Energy

Hungary Strengthens Cooperation with Azerbaijan

Analysis 19 March 2021
Hungary Strengthens Cooperation with Azerbaijan

Nowadays, energy security and energy policy are significant for all states as they play an important role in national security. EU member country Hungary is interested in strengthening its energy security as the country has limited fossil-fuel resources and gets most of its crude oil and natural gas from other countries.  The main energy exporter for Hungary is Russia. In 2020 the share of the Russian gas to Hungary was around 8.3 bcm, and this was the second-largest amount in the last 12 years.

In addition to Russian gas, Hungary is developing LNG sources. Hungary signed a deal with Shell to supply LNG via the upcoming Croatian Krk import terminal. According to signed agreement, the country will buy 250 million cubic metres of gas per year for a period of six years. It shows that Hungary wants to diversify its energy supplies and routes which is key for EU energy policy.

Touching upon bilateral relations between Azerbaijan and Hungary, it is worth noting that bilateral ties are on the high level as two countries signed a “Joint Declaration on Strategic Partnership between Azerbaijan and Hungary” during President Ilham Aliyev’s visit to Hungary in 2014. Two countries continue successful cooperation in various fields such as economic, political, cultural and educational spheres. On the political level, Azerbaijan and Hungary support each other on the international arena, and joining of Hungary the Council of the Turkic Speaking Countries as a permanent observer in 2018, opened new opportunities for strengthening high-level political dialogue.

Another important fact in bilateral relations was Hungary’s position towards the former conflict between Azerbaijan and Armenia. Official Budapest supports the sovereignty and full territorial integrity of Azerbaijan. After liberation of occupied territories, Hungarian companies want to participate in the reconstruction process of the Karabakh region. According to Hungarian Foreign Minister Peter Szijjarto “Exim Bank of Hungary opened a $100 million credit line for companies, and the government offered a €25,000 grant for demining the region”.

In the economic sphere, cooperation between countries is developing year by year. The Azerbaijani-Hungarian Intergovernmental Joint Commission on Economic Cooperation is significant for developing economic ties. Towards this end, Hungary plans to increase economic cooperation with Azerbaijan, especially in the energy sector. It is worth mentioning an agreement between Hungarian energy company MOL and the US energy giant Chevron in 2020. According to deal MOL has signed an agreement with Chevron Global Ventures Ltd and Chevron BTC Pipeline, Ltd to acquire their non-operated E&P and mid-stream interests in Azerbaijan, including a 9.57% stake in the Azeri-Chirag-Gunashli (“ACG”) oil field, and an effective 8.9% stake in the Baku-Tbilisi-Ceyhan (“BTC”) pipeline.  With that energy deal, Hungary made the largest investment in the region.

Hungary is also interested in natural gas supplies from Azerbaijan. During his visit to Azerbaijan Foreign Affairs Minister Peter Szijjarto emphasized that “Hungary could import natural gas from Azerbaijan in 2023. 1-2 bcm/year of gas Hungary would import from Azerbaijan would greatly boost the security of the country’s gas supply”.

It should be noted that during the energy transition period, EU countries will diversify energy supplies and sources. Natural gas is clean “transition fuel, therefore all EU Member States will start the process of switching from coal to gas in the power sector, consequently, the share of natural gas in the energy mix will be increased in the future.

In this context, analyzing the energy generation mix of the Hungarian electricity system, one can see that about 23% representation from natural gas, 49% from nuclear, 15% from coal and 12% from renewables. Also, future phase out of coal should be compensated with other types of energy. It is obvious that natural gas security is increasingly linked to electricity security, therefore energy security is a key priority of the national energy strategy.

Hungary is interested in receiving natural gas from the SGC. As noted above, the diversification process is very important for all EU Member States, therefore Hungary plans to use natural gas from Azerbaijan as an alternative to other gas sources. It should be noted that Hungary plans to join the SGC through regional gas interconnectors, and it confirms once again that the SGC supports development of gas interconnectors in Europe. So far, other European countries such as Bulgaria and Greece also support Interconnector Greece Bulgaria (IGB), as well as Serbia, Kosovo, Bosnia and Herzegovina, Montenegro and Croatia will be connected by Regional Project Ionian Adriatic Pipeline (IAP).

So, the finalization of the Southern Gas Corridor in 2020 was very important both for Azerbaijan and Europe. The European leg of SGC – Trans Adriatic Pipeline (TAP) has already delivered natural gas from the Caspian Sea to the European energy markets. This project connecting various countries, companies and financial institutions, became a reality thanks to strong commitment and cooperation.  Azerbaijani natural gas will diversify Europe’s gas sources and supply roots, which is a high priority for EU countries.

In the end, successful cooperation between Hungary and Azerbaijan will be continued, and Hungary’s joining the SGC will create new opportunities for political and economic development. Reaching Hungary’s energy consumers is interesting for Azerbaijan in order to expand the scope of mark of its gas export. For Hungary the diversification of gas sources and routes is highly important for its energy security. Last but not least, a strategic partnership between Azerbaijan and Hungary will also support Azerbaijan’s relations with the EU in general. 

Shahmar Hajiyev, a leading advisor at the Baku-based Center of Analysis of International Relations (AIR Center), special for News.Az

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