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A new era for gas diversification – interview with Pál Ságvári, Hungary’s Ambassador-at-Large for Energy Security

Liquified Natural Gas (LNG) continues to be in high demand globally. In the European Union, LNG became for the first time the second source of gas covering 28 per cent of the total imports and increasing by 42 per cent year-on-year.

CEENERGYNEWS spoke with Pál Ságvári, Ambassador-at-Large for Energy Security at the Hungarian Ministry of Foreign Affairs and Trade, about the most recent developments in the LNG European industry and the future of energy diversification in Central and Eastern Europe.

The highly anticipated LNG terminal in Krk, Croatia, sold all the available capacity for the next three gas years. First, MFGK Croatia, subsidiary of the Hungarian state-owned energy group, MVM, booked 6.75 billion cubic metres (bcm) from 2021 until 2027. In May, also MET Croatia Energy Trade, a 100 per cent subsidiary of Switzerland based MET Group, submitted a binding offer to book capacities for a three-year period, amounting to 1.3 bcm overall.

“Croatia’s willingness to deliver the regasification terminal on time despite COVID-19 was confirmed by Croatian Energy Minister Tomislav Ćorić in a recent phone call with Hungarian Minister of Foreign Affairs and Trade Péter Szijjártó,” says Mr Ságvári. “One of the very few collateral benefits from the pandemic is that it sent oil and gas prices down, which of course was bad news for upstream players. For the buyers, however, including Hungary and those major energy companies in the CEE region that entered this period with a short gas balance, this came as a golden opportunity.”

Beside Croatian LNG, Hungary is also actively considering some other source diversification options which include the Southern Gas Corridor, the Romanian Black Sea offshore Neptun project and the North-South Gas Corridor from the Baltics to the Balkans.

“The deals in Croatia are indeed of an historic significance as they mark the beginning of a new era when the Russian import source is not exclusive in the region any more,” underlines Mr Ságvári. “From this aspect, Krk LNG as an access point to the global LNG market is, of course, a strategic asset not only for Hungary but for other countries too, like Slovenia or Ukraine.”

In particular, Hungary remains interested in energy cooperation with Croatia. Last year, Hungary made an offer made to make a purchase for 25 plus one per cent of the shares of the company that owns and operates the LNG terminal. According to Mr Ságvári, the offer is still on the table.

“It was reiterated several times that Hungary is interested in entering Croatia LNG as a minority equity partner and the Croatian side confirmed its openness to discuss that,” he explains. “But at this point, there is no agreement. In the framework of a strategic partnership, Hungary and Croatia should jointly develop an LNG vision that has relevance for both sides and also on a regional level. On 5 July there will be parliamentary elections in Croatia. Irrespective of the outcome Hungary is ready to continue talks in this regard.”

When it comes to gas routes’ and sources’ diversification, the region is also counting on many projects.

“The basic tenets of Hungary’s diversification policy are very simple: first, the more options we create the better and second, market terms should prevail,” Mr Ságvári says.

“To be more specific, we always emphasise that introducing gas from Romanian offshore fields would have the biggest diversification impact in this region. Although others may turn out to be relevant, too, the Neptun is the most mature field both from a technical/geological aspect and as a business case.”

Unfortunately, he reminds that the consortium partners OMV Petrom and ExxonMobil have not made a final investment decision over the last year due to internal Romanian political turbulences and lacking a sufficiently favourable regulatory framework. However, Hungary has a vested interest in the success of Black Sea offshore gas projects and it hopes to see them proceed soon.

“In the absence of any viable and sizeable alternative for the medium term it is only natural that we prepare the new Hungary-Serbia reverse-flow project to access gas arriving through the TurkStream via Bulgaria,” Mr Ságvári continues. “We are confident that this project will be realised. Fulfilling two strategic aims at the same time, the new pipeline will, on the one hand, mitigate the inherent supply security risk of the Ukraine transit route and, on the other, open a new route from the south.”

Recently, Hungary’s transmission system operator FGSZ revealed that as of October 2021, 6 bcm of gas a year may come from Serbia. While Mr Ságvári confirms that such capacity would be enough to cover the needs on the Hungarian market, a larger volume may be justified in case there is market demand for transit.

“The 15-kilometre long Hungarian section of this pipeline will be completed by October 2021,” he confirms. “Construction works in Serbia will be ready by then but some months of delay may be expected in Bulgaria.”

And with the LNG demand rising, the European Commission has raised some concerns regarding the fact that several gas hubs in the EU have not yet reached maturity and that all primary capacity is allocated to only a few users via long-term contracts.

For example, Poland’s Świnoujście terminal allocates its primary capacity by approving applications from interested parties and engaging in bilateral agreements. Polish state-controlled oil and gas company, PGNiG contracted the entire terminal regasification capacity in October 2017, through an agreement that will remain in force until 2034.

“We understand that major long-term players might foreclose access to LNG infrastructure in certain markets but I don’t think this would be the case at Krk,” says Mr Ságvári. “The EU set strict regulation on third party access to Krk LNG in exchange for its financial grant. The fact that five different companies already made capacity bookings at Krk is a direct result.”

Overall, Mr Ságvári notes that the pandemic and the price dispute between Russia and Saudi Arabia resulted in a sudden double pressure on market prices.

“We currently see a loss of appetite of American LNG producers for introducing the originally planned 150-200 bcm yearly volume to the global market by the mid-2020s,” he explains.

“Therefore, today’s buyers’ market may soon be a thing of the past – or it might as well endure as a consequence of bolder moves from major players that intend to fill the void left by the Americans. Qatari and Russian companies are taking rapid strides for example.”

Qatar, in particular, made a move by sending an offer to the Krk terminal via POWERGLOBE which will deliver LNG cargoes mainly from Qatar and the US.

“Another significant market motive is the European Green Deal,” continues Mr Ságvári. “The supply of gas may be downscaled as development and commercial banks are increasingly becoming reluctant to finance oil and gas upstream projects in line with new EU policies.”

The European Commission confirmed how the gas infrastructure plays a role in achieving the environmental ambitions of the European Green Deal, which foresees the decarbonisation of the gas sector via a forward-looking design for a competitive decarbonised gas market. Therefore well-functioning liquid gas markets are a prerequisite for ensuring affordable energy for consumers, the competitiveness of industries and security of supply.

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