FEATURE: Hungary sees strategic role for Croatia LNG, eyes equity stake

The Hungarian government believes the 2.6 Bcm/year LNG import terminal in Croatia will be of strategic importance to Hungary and remains interested in buying an equity stake to add to the capacity already booked in the facility by state-owned MVM.

Budapest considers gas imports via the planned floating terminal at the island of Krk -- which is due to begin operations in January 2021 -- as key to helping to diversify its gas import portfolio.

MVM's trading subsidiary MFGK has even pledged to source its LNG imports for the facility only from western European players to reduce its dependence on Russian gas.

"Hungary considers the Krk LNG terminal as strategic infrastructure, and the fact that MVM made a market-based capacity commitment is in line with this," the foreign affairs ministry said in emailed comments to S&P Global Platts.

"Hungary remains interested in continuing talks aimed at buying a minority stake. We will be at the disposal of our Croatian partners after the July 5 elections just as we have been until now," it said.

The pledge comes amid a diplomatic row between Hungary and Croatia after a Hungarian plaque unveiled in early June in Satoraljaujhely was mis-translated in the Croatian press as referring to the Croatian port city of Rijeka as the "Hungarian Sea."

The Hungarian foreign affairs ministry said the initial reaction among Croatian officials was "difficult to understand" given the close economic ties, including over gas at the Krk LNG terminal.

MFGK capacity

MFGK has booked 0.67 Bcm at the terminal for the period January-September 2021 and 1.01 Bcm/year for the subsequent gas years through 2027. Capacity at the plant is now sold out until October 2023.

Commenting on its move to book capacity at the terminal, MFGK made the unusual pledge of limiting itself to buying LNG from western European players in order to fully commit to supply diversification.

MFGK said the reserved capacity at Croatia LNG was of "historic significance as it is the first time that a dedicated gas source from LNG will be supplied to Hungary."

"The agreements are also in line with the MVM's strategic goal of gas source and route diversification, as the acquired LNG resources come exclusively from western European market participants," it said.

In May, Hungary's foreign affairs minister Peter Szijjarto said the government was in talks with a number of global LNG players with a view to using the planned Croatia LNG terminal to import gas into Hungary.

Hungary will connect to the LNG terminal via a reverse flow project on the Hungarian-Croatian interconnector currently under construction and scheduled to be operational in January 2021.

"In light of global market developments, LNG has emerged as a highly competitive source option in the region, further strengthening Hungary's and MVM's gas market position," MFGK said.

Russian imports

MFGK also acknowledged, however, that Russian gas imports remain critical to Hungarian and regional energy supply.

"[It] remains a market and geographical reality that Russian gas transmission will continue to be the backbone of regional and domestic energy security," MFGK said.

Hungary is in talks with Russia's Gazprom in a bid to reorganize its long-term contractual arrangements for Russian gas imports after two of four agreements expired last year.

Gazprom Export -- the gas giant's export arm -- held four long-term contracts with Hungarian gas importer Panrusgas for a total of 4.2 Bcm/year, but two agreements expired last year and the other two are set to end in 2021.

According to a source close to the matter, talks will center on bringing the contracted volume back to 4.2 Bcm/year from 2021.

For 2020, some 2.2 Bcm/year will be supplied under the remaining contracts.

Panrusgas -- which is 50% owned by MVM, 40% by Gazprom and 10% by trader Centrex -- is the only Hungarian company to import Russian gas under long-term contracts, though Russian gas is supplied to Hungary under short-term and spot deals with other parties.

Hungary purchased a total of 10.5 Bcm of Russian gas from Gazprom in 2019, an increase of 42% year on year.

It made Hungary the country whose Russian gas imports rose by the highest volume in 2019 compared with 2018.

It bought the additional Russian gas to fill its storage stocks to capacity ahead of the threat that Russian gas supply via Ukraine could have been disrupted from the start of 2020 as the Gazprom-Naftogaz transit deal expired.

The threat ended when the two sides agreed a new five-year transit deal on December 30.

Hungary will also be able to import Russian gas via the TurkStream pipeline once the onshore expansion via Bulgaria and Serbia is complete.

Szijjarto said in early June that Hungary hopes to be able to begin importing Russian gas through the TurkStream onshore expansion project by October next year.