Gas crisis: 2006, 2009… 2015?

The experts and politicians currently negotiating throughout Europe are sweating not only due to the high summer temperatures. Their worries about the stability of gas supply for next winter is also making them perspire.

For now Moscow is tolerating how some European Union countries are helping out Ukraine since Russia stopped supplying the country with natural gas in mid-June. Russian President Vladimir Putin has repeatedly warned the Europeans backing up Kiev, since the latter owes USD 4.5 billion for Russian natural gas deliveries. (The debt has grown immensely recently after Ukraine refused every suggestion for compromise, resulting in Gazprom gradually raising the price from USD 100 per 1000 cubic metres until it is now closing in on the USD 450 world market price.
Hungary belongs to those neighbours who are standing beside Ukraine in its time of need: we are helping with about 5 million cubic metres daily to avoid an energy crisis. Hungary supported southern neighbour Serbia in January 2009 to the same extent, when ten thousands of people were left without heating (similarly as in Bulgaria) after Russia closed the gas taps for the second time following a similar incident in 2006.
Hungary does not want to anger Russia but does not want to turn its backs on our eastern neighbour either, especially with a Hungarian minority residing in Carpathian Ukraine. Russia and Ukraine are both big buyers of Hungarian products because of the opening to the east program. Prime Minister Viktor Orbán put it diplomatically: “The solidarity towards Ukraine should be practised in a way that does not endanger our own nation’s energy supply. We do not want to be in a position when the gas supply of Hungary depends on the current Ukrainian situation.”
Orbán is supposed to be a smart tactician but somehow he seems to be out of luck during his third governing period: He had to swallow a bitter pill recently in foreign policy when the EU family elected the federalist Jean-Claude Juncker 26-2 as president of the European Commission, which Orbán and British Prime Minister David Cameron opposed until the last minute.
In the Polish wiretapping scandal, where Russian secret service activity has been discovered in Warsaw, Orbán was branded as Putin’s lackey. He has been practically fighting a war against Brussels since 2010, even if he gladly accepts the EU funds that will be flowing in to the country until 2020 to the tune of about EUR 3.5 billion. And despite all the bravado and pride sometimes he is right when it comes to the Euro bureaucrats. Such as the South Stream question.
There is a strong lobby within the EU, probably due to the political pressure coming from the USA, which is looking at the Putin-controlled Russian attempts to gain influence not only in the usual suspicious way, but trying to stop it by any means. These people regard the South Stream gas line project as contradictory to EU law.
Bulgaria, Romania, Serbia, Hungary and Austria are the member states that are collaborating with Gazprom in the construction of the gas pipeline, the main aim of which is to avoid the route through the politically unstable Ukraine. “The ones that are against the construction of South Stream are taking away our right to secure our gas supply without offering any alternative,” Orbán accused opponents of the project in Brussels.
Hungary belongs to the countries in Europe that are most dependent on gas supply, and not because of the absolute quantity of gas imported but due to the access of alternative sources. As is visible on our graph (opposite page), Germany is by far the most important buyer of Gazprom gas in Europe, which comes through the Nord Stream in the Baltic Sea, which is an area free of political quarrels.
This giga project was planned long before the first Russian-Ukrainian conflict, however political problems delayed the actual construction until 2010-11. Since then the regulatory wind in Brussels has changed for good. Now the southeastern and central Europeans should break their business relations with Gazprom, which Germany was allowed to have for political reasons.
Our second graph shows that about half of the Gazprom exports to Europe still flow through Ukraine. This huge quantity of 80-100 billion cubic metres covers the complete supply needed for the five largest buyers of recent years. If the EU does not manage to settle the conflict between Russia and Ukraine by this autumn at the latest, Central Europe will have to face a critical winter for the third time.
In order that the scenarios of 2006 and 2009 not be repeated, Orbán put the whole gas business step-by-step completely under governmental control. This includes an immense gas storage capacity of around 6.2 billion cubic metres. This capacity could practically cover the yearly consumption of the whole country thanks to the dramatically decreased gas consumption. (While Ukraine belongs to the biggest users of gas due to their unspeakable consumption, Hungary is only consuming about half of the natural gas measured during the “golden” years before the financial crisis.)
In reality most gas consumption is in cold seasons for understandable reasons, when the big domestic gas plants are producing heating energy. On a cold winter day still about 70 million cubic metres of natural gas is “heated away” in Hungary. When the raw material is flowing in through the pipes this quantity is no problem. Otherwise we have to rely on the reserves, which may have a huge capacity but technologically you can only remove 1-2% of their contents on a daily basis.
The Hungarian state has a so-called strategic storage (Szőreg-1), with a capacity of 915 million cubic metres, filled up at the end of June. The storages bought back from the E.ON Group have a total capacity of 4.3 billion cubic metres, yet no more than 50 million cubic metres may be removed per day due to technical reasons. Since Orbán used the cheaper stored gas in order to secure the official price cut of natural gas for private households, the storages are currently less than 20% full.
A few weeks ago the state asset management company, MNV Zrt., prepared a credit amount of HUF 100 billion for the MVM energy holding, from which the above mentioned two gas storages should be filled up to an amount near 2 billion cubic metres. When we consider that the suburban gas storages in Europe contain more than 56 billion cubic metres of natural gas, about 70% of the total capacity, Hungary seems to be hopelessly lagging behind.
The Hungarian government is keeping the gas business under close control and has won Putin’s favour for the Paks-2 project aiming to expand the sole Hungarian nuclear power plant. No one can tell for sure how much gas we should optimally have in storage, because the commercial demand is sinking continuously and a milder winter like the last one can leave billions of gas volumes unused.
However, if there are minus temperatures and an escalating gas conflict in the east, even the fully filled storages will not be enough to guarantee the necessary gas supply. In an emergency the trick of “diluted gases” might be used, in which case housewives will need more patience to prepare lunch due to the lower heating value of the gas.