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Shell to supply 0.25 Bcm/year of LNG to Hungary via Croatia terminal: minister

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Shell to supply 0.25 Bcm/year of LNG to Hungary via Croatia terminal: minister

Highlights

First Hungarian long-term contract with western company

MVM unit booked 1 Bcm/year of capacity through 2027

LNG to be supplied 'exclusively' by western European players

London — Shell has agreed a long-term LNG supply agreement with Hungary for 0.25 Bcm/year of gas equivalent via the planned Croatia LNG import terminal, Hungary's foreign affairs minister Peter Szijjarto said Sept. 4.

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Hungary's state-owned MVM, through its trading subsidiary MFGK, booked 1 Bcm/year of regasification capacity at the 2.6 Bcm/year LNG import terminal in Croatia, which is due to begin operations in January 2021.

At the time, MFGK pledged to source its LNG imports for the facility only from western European players to reduce its dependence on Russian gas.

"A historic, long-term gas purchasing agreement has been concluded with Shell," Szijjarto said in comments posted to the foreign affairs ministry website.

"This is the first long-term agreement with a western energy company in Hungary's history," he said, adding the deal was at a "competitive price".

Shell's Global Executive Vice President Istvan Kapitany was quoted in the ministry statement as saying gas could be key in replacing coal and other liquid fuels in the energy mix.

Shell was unavailable for further comment Sept. 4.

Supply diversity

MFGK booked 0.67 Bcm at the Croatian terminal on the island of Krk for the period January-September 2021 and 1.01 Bcm/year for the subsequent gas years through 2027.

Szijjarto said LNG had become commercially more attractive for Hungary in the recent past. "When we make a decision with relation to Hungary's gas supply, we take into account two aspects: the security of supply and price," he said.

"Partly because of the coronavirus pandemic, and partly because of the overproduction crisis that preceded it, the price of LNG has fallen below that of piped natural gas. For this reason, we have decided to increase the role of LNG in the country's gas supply," he said.

Szijjarto said the agreements Hungary had made, as well as improved interconnection, would ensure its supply security.

"Gas currently plays the most important role in Hungary's energy supply, and accordingly the country's gas supply is a critically important issue," he said.

"We have constructed interconnectors with our neighbors, and the gas networks of six out of seven of the country's neighbors are now connected to that of Hungary," he said.

"Dependable relations based on trust have been developed with both eastern and western energy companies, and this cooperation will be maintained in future in view of the fact that it is in Hungary's interests for gas to arrive in the country from as many sources and via as many routes as possible."

Russian contracts

Hungary has also been 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 group'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 have centered 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 -- 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, making 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 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 Dec. 30.

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