The Hungarian government approved the compulsory storage of 700 mcm of natural gas bought last year, which will boost the stock of strategic reserves to a record 1.9 bcm, the energy ministry said on March 30.
According to the statement of the ministry, the measure will ensure the security of supply of households in case of disruption of gas supply.
However, financial website Portfolio writes that financial considerations were really behind the government’s latest measure.
Hungary agreed to buy an additional 700 mcm of gas from Russia in autumn 2022 in addition to the contract volume in the 15-year gas purchase agreement with Gazprom that guarantees the delivery of 4.5 bcm of gas via the TurkStream, mostly from Serbia. The pricing of the 15-year contract with Gazprom tracks follows the Dutch TTF, with a two-month lag.
The importer of the 700 mcm of gas was state-owned Hungarian Hydrocarbon Stockholding Association (MSZKSZ). The deal was financed by a syndicated bank loan backed up with a state guarantee.
Hungary booked the contract at peak prices in August 2022. The average purchase price was €255/MWh, or HUF1,114 per cm while at present prices are quoted at €41/MWh on the Dutch TTF, or HUF180 per cm.
By law, MSZKSZ is obliged to sell gas at or above the purchase price. If it were to sell the gas reserves at present prices, it would incur a HUF700bn (€1.8bn) loss.
A recent report by G7.hu, citing Eurostat data, showed that Hungary paid 30% more for Russian gas in January than the EU average. The financial news site also cited the unfavourable terms of the September 2022 agreement as a key reason for this.
After their February 2022 meeting, Russian President Vladimir Putin told Prime Minister Viktor Orban that the 2021 gas agreement only secures the stable supply of gas to Hungary until 2036, but is five times below the European market price, a claim that was debunked when Hungary’s energy bill rose multifold last year, leading to a record trade deficit.
The Orban government has argued that maintaining economic relations with Russia, especially in the field of energy, was needed to ensure access to gas at low prices. Hungary is also one of the most dependent countries in the EU on Russian energy. It imports 90% of its gas from Russia.
Keeping energy prices low was a key priority of the government before the 2022 elections. As energy prices soared, Hungary was no longer able to maintain retail energy subsidies. Since last summer, subsidized prices only apply to consumption below the national average, a threshold set too low according to analysts.
Hungarian domestic consumption fell 17% last year due to mild weather and as consumers and industrial users cut back usage.
At the end of the heating season, Hungary’s gas storage levels are at 45% full capacity and reserves are two-fold higher than in the same period a year ago, the energy ministry said. The increased reserve stock equals 20% of the country’s total usage, or 9.2 bcm, and enough to cover three-quarters of the annual household needs.
The government temporarily reduced statutory gas storage levels to 0.9 bcm in early 2021, but raised it back to 1.2bcm later that year, the level seen during the 2010s.