stated that securing the sources of energy and the interrelations of energy policy and geopolitics can be neither explained nor resolved by ideologies. Ideology may satiate the mind; moralising, the soul. But only hard facts are relevant to the current question of importing Russian energy.

Mátyás Kohán, journalist for the Hungarian news portal Mandiner, explains what those facts are, using Hungary as an example. Although denounced by many as “pro-Russian,” Orbán’s government has laid all the infrastructure necessary to be independent from natural gas supplied by Russia. Implementing the plan though has been impossible, due to other countries in the region, including Greece, Romania, and Croatia. 

Infrastructural constraints

Since Gazprom stopped natural gas deliveries to Poland and Bulgaria, the issue of energy independence from Russia has taken on new urgency. In this article, we provide an outline of the physical and geographical realities of Central European natural gas supply, facts that remain unaffected by ideological considerations.

Here is one fact: with the suspension of deliveries by natural gas supply giant Gazprom, Poland and Bulgaria have not detached themselves from Russian natural gas as such. They were merely decoupled from Gazprom, the company. It has discontinued delivering the gas volumes booked in its contracts with the Polish and the Bulgarians for as long as they refuse to pay “in rubles.”

The situation that has evolved is regarded as a breach-of-contract by Gazprom, Poland, and Bulgaria alike, and each is right—only in part, in their own different ways. Poland and Bulgaria are claiming that by unilaterally changing the specified currency of payment, it is Gazprom who broke the contract, and it is also a breach of contract that it stopped deliveries. 

But such assumptions are not correct. The fact remains that it is not the currency of accounting which has changed, but the specified recipient of the transfers, which are still being made in euros.   

Previously, euro transfers had to be made directly to Gazprom Export, but the Russians are currently requesting payment to Gazprombank, which in turn changes the euro payment into rubles, before transferring the amounts to Gazprom Export. 

Thereby, Europeans are still in fact paying in euro, in line with the contract, and Gazprom is receiving payment in rubles. Each side is getting what they want. In the meantime, the revenues from gas sales artificially strengthen the exchange rate of the rouble. This situation is not acceptable to the Polish and Bulgarians, who want nothing to do with strengthening the ruble. So, Gazprom accuses them of refusing to provide “payment in rubles.” 

Only Poland has found a way out of the situation: recently it started to fill up its gas storage facilities with Russian natural gas in order to be able to pull through the next heating season, and it hopes that the Polish-Norwegian gas pipeline, of significant capacity, will be completed by the end of the year. Bulgaria hopes to receive Azeri gas, but for the moment it is unable to receive it physically; it hopes to purchase natural gas from its neighbours. But at the moment, Serbia, Romania, and Turkey are all dependent on Russian gas, even though it is not delivered by Gazprom.  

Thus, Bulgaria continues to be tethered to Russian gas supplies, similarly to Ukraine, who procures Russian gas via Hungary. Right now, Poland is still buying Russian gas, receiving it from Germany, until the Norwegian pipeline becomes operational. 

Currently, Poland and Bulgaria have only detached themselves from the Gazprom company, and not Russian gas itself. They have switched from a cheaper source to a more expensive one, purchased from the West.  

This “game” could also be played by Hungary from the direction of Austria, since over and above the long-term Russian gas supply contract, gas—Russian gas, mostly—is also available on the European gas exchange. This, however, would only cause the Gazprom logo to disappear, while making the same Russian gas more expensive for Hungary—and it would fail to resolve the issue of dependence on Russian gas. 

Hungary’s gas pipeline map with the new interconnectors in every direction.

This is how Hungary managed to diversify during Orbán’s terms in office

Here is another fact: European gas supply infrastructure fails, for the moment, to facilitate Central European countries’ independence from Russian natural gas supply. Hungary, in contrast, was doing everything in its power since 2010, on its own initiative, to diversify energy sources.

In 2010, when the Orbán government took power, Hungary only had the capability of importing gas into the country at two points: Russian gas arriving via the Testvériség (Fraternity) gas pipeline entering at the village of Beregdaróc from Ukraine, and gas arriving via Austria at Mosonmagyaróvár from western distribution centres. 

Through the Austrian vector, in addition to minor volumes of European production, Russian gas dominated the supply, delivered via the Yamal-Europe pipeline through Poland and Germany. Therefore, practically speaking, Hungary was unable to purchase anything but Russian gas. The gas supply “diversification” of Budapest consisted of nothing but the possibility to substitute Ukraine, to a certain extent, if the Fraternity gas pipeline was damaged, or in the case of a Russian-Ukrainian gas dispute. Furthermore, although Hungarian-Serbian, Hungarian-Romanian, and Hungarian-Croatian gas pipelines existed already, the pipelines were designed for export only. Hungary could export gas, but had no means for its importation.

By 2021, all three unidirectional gas pipelines were converted into bidirectional lines in Hungary. These interconnectors have made it possible for Hungary to import gas from Romania since 2014; from Croatia since 2019; and from Serbia since 2021. In addition to line alterations, a bidirectional gas supply link between Slovakia and Hungary was installed in 2014.  

Although Russian gas is being used by the overwhelming majority of Hungary’s neighbours, so far, the practical benefit of converting the interconnectors into bidirectional ones has provided Hungary with the possibility to close out unstable Ukrainian deliveries. 

With the new Russian-Hungarian long-term, ten-plus-five-year gas supply contract that had been signed before the war, it is what has happened indeed: as per the original contract, 3.5 billion cubic metres of gas is arriving in Hungary from Austria annually, and 1 billion cubic metres of gas is arriving from Serbia, to which one billion cubic metres could be added, as declared at the meeting of Viktor Orbán and Vladimir Putin in February.    

At the same time, with the help of the interconnectors, Hungary is also enjoying the benefits of the expansion of the European-Russian gas supply infrastructure: from the direction of Austria, Hungary has access to Russian gas arriving in Germany on the Nord Stream (opened in 2011–2012), and Russian gas supplied via the TurkStream pipeline (completed by 2020) via Serbia, thanks to the installation of the Serbian-Bulgarian interconnector.

The Serbian-Bulgarian line capacity is also planned to be extended with a new interconnector, and, consequently, Hungary in the long term will be in the position to procure Russian natural gas on two different routes even if Western Europe as a whole stops its imports, ceasing to use either the Nord Stream or the Yamal-Europe pipeline. 

Non-Russian gas sources are welcome

Hungary’s new interconnectors opened three capacities for the country, by which real diversification could be pursued.

It was precisely Orbán’s government—wrongly accused of being “pro-Russian”—who managed to prepare itself for receiving North-African, Romanian, and Azeri gas. Without the new interconnectors, these lines of supply would not be available for Hungary even in theory, and the natural gas volumes imported by Hungary would be 100% Russian. 

Hungary has been importing gas from the Croatian island of Krk, through the port city of Omišalj, mostly from Algeria. But once production in the Eastern Mediterranean is boosted, Israeli, Egyptian, and Cyprian gas could also be delivered there. The biggest client of the terminal on Krk is already the Hungarian Electricity Works (Magyar Villamos Művek). Although gas sources from Croatia cannot fully satisfy Hungary’s gas demand, it still represents a significant alternative source of gas—limited by the capacity of the terminal on Krk, and not by Hungarian intention or infrastructure.

Hungary has also done everything possible to make Romanian and Azeri gas accessible. Azerbaijan gas could substantially decrease the country’s dependence on Russian energy: by October 2021, all facilities required in Hungary for importing Azeri gas were completed.

Unfortunately, Hungary cannot proceed. There is no Azeri gas in Hungary because of the failure of Greece, whose Greek-Bulgarian interconnector remains incomplete. Azeri gas, at the moment, cannot be dispatched from Turkey to the Balkans because it is delivered on the Trans Anatolian Natural Gas Pipeline (TANAP), which has reached Greece, but remains unconnected (via TurkStream) to Bulgaria to this day. 

This issue affects Hungary, but also Romania, since without Azeri natural gas the Bulgaria, Romania, Hungary, and Austria (BRUA) pipeline construction, with a price tag of half a billion euros, is still nothing but money burnt at this stage. It has been promised, however, that the Greek-Bulgarian interconnector will be completed by the end of 2023. Hungary at that time will be able to commence natural gas imports from Azerbaijan, which will be conducive to a significant reduction of the country’s dependence on Russian natural gas. 

Regarding the question of energy rights, Hungary has planned ahead: Mol, the Hungarian oil company, is the third biggest owner of the production rights of ACG, the largest gas field of Azerbaijan. 

Romania cannot send gas

Romania is the weakest link in Hungary’s diversification plans. Hungary has not seen any of the Romanian gas of Neptun, the Black Sea oil field. In 2018, Romania levied a significant production tax, effectively blocking the extraction project owned by American ExxonMobil and OMV of Austria (both countries held 50%), forcing Exxon to opt out. Their share was purchased at the end of last year by the Romanian state-owned company Romgaz. 

The Romanian government recently promised to amend the tax regulations blocking extraction in the first half of this year, in exchange for keeping 40% of natural gas produced inside Romania’s borders.

But, according to project manager OMV Petrom, major infrastructure development projects must be completed before extraction and transport can commence. Until then, Romanian natural gas is impossible to deliver to Hungary before 2025, even though Budapest is ready to receive it. 

Conclusion

The  energy strategy of the Orbán cabinets since 2010 was to navigate Hungary away from dependence on Russian natural gas and to expand opportunities for diversification. This is a fact that can be verified through the material investments made over the past twelve years to connect Hungary with various energy sources. 

Due to the infrastructural developments implemented by the Orbán government, Hungary still hopes to tap into alternative gas providers, however other European countries will have to complete construction of the material substructures to make this happen.

Mátyás Kohán is a foreign policy writer for the Hungarian weekly Mandiner. He has written extensively on the U.S., Russia, Germany, and Italy and appears regularly on national television.

This commentary originally appeared at Mandiner on May 2, 2022. It was translated and edited and appears here by kind permission.

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