Wednesday, April 17, 2024
HomeUkraine’s energy futureHungary seeks exemption for pipeline imports of Russian crude

Hungary seeks exemption for pipeline imports of Russian crude

As the European Union struggles to reach a consensus over an embargo on Russian oil, Hungary demands financial guarantees from the EU to join the bloc’s proposed embargo. Hungary’s Minister of Foreign Affairs and Trade, Péter Szijjártó said Budapest would have to spend 750 million euros on refinery and pipeline upgrades to be able to phase out crude imports from Russia. Therefore, Budapest says an exemption for pipeline imports would the “simplest solution.”

The EU has already recognised that some Member States face more difficulties to cut off Russian supplies due to their historic dependencies and gave more time to phase out their heavy reliance on Russian oil. However, Hungary required financial compensation for adapting its pipelines and refineries and for being forced to buy more expensive, non-Russian oil in future.

Hungary’s Foreign Minister said that under the proposed embargo phasing out Russian oil would cost 500-550 million euros to Hungary due to various investments. In addition, the capacity of the Adriatic pipeline in Croatia would need to be increased, which would cost an additional 200 million euros, although this investment is outside of Hungarian jurisdiction. The Minister underlined that following these investments, Hungarian fuel prices would increase by 55-60 per cent, which would generate an extraordinary price increase in the Hungarian economy.

“The EU should offer a solution to finance the investments and compensate for the price rises which necessitates a total modernisation of Hungary’s energy structure in a magnitude of 15-18 billion euros,” said the Minister.

He noted that such a proposal is highly unlikely, therefore the EU should grant an exemption for pipeline transport. “This is the simplest solution, which can satisfy the interests of Brussels on the one hand and does not put countries that transport oil by pipeline in an extremely difficult, unacceptable situation,” he underlined.

The Hungarian Minister also criticised the proposed embargo for having a very limited effect on the war in Ukraine. As some Member States would be given a transitional period of several months from the embargo, the first effects would come after half a year at the earliest.

The Minister underlined that if there is an exception for pipeline transport, Hungary can approve the proposal, until there will be no progress on the oil embargo.

Hungary’s MOL Group indicated before that they are not in a situation to replace Russian oil and crude oil products overnight as this would cause very serious disruption for the whole region. MOL processes an average of 14-15 million tonnes of oil per year of which 9 million tonnes are coming from Russia via the Friendship pipeline. There is some Hungarian and Croatian production, the rest is offshore oil from the Adriatic. From this, roughly 3 million tonnes are processed locally in Rijeka and 1.5-2 million tonnes are transported via the Adriatic pipeline to the refineries in Százhalombatta and Bratislava.

Source: MOL Group Danube refinery

MOL’s Danube Refinery in Százhalombatta, Hungary is one of the largest refineries in the Central and Eastern European region with a refining capacity of 165,000 barrels per day (8.1 million tonnes per year). The Bratislava refinery has a processing capacity of 124 000 bpd (6.1 mtpa). MOL Group’s refineries are at the forefront of European rankings in terms of complexity, which is measured by the Nelson Complexity Index (NCI). Thus experts suggested that MOL’s argument that it would pose serious technical challenges to switch to non-Russian oil is hardly credible. They argue that MOL’s position is rather based on cost consideration given the price difference between Brent and cheap Russian Ural.

MOL refuted these arguments saying that the most important thing is to guarantee the continuous and safe operation of the infrastructure and to guarantee the security of supply. MOL highlighted that giving up on Russian oil will cost a lot, according to their estimates this will amount to 500-700 million US dollars (470-660 million euros) and take at least three years given the complexity of the investment.

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