Hungary-Russia gas deal to hurt EU-backed Nabucco

Oil&Gas Materials 27 February 2008 15:45 (UTC +04:00)

(dpa) - When Hungarian Prime Minister Ferenc Gyurcsany flies to Moscow on Thursday to sign up to Russia's South Stream gas pipeline, he will be delivering what many believe is a serious blow to the European Union's hopes of diversifying its gas supply.

Energy security has been particularly high on the European agenda since January 2006, when a dispute between Russia and Ukraine saw the EU hit with major gas shortages.

Hungary, which receives around 70-80 per cent of its gas from its former overlord, was one of the countries most affected and since then, it has jumped on the diversification bandwagon.

But while most other EU nations are looking to the EU-backed Nabucco pipeline, which aims to reduce Europe's reliance on Russian gas by bringing in Central Asian gas through Turkey, Hungary has been happy to throw in its lot with Russia.

When Gyurcsany and Russian Deputy Prime Minister Dmitry Medvedev - also Gazprom chairman and likely to be the next Russian President - announced the agreement in Budapest on Monday, many were quick to pronounce South Stream the winner in the gas pipeline war.

"The deal makes the prospects for Nabucco weak," Konstantin Batunin, oil and gas analyst at Alfa Bank in Moscow, told Deutsche Presse-Agentur dpa. "We see more and more nations taking steps to get closer to South Stream because they think that is ... more likely to happen."

Energy giant Gazprom has already secured the cooperation of Bulgaria and Serbia in the project and hopes to have the pipeline, which will bring Russian gas in under the Black Sea to Italy, with a branch to Austria, up and running by 2013.

Meanwhile, Nabucco is still in negotiations about adding new partners and is viewed as being less likely to happen in some quarters.

According to Batunin and other analysts, nations such as Hungary, Serbia and Bulgaria are happier to sign onto South Stream because it has a guaranteed source, whereas Nabucco still has to cast about for suppliers.

"South Stream has always been in front, because it is backed by Gazprom, and that is the entity which is in charge of supplying gas," said Batunin. "It is entirely a matter of whether the gas volumes available are enough to fuel the [Nabucco] pipeline."

Gyurcsany and his allies, for their part, insist that Hungary is still committed to the Nabucco pipeline and that the two projects are not mutually exclusive.

However, this is the same man who in the past called Nabucco "a dream" and dithered about committing his nation to it.

Perhaps also troubling is the fact that the South Stream pipeline is expected to bring in 30 billion cubic metres of gas per year, of which the Hungarian arm is expected to use a third.

Hungary currently consumes about 15 million cubic metres of gas per year, although this is expected to rise by around 10 per cent.

Considering the South Stream deal will provide much of this capacity and that domestic gas and the current Ukrainian pipeline are also available, it is easy to understand why some feel the government's commitment to Nabucco is suspect.

The decision has not been popular, either abroad - with US officials calling on Hungary to commit itself to Nabucco - or amongst opposition parties at home.

Perhaps more surprisingly, though, Gyurcsany has found himself under attack from within his own coalition.

Current Minister of Economy and Transport Csaba Kakosy and the former incumbent Janos Koka, now head of the junior coalition Alliance of Free Democrats, on Wednesday issued a joint statement seemingly criticizing the deal.

"For Hungary the most important thing is to ... diversify the gas sources, which only the Nabucco project makes possible," they said.

Calls from both the junior coalition party and main centre-right opposition party Fidesz for an extraordinary parliamentary session to discuss the deal have been rejected, so there is no impediment to Gyurcsany putting pen to paper.

However, in doing so he may not be just be delivering a blow to the Nabucco pipeline, but a blow to his own already fragile support.