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Hungary signs historic long-term gas supply agreement with Shell

Hungary’s Foreign Minister Péter Szijjartó announced on Friday that Hungary will buy 250 million cubic metres (mcm) of liquefied natural gas (LNG) annually for six years from oil and gas company Royal Dutch Shell via Croatia’s Krk LNG port.

Earlier in June, Hungary’s state-owned energy group MVM announced its plans to purchase up to 1 billion cubic metres of gas per year via the Krk terminal between 2021 and 2028.

“This means that Hungary will secure 10 per cent of its gas supply from the West, which is a huge step in Hungary’s energy diversification,” highlighted the Foreign Minister.

István Kapitány, Global Executive Vice President of Shell said the company is a pioneer in the LNG industry, with more than 50 years of experience in LNG production, trading, storage and transportation. He emphasised that natural gas is the cleanest fossil fuel, that helps to meet the growing demand for more and cleaner energy by replacing coal and other liquid fuels.

The long-term purchase agreement with Shell is the first long-term contract in the history of Hungary with a Western player. Like many other countries in the region, Hungary has relied mostly on Russian gas to cover its import needs, fundamentally from long-term supply agreements with Gazprom.

The Foreign Minister emphasised the two aspects the government is taking into account when deciding on Hungary’s gas supply: the reliability of the supply and the price.

“Partly due to the coronavirus pandemic and partly due to the major overproduction that preceded it, the price of LNG fell below that of pipeline gas,” he explained. “Therefore, we decided to increase the role of LNG in the country’s gas supply.”

“The contract was concluded at a competitive price, which makes it possible to maintain the results of reduction of household utility bills,” added Mr Szijjártó.

Hungary already made the first steps to shift its gas portfolio by reserving capacities in Croatia’s LNG regasification terminal, that is scheduled to begin operations in the next few months. The long-term agreement with Shell is another step in this direction.

Natural gas is a critical source in Hungary’s energy mix, accounting for 30 per cent of overall consumption, around 80 per cent of which is imported. In the past years, Hungary carried out major infrastructure investments and concluded the necessary agreements to secure its gas supply.

“Our gas infrastructure is now connected to six neighbouring countries out of the seven,” said the Foreign Minister adding that Hungary aims to receive gas from as many directions and as many sources as possible.

Pál Ságvári, Ambassador-at-Large for Energy Security at the Hungarian Ministry of Foreign Affairs and Trade earlier told CEENERGYNEWS that besides Croatian LNG, Hungary is also actively considering some other source diversification including the Romanian Black Sea offshore project and the Southern Gas Corridor. The Neptun project faces uncertainties due to Romania’s offshore law, however, Hungary just announced in July its intentions to buy 1-2 bcm of gas from Azerbaijan from 2023.

In the meantime, Hungary also agreed on a 6.2 bcm deal with Gazprom and said it wanted a flexible long-term agreement with the company. When announcing the deal the Minister of Foreign Affairs noted that in addition to negotiations on the quantities to be shipped, the expansion of transport routes is also progressing, highlighting the construction of the Turkish Stream gas pipeline which will enable the transport of 6 billion cubic metres of natural gas to Hungary from the South from next October.

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