Hungary will delay the launch of the “Turkish Stream” in full: US sanctions and gas prices

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Hungary will delay the launch of the

Budapest postpones expansion of the gas interconnects under construction with Serbia for a year due to US sanctions. The gas pipeline will supply gas from the European branch of the Turkish Stream to Hungary and Austria. At the same time, the country’s authorities declare that gas imports from Azerbaijan may begin along this route in two years. Experts believe that Budapest is using the situation to bargain for more attractive terms for the supply of Russian gas.

The Hungarian gas transmission system operator FGSZ has published the decision of the state regulator MEKH to postpone the expansion of the interconnector on the border of Hungary and Serbia from 6 billion cubic meters to 8.5 billion cubic meters from October 1, 2022, to October 1, 2023, for a year. The document on amending the ten-year plan for the development of the Hungarian GTS says that one of the reasons was the imposition of US sanctions on the Turkish Stream in July 2020. Then the State Department said that from July 15, section 232 of the Law on Countering America’s Adversaries Through Sanctions (CAATSA) may apply to both Nord Stream 2 and Turkish Stream. It bans investment, the sale of materials and equipment, and the provision of services for Russian energy export projects.

The Hungarian regulator noted that it postponed the expansion project at the request of the operator, which, due to uncertainty about the sanctions, had to stop the “open season” for collecting applications for the distribution of the capacity of the future expansion of the interconnector and, as a result, does not have time to meet the construction schedule. This is stated in the MEKH decision. In it, the regulator notes that the construction of the interconnector itself continues and with a capacity of 6 billion cubic meters a year it is planned to launch it by October 1 of this year.

The specificity of the “Turkish Stream” is that it ends in Turkey, and for the supply of gas from it in Bulgaria, Serbia and Hungary are building separate gas pipelines, which will belong to the operators of these countries. Formally, they have nothing to do with the Black Sea gas pipeline project and are completely separate projects. However, Budapest decided to play it safe.

Obviously, one of the reasons may be the unofficial pressure of the American authorities for Hungary to increase the purchase of gas from alternative sources. One of the confirmation of this may be the situation with LNG supplies to the country – through a new terminal in neighboring Croatia.

The Hungarian edition “444” wrote that American diplomats insisted on a capacity of 5-10 billion cubic meters per year. However, countries simply do not need such volumes, and they agreed to 2.6 billion cubic meters. At the same time, the final point in deciding the fate of the terminal on the island of Krk was set by Budapest, without which it could not be. The Hungarian newspaper noted that there were few people willing to buy gas through Croatia, and the Hungarian government asked the MVM state group to conclude a contract for 1 billion cubic meters per year. She agreed, but three-quarters of the LNG purchased would still remain in Croatia in exchange for Russian gas, as the Croatian Energy Agency charged very high fees for the outgoing capacity to Hungary.

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On the other hand, Hungarian companies now have short-term contracts with Gazprom, and Budapest has already announced that it wants to bargain for more attractive terms for purchasing 6.2 billion cubic meters a year.

“Our goal is to sign three five-year agreements that will allow us to cancel the deal every five years,” Hungarian Foreign Minister Piotr Siyjarto said last June. He clarified that such a form would guarantee long-term supplies, as well as the ability to change contracts or abandon them if a better offer appears on the energy market.

Possibly, Hungarian statements about the possibility to purchase significant volumes of Azerbaijani gas from the “Southern Gas Corridor” are also connected with the negotiations on future contracts.

“At the end of this year, Hungary will join the Southern Gas Corridor. Hungarian gas pipelines will be connected to Serbian gas pipelines. It is important that Hungary receives gas from the Southern Gas Corridor. Azerbaijan can increase gas production, ”Hungarian Foreign Minister Petr Siyarto said today, March 10, at a joint briefing with the Azerbaijani Foreign Minister in Baku. He added that in 2023-2024 Hungary will be able to receive a significant amount of gas from Azerbaijan.
However, this is possible only through gas pipelines in Serbia and Hungary, which are being built for gas from the Turkish Stream. Deputy Director of the National Energy Security Fund (NESF) Alexei Grivach notes that on the border of Bulgaria with Serbia, for example, it is planned to build a 109-kilometer additional interconnector with a capacity of 1.8 billion cubic meters, “however, it will not allow gas transit through Serbia to Hungary.” The expert believes that Serbia will have to build additional capacities for the transit of Azerbaijani gas and invest in expanding infrastructure.

It’s the same with the Hungarian interconnector. Gazprom originally planned to supply 9 billion cubic meters of gas from the Turkish Stream to Hungary and Austria itself.

“I think the statements of the Hungarian side about the possibility of purchasing Azerbaijani gas are another attempt to get more favorable conditions,” says the deputy director of the FNEB.
However, this does not mean that small volumes of Azerbaijani gas will not enter Hungary. The situation with booking capacities after the delay in the launch of the Turkish Stream extensions is now unknown. For example, Bulgartransgaz publishes the booked volumes of supplies to Serbia only until the end of the year, although at the beginning of 2019 it announced that all 12 billion cubic meters of capacity were bought at the auction.

Also, it cannot be ruled out that with a full load of the Turkish Stream and its extensions, Gazprom and the buyers of Azerbaijani gas in Europe will not use the swap when the Russian company, for example, fulfills the obligations of its partners in Hungary, and those – obligations of Gazprom, for example, in Greece. …