Top of Putin's agenda in Budapest was to convince the Hungarians -- and the European Union -- that Russia is a reliable supplier of natural gas. Hungary currently receives over 80 percent of its gas supplies from Gazprom. On February 28, the day of Putin's arrival in Budapest, "The Wall Street Journal Europe" published an article by the Russian president, "Energy Egotism Is A Road To Nowhere," in which he wrote:
"Russia's attitude toward energy security remains clear and unchanged. It is our strong belef that energy redistribution guided wholly by the priorities of a small group of the most-developed countries does not serve the goals and purposes of global development. We will strive to create an energy security system sensitive to the interests of the whole international community."
Despite those words, Putin still lobbied on behalf of Russia's gas monopoly Gazprom.
Putin proposed that the Hungarians consider Gazprom's plan to construct a second section of the Blue Stream pipeline, which currently goes from Russia beneath the Black Sea to Turkey. The new section would continue to Hungary and then to Southeastern Europe. If that were to happen it could effectively scuttle plans for the construction of the Nabucco pipeline from Turkey to Austria, meant to diversify gas supplies and allow Iranian, Turkmen, Azerbaijani, and Kazakh gas to reach Europe, including Hungary.
Nabucco Pipeline Could Supply Romania
The Nabucco pipeline was initiated by the European Parliament and the Council of Europe on June 26, 2003, and its first section is to be finished in 2011. It has important strategic and economic significance as it offers an alternative to gas from Russia and will shake Gazprom's monopoly over gas supply to Romania.
The Hungarian state gas company, MOL, signed a joint venture agreement with Austria's OMV, along with Turkey's Botas, Bulgaria's Bulgargaz, and Romania's Transgaz on June 29, 2005 to build the 3,400 kilometer pipeline at an estimated cost of 4.6 billion euros ($5.5 billon). The pipeline would have a capacity to transport 4.5 to 13 billion cubic meters (bcm) a year by 2011. Capacity is estimated to reach 25.5 bcm to 31 bcm by 2020. Construction of the pipeline reportedly began in 2005.
By the same token, the extension of the Blue Stream pipeline would also put into question the rationale for the Hungarian-Croatian agreement to build a 340 kilometer pipeline between the Adriatic coast and Hungary and a liquefied natural gas terminal on the island of Krk, off the Croatian coast.
Is Gazprom Eyeing Hungary?
Another item on Putin's agenda was the possibility of Gazprom buying the wholesale division of MOL, the Hungarian oil and gas company. MOL controls the Hungarian gas pipeline system that Gazprom has been seeking to buy for years. It is unclear, however, whether the Hungarians are willing to sell.
On February 9, Gazprom CEO Aleksei Miller met with Hungarian Finance Minister Janos Veres to discuss a number of projects, among them the possibility of creating a natural gas hub in Hungary and a large gas facility capable of storing 1.2 bcm of gas. No decisions were reached at the meeting and apparently it was a prelude to the Putin visit where talks about these projects were supposed to continue. It was unclear whether or not the delegations spoke about those projects.
Most gas industry analysts believe that it will be difficult for Russia to sideline the Nabucco pipeline and that the Romanians and the Hungarians are not willing to give it up in return for gas via Blue Stream. At best, both projects could coexist -- providing Gazprom agrees to this and does not buy up all gas production in Central Asia, as it has already done in Turkmenistan, in order to prevent that gas from entering Nabucco.