Gazprom stores some of its natural gas in Hungarian facilities

I guess it is high time to talk about Vladimir Putin and natural gas.

First, Putin’s trip to Serbia. Serbia and Russia have had close ties for more than a century. The only exception I can think of is the 1948-1954 period when Tito was considered to be the “chained dog of the imperialists.” But otherwise in all conflicts Russia stood by Serbia. Serbia’s financial situation is pretty grim at the moment, and I understand that without Russian help Belgrade would be in even greater economic and financial trouble than it is. The closeness of the two countries is demonstrated by the fact that the date of the celebration of the 70th anniversary of the liberation of Belgrade by the Red Army was moved forward to accommodate Vladimir Putin’s schedule. The military pomp on display to impress the Russian president was noteworthy, especially in view of Serbia’s insistence that she wants to become part of the European Union.

Putin decided to use this opportunity to deliver a stern message to Europe. He warned Brussels that as long as the Ukrainian crisis is not settled, naturally in favor of Russia, gas supplies to Europe might be disrupted just as happened in 2006 and 2009. He said that he himself will do everything to avoid such an eventuality, but if it does happen it will be the fault of the European leaders.

Almost at the same time news reached the West that Hungary will store Gazprom gas. You may recall that Hungary purchased the German-owned E.ON gas storage facilities in 2013 for an incredibly high price. The story of that purchase is well summarized in an article in the Budapest Beacon, according to which the Hungarian state-owned company, MVM, may have lost $2.6 billion as a result of the deal. Given the pervasive corruption in Hungary, analysts were certain that the purchase of E.ON’s business units was “a success story for certain business circles but a huge loss for the national economy as a whole.” This assessment might not be on target. It is more likely that Viktor Orbán’s eagerness to purchase E.ON at whatever price stemmed from a deal with Gazprom to use Hungarian storage facilities. Aleksey Miller, CEO of Gazprom, visited Budapest in October 2012. At that time Miller agreed to such a deal, but only if the storage facilities were in the hands of the Hungarian state. A year later Orbán obliged.

So, what kinds of storage facilities are we talking about? E.ON Földgáz Storage Zrt. has five underground facilities in which it can store 3,740 million cubic meters of natural gas. According to Hungarian sources, these underground storage facilities are the best and the largest in the region and  fourth in size in Europe. As a result, in 2009 Hungarians were more or less unaffected by the gas shortage when Russia stopped the flow of gas through Ukraine to Europe.

I was pretty sure by the end of September that something was afoot concerning Russia’s use of Hungary’s storage facilities, but it was only on October 10 that I read an AFP report which noted that although Hungary is steadily buying gas from Russia, it is also storing Russian-owned gas. The article noted that “it is unusual for the company to store gas still owned by Gazprom, which is locked in a dispute with Kiev that some fear could see transit through Ukraine halted for the third time in a decade.” According to the spokesman of MVM, the owner of the facilities, “with this agreement Gazprom will be able to comply with its long-term contract obligations, should there be problems on the transport routes.”

Kyiv Post tersely noted the Russian-Hungarian deal without adding any editorial comment. But Kiev must see the deal as an antagonistic move because, with it, Russia can supply gas to Europe at the same time that it squeezes Ukraine.

As for the amount of stored gas owned by Hungary, this number is difficult to estimate. Throughout September the Hungarian media was full of complaints about Hungarian tardiness in filling the country’s storage facilities. In mid-September HVG claimed that they were only 58 percent full. Moreover, if one can believe MTI, a month later, on October 16, the situation was exactly the same. Opposition politicians naturally blame the Orbán government for its tardiness and predict terrible consequences come winter. But I suspect that something else might be behind the procrastination of the Hungarians. The Russian-Hungarian deal to store Russian gas in Hungary was signed only at the end of September, and it is very possible that in return for its “generosity” Hungary managed to get a lower price on Russian gas. I can’t think of any other rational explanation for not filling the storage facilities as quickly as possible. Especially since other European facilities are 80-90% full. Perhaps we will eventually learn the real story, although I’m sure that the Hungarian government will do its best to conceal it.