Gazprom to Pump More Gas to Hungary: New Long-term Contracts for 4.5bcm a Year

On September 27, Gazprom Export and MVM CEEnergy signed in Budapest two long-term contracts for supplies of Russian gas to Hungary. The documents were signed in the presence of Peter Szijjarto, Minister of Foreign Affairs and Trade of Hungary, and Elena Burmistrova, Deputy Chairman of the Gazprom Management Committee, Director General of Gazprom Export.

Both contracts, which in total envisage supplies of up to 4.5 billion cubic meters of gas per year, will be effective for 15 years. Hungary will have the opportunity to modify the amount purchased after ten years.

“The long-term contracts that were signed today serve as a guarantee of reliable and stable supplies of Russian gas over the next 15 years. An important component of the new arrangements is the diversification of supply routes. As early as from October 1, Hungary will start receiving Gazprom’s gas via TurkStream and the gas pipelines of southeastern Europe. This was made possible to a large extent through the efforts of Bulgarian, Serbian and Hungarian companies in charge of developing the national gas transmission systems,” said Alexey Miller, Chairman of the Gazprom Management Committee, in connection with the signing of these contracts.

In 2020, Gazprom’s gas supplies to Hungary totaled 8.6 billion cubic meters – the second-highest annual supply volume in the last 12 years.

Gas supplies to Hungary are also carried out under contracts between Gazprom Export and other companies, as well as on the basis of single transactions.

Gazprom will deliver 3.5 billion cubic meters via the Serbian-Hungarian interconnector which is slated to start operation on October 1, and the remaining one billion cubic meters via Austria.

The price is significantly lower than what has been paid up to now based on an agreement signed in 1995 and will contribute to “maintaining the achievements of the utility price cuts, and Hungarian consumers will continue to pay one of the lowest prices in the European Union,” Peter Szijjarto Szijjártó said. “Hungary sees energy supply as a matter of national security, sovereignty as well as an economic issue rather than a political issue. Family homes can be heated by gas and not by political statements; and the same goes for industry,” he added.

Elena Burmistrova welcomed the agreement, saying that the use of a safe and reliable energy resource such as natural gas was “especially important in fulfilling climate goals”.

In response, the Ukrainian foreign ministry issued a statement saying it would turn to the European Commission and postpone a meeting of the Hungarian-Ukrainian economic committee in response to the move. The ministry said Hungary’s decision on delivery routes shunning Ukraine was “surprising and disappointing”.

The new gas contract between Hungary and the Russian Federation could result in shortage or full stop of the gas transit across Ukraine, Sergiy Makogon, CEO of Gas TSO of Ukraine, noted. According to him, as soon as Russia gets the technical opportunity to bypass Ukraine, it launches the gas via its own transit gas pipelines – although these are longer than the one across Ukraine.

“In spite of the contract signed until 2024, we expect considerable further decrease or a full stop of the transit to Hungary across Ukraine. So, the technical completion of the Nord Stream 2 construction poses critical risks for the existing transit across Ukraine, and the extension of contract after 2024,” he added.