Hungary has signed a new long-term natural gas supply agreement with Russia. The 15-year natural gas agreement was concluded in Budapest on 27 September 2021, which envisages a reform of the gas supply map not only for the country, but for Europe as a whole. Diversification of supply routes means primarily using south-eastern interconnectors and the TurkStream for Hungary, and also signals the emerging role of the Nord Stream 2 pipeline to Europe and the unavoidable weakening of Ukraine’s gas transit capacities.
The agreement, which came into force on 1 October 2021, was signed by Russian Gazprom and Hungarian MVM group during Alexey Miller’s visit to Hungary[1] , and will guarantee Hungary’s energy supply for the next fifteen years. The new gas supply deal replaces the expiring one and will be in force until 2036. The current deal envisages Gazprom supplies up to 4.5 billion cubic meters of natural gas per year to Hungary, with an option to reconsider the delivery volume after the tenth year.[2] For the time being, all that is known about the details of the agreement is that Hungary managed to negotiate much more favorable financial terms than under the previous agreement from 1995, which ensures one of the lowest gas prices in Hungary among the EU countries.[3]
Diversification of the Gas Supply Routes
In accordance with the new gas deal, there will be major changes in previously used gas supply routes. The country’s gas supply routes have diversified, as the country receives Russian natural gas via TurkStream from 1 October, supplemented with using the gas pipelines of south-eastern Europe.[4]The included amount of Gazprom’s natural gas reaches Hungary in two routes, via the new Serbian interconnector[5](3.5 billion cubic meters) and via Austria (1 billion cubic meters).[6]
The Dissatisfied Third – Ukraine
However, the Hungarian-Russian agreement came as an unpleasant surprise for Ukraine and seemingly further strained the already tense Ukrainian-Hungarian relationship. The Hungarian-Russian gas deal has significantly redrawn the map of gas supply routes in Hungary, since by diversifying the routes to Hungary, the previously substantially used Ukrainian transport route has become bypassable. The suspension of gas flows to Hungary via Ukraine means a loss of relevant transit revenue to Ukraine, however, it does not impede its gas transiting to other European customers. Another consequence of the new Hungarian-Russian gas deal for Ukraine is the termination of the reverse import gas flow to Ukraine via Hungary, which has been operating since 2015 to replace Ukraine’s direct gas purchase from Russia.[8]
Differences of interest between countries resulted in diplomatic and political turmoil
Ukraine formulated sharp criticism against the Hungarian-Russian agreement claiming that it was taken ‘in favour of the Kremlin and to the detriment of Ukraine’s national interests and Ukrainian-Hungarian relations, which does not comply with the principles of the Treaty of Good Neighborliness and Cooperation between Ukraine and Hungary of December 6, 1991.’[9] Furthermore, a statement made by the Ukrainian Foreign Ministry initiated to postpone a meeting of the Hungarian-Ukrainian Economic Committee, also turning to the European Commission to assess whether the agreement is in compliance with the European energy legislation.[10] Ukraine’s attempt to undermine the country’s new gas agreement has been described by Hungary’s foreign minister as a gross violation of Hungary’s sovereignty and national security.[11] The Hungarian Prime Minister stated that ‘Hungary respects Ukraine and wishes the Ukrainian people much success, but with regard to the matter of gas, the country has to consider the interests of Hungarians, rather than Ukrainians.’[12]
Silence Gives Consent?
The 2021–2036 long-term natural gas supply agreement has so far provoked an active dialogue on bilateral (Hungary-Ukraine) / trilateral (Hungary-Russia-Ukraine) levels, but a resolution on this issue is expected from both the EU and the US in the coming weeks. The US position is expected to be preceded by a State Department statement saying instead that changes resulting from the new gas contract ‘support efforts to strengthen energy infrastructure connectivity in Central and Eastern Europe more closely with the rest of the EU, but also to the United States.’[13]
[1] ‘Hungary Summons Ukrainian Envoy Over Criticism of Russian Gas Supply Deal’, (RFE/RL’s Hungarian Service, 28.09.2021), https://www.rferl.org/a/hungary-ukraine-gazprom-deal-envoy/31481746.html, accessed 3 October 2021.
[2] ‘Gazprom to Pump More Gas to Hungary: New Long-term Contracts for 4.5bcm a Year’, (Energy Industry Review, 29.09.2021), https://energyindustryreview.com/oil-gas/gazprom-to-pump-more-gas-to-hungary-new-long-term-contracts-for-4-5bcm-a-year/, accessed 3 October 2021.
[3] ‘Gulyás: Government’s Deal with Gazprom Ensures Low Gas Bills for Hungarians’, (About Hungary, 30.09.2021), https://abouthungary.hu/news-in-brief/gulyas-governments-deal-with-gazprom-ensures-low-gas-bills-for-hungarians, accessed 3 October 2021.
[4] ‘Заключены 15-летние контракты на поставку российского газа в Венгрию’, (Gazprom Press, 27.09.2021), https://www.gazprom.ru/press/news/2021/september/article538438/, accessed 3 October 2021.
[5] ‘Foreign Minister Inaugurates Hungarian-Serbian Gas Interconnector’, (MTI-Hungary Today, 30.09.2021), https://hungarytoday.hu/foreign-minister-inaugurates-hungarian-serbian-gas-interconnector/, accessed 3 October 2021.
[6] ‘Hungary Signs New Long-Term Gas Supply Deal With Russia’, (RFE/RL’s Hungarian Service, RFE/RL’s Ukrainian Service, 27.09.2021), https://www.rferl.org/a/hungary-russia-gazprom-gas/31479747.html, accessed 3 October 2021.
[7] Current gas flows on FGSZ Ltd.’s high pressure natural gas pipeline network. https://fgsz.hu/en, accessed on 3 October 2021.
[8] Natalia Zinets, Andrew Osborn, ‘Ukraine Demands Sanctions on Russia’s Gazprom after Kyiv Loses Gas Imports’, (Reuters, 01.10.2021), https://www.reuters.com/business/energy/ukraine-says-gazprom-suspends-use-its-transit-system-hungary-supplies-2021-10-01/, accessed 3 October 2021.
[9] ‘Gazprom Signs 15-year Gas Supply Deals with Hungary’, (Offshore Technology, 28.09.2021), https://www.offshore-technology.com/news/gazprom-signs-15-year-gas-supply-deals-with-hungary/, accessed 3 October 2021.
[10] ‘Заява МЗС України щодо підписання Угорщиною довгострокового контракту з Росією на постачання газу в обхід України’, (Ministry of Foreign Affairs in Ukraine, 27.09.2021), https://mfa.gov.ua/news/zayava-mzs-ukrayini-shchodo-pidpisannya-ugorshchinoyu-dovgostrokovogo-kontraktu-z-rosiyeyu-na-postachannya-gazu-v-obhid-ukrayini, accessed 3 October 2021.
[11] ‘Hungarian Foreign Ministry Summons Ukrainian Ambassador over Gas Contract’, (Hungary Today, 28.09.2021), https://hungarytoday.hu/hungary-foreign-ministry-ukraine-ambassador-gazprom-russia-gas-contract/, accessed 3 October 2021.
[12] ‘PM Orbán Talks Ukraine, Army Development, Pension Premium, Opposition in Radio Interview’, (MTI-Hungary Today, 01.10.2021), https://hungarytoday.hu/viktor-orban-government-pension-premium-opposition-defence-ukraine-fourth-wave/, accessed 3 October 2021.
[13] ‘Hungary Summons Ukrainian Envoy Over Criticism of Russian Gas Supply Deal’, (RFE/RL’s Hungarian Service, 28.09.2021), https://www.rferl.org/a/hungary-ukraine-gazprom-deal-envoy/31481746.html, accessed 3 October 2021.
