A strong Hungary is Independent from Russia, not from EU

We have a date. January 1, 2015 when the gas can start to flow from Hungary to Ukraine. This according to reports from a meeting held between Hungary’s Prime Minister Viktor Orban and Germany’s Chancellor Angela Merkel. Hungary needs until then to keep pumping gas from Russia, through Ukraine into Hungary – thus it can’t do any reverse flow to help the Ukrainian’s out.

I think I was too charitable on a piece I published a few weeks ago about Hungary suspending gas to Ukraine. I said this would only take a few weeks – this assumption was from earlier reports stating this was the time needed to ship gas to Hungary.  Magically, that’s not the case. I always try to take the conservative view and be generous to the Hungarian position, but I see this may result in under emphasizing Hungary’s dependency on Russia.

The gas that will be shipped to Ukraine in January 2015 will come via the new pipeline with Slovakia – which Orban emphasized will need to be non-Russian gas. Although, it remains a question of why the current (artificial) arrangement of gas coming from Austria being shipped to Ukraine does not work. Mind you, it is hard to separate gas molecules, so it becomes a technical (or even a slight-of-hand) question of who’s gas ends up in Ukraine. If Hungary is stopping reverse flows to Ukraine for this long of a duration, to accept Russian gas, then the capacity used should be reduced in order to facilitate west-east reverse flows. But apparently, this was not part of the deal between the Russians and Hungarians.  This longer duration amplifies my earlier comments of Hungary being constrained by the Russians.

The question remaining unresolved is whether Hungary is punishing Ukraine on purpose, or the Russians  forced Hungary to stop  assistance to Ukraine. Since my last article I’ve had conversations with people that brings up this dilemma, but my original analysis still stands. In either case, significant explanations must be given – beyond putting Hungary first, as claimed by Orban, as to why Hungary does not assist Ukraine.

If my assumption in my first article on Hungary still stands, a financially weak Hungary is dependent on Russian good will, then the EU must shape its internal policies to account for Hungary being in the Russian camp.

I recently was asked by a Hungarian official why everyone thought Hungary was doing what Russia wanted in the EU. He simply refused to accept this and viewed Russia as a threat to Hungary. I have no doubt his comments and belief were genuine. However, there are two levels of cooperation with the Russians. The first is ‘positive’ in building an energy system. This includes South Stream and expanding Paks – both highly promoted by the Orban government. The second level is ‘negative’ and actively works against EU positions. This means punishing an enemy of Russia (Ukraine), in both of its support against sanctions on Russia and cutting gas off to Ukraine. Since this is the case, it is fair to ask how Hungary is meeting its EU commitments. Because at the end of the day – the Hungarian people still view the EU as a more positive partner than Russia. Thus it is the Hungarian government that pursues, for its own agenda, alignment with Russia.

But even if we consider there is a grey area in Hungary cutting off gas to Ukraine, the main question is whether Hungary was forced into this position, so Russia could advance its position in an EU member state, or does Hungary have another agenda in using its gas and its interconnector pipelines for political and economic ends? In either case, the position Hungary has taken projects weakness and not strength which Orban constantly promotes. A weak Hungary is a danger for both the EU and its neighbors. Its now time for Hungary to get back in line with the EU energy security policy and not be the outlier. And here is why:

If Hungary is forced/willing to use its geographic position in east-west gas transit for political and economic means what other components of CEE/SEE energy security apparatus will Hungary use to project its power? At CEU we recently had Radu Dudau from Bucharest University give a lecture of energy in the Black Sea region. He pointed out that the Hungarian government with its large holding in MOL, and its ownership stake in Croatia INA provides a leverage point the Russians can play.  Thus, if Russia can pressure and/or Hungary willingly blocks gas to Ukraine, how will other energy projects be treated by Budapest.

I think this Moscow-Budapest-MOL-INA connection was a great point. Because as Professor Dudau stated, if Russia has influence through Hungary and MOL, then any LNG terminal in Croatia, whether INA or MOL owned, becomes operationally dependent on Moscow and Budapest deals.  Thus Russia indirectly controls the gas market in the Southeast and in Eastern Europe. Any efforts to build gas independency from Russia is thwarted because Moscow has leverage in Budapest which is willing/forced to accept how the network and the Croatian LNG terminal operate. Russia has been actively seeking to secure control in Croatia’s energy sector for years, and now it may have a willing partner.

It may be more profitable for the Hungarians to  be reimbursed by Russia for any LNG losses (or preventing it being built). The huge debt Hungary is taking on to expand Paks nuclear plant with the Russian loan, already places Hungary into a weaker position.  Russia can leverage this over Croatian LNG. In addition, the constant drive for lower electricity and gas prices in Hungary only feeds the country’s vulnerability to Russian influence. Hungary is dependent on cheaper and cheaper gas to keep consumer rates low. To get lower rates, it becomes more servile towards Russia to get it. Not the strong and proud Hungary Orban claims is being built. The emerging energy and economic weakness of Hungary undermines attempts to increase energy security and independence from Russian gas.  All of the southeast and eastern Europe are exposed to Russian influence through Hungary – if Hungary chooses to support Russian policies in the region. The gas wars can spread beyond the Russian/Ukraine border and enter the EU. I believe this has already happened. Hungary needs to resume gas exports to Ukraine, and stop supporting Russia’s position.

20141012_093247_lesvos2

As a concluding note (because this is very cool), I’ve written this in Lesvos, Greece while at the University of the Aegean. I’m looking right now across the Aegean Sea to Turkey. I can see it on the horizon. A revised Nabucco is essential for breaking the Russian grip. The EU needs to be very clear in sinking South Stream and building alternatives to Russian gas. Both Turkey and Greece are essential in making this happen. But more importantly, a strong and independent Hungary is the most important. It should be made very clear to the Hungarian government, just as my Hungarian acquaintance told me, that Hungary does not serve Russia. It is up to the Hungarian government leadership to ensure its independence and alignment with EU policies. Being a good neighbor would be a good first step to rectify poor policy choices. Let the gas flow to Ukraine!

 

Recent shale gas publications

Wow. I recently got a request to send some publications on shale gas. After compiling a few I realized I have a lot. Below are some of the publications. Not all are publicly available. If you are interested in reviewing those that have not been published yet, or you don’t have access to the journals, just drop me a note and I’ll be happy to send a copy.

1. LaBelle, Michael, and Andreas Goldthau. “Governance of Unconventional Gas in Bulgaria: From Exploration to Bust.” Edited by Philip Andrews-Speed. Oil, Gas & Energy Law Journal, The Governance of Unconventional Gas Development Outside the United States of America, 12, no. 3 (June 2014): 1– 24.2.LaBelle, M.

2. Citizens’ petitions on shale gas extraction in Bulgaria and Poland, Committee on Petitions, European Parliament, Directorate General FOR Internal Policies Policy Department C: Citizens’ Rights and Constitutional Affairs Brussels, October 9, 2012

3. Goldthau, A. and LaBelle, M. The power of policy regimes. Why shale gas failed in Bulgaria and thrives in Poland, submitted to Journal of Public Policy, under review

4. LaBelle M. Governance and Innovation in Polish Shale Gas: Institutions stretching and conforming to challenger technologies, Prepared for the International Workshop on Incumbent-Challenger Interactions in Energy Transitions (Sep. 22 – 23, 2014, Stuttgart, Germany), University of Stuttgart, Institute of Social Sciences, Department of Organizational Sociology and Innovation Studies

 This was also presented at the CEU Business School on Tuesday September 30, 2014 at 12:15 at the CEU Innovations Lab of the Business School (Frankel Leo ut 30-34, Room 305).

Here are some links for some of my articles on shale gas for Natural Gas Europe:

Part 1: Fracking to Reduce Risks: Bulgaria and Poland Redefine their Gas Dependency

Part 2: Fracking to Reduce Risks: Bulgaria and Poland Redefine their Gas Dependency

LaBelle, M. “The Risks for Shale Gas in Europe: Technology and Avoiding the Frackenstein Label” Natural Gas Europe, Feb. 26, 2012. http://www.naturalgaseurope.com/risks-shale-gas-europe-frackenstein

Euro Energy Czar: Does West Europe finally get it?

The apparent creation of an energy czar for the European Union signals a harder line against Russia. A move from the days when Germany’s Chancellor, Gerhard Schroder moved from the chancellor’s chair to a Gazprom chair – represented the ‘tight’ relationship between Germany and Russia. Akin to marriages  between European monarchies. (I’ll leave it to you to develop the image of Schroder marrying into a Russian oligarch family.)

The revitalization of the eastern European countries is now represented by the appointment of Prime Minister Donald Tusk of Poland to lead the other European leaders in the EU Council of Europe. Tusk earlier this year championed a call for an EU gas union that was widely acceptable as a great idea – and has pushed forward the long simmering discussion of a closer EU energy union.  In 2010 former European Commission President Jacques Delors and Polish MEP Jerzy Buzek, floated the idea to build an EU energy community – drawing from the founding structure in the European Coal and Steel Community.

It is now the Polish contingent that is pushing for a ‘high official’ to coordinate all external energy policy.  The EU Parliament’s Foreign Affairs Committee overwhelming adopted the proposal to create an energy czar to represent a common EU energy position in the foreign policy realm. Adopting a common energy foreign energy strategy and representation – no matter how muddled by diplomatic niceties, is stepping in the right direction to address the tremendous energy security gulf between ‘old’ member states and the states joining since 2004.

As I’ve written before, there is a huge gap between the development of the energy systems in the west and east. Both financially the western EU members are able to invest and upgrade their energy systems, while the east are stuck attempting to keep prices extremely low, with limited upgrades throughout the system. This applies to rolling-out more energy efficiency measures and renewable energy. The east becomes stuck in this pipeline dependency. Unable  – and in some cases – unwilling to finance their way to a new energy system.

Independence from Russia is a nice dream, but energy is the way Russia projects its power. For some politicians, like Hungary’s Prime Minister Orban, staying within the Russian sphere of influence holds financial and political benefits. For the Poles, they gain politically moving away but are so wedded to the Russian gas system, and reject significant upgrading to their energy system, such as getting off the carbon road, that they remain tied.

An EU energy Czar able to counter the Czar of Russia (Putin) must be given legitimacy from EU members.This means both the Germans and the Hungarians – much line up with the Poles and seek greater independence from Russia. However, as the building of the South Stream pipelines shows, Hungary and Bulgaria are willing to move forward with Russia on the pipeline despite strong resistance from Brussels. Unilateral agreements and development projects – at the expense of the overall long term EU energy security – will fail to elevate the Czar to a meaningful position.  European countries must line up, and even lend some sovereignty to an EU high representative for energy. The foundation of the EU is based on coordination of energy and industry, let’s ensure this remains central to keeping Europe strong.

 

 

Events

 Future Events

Portfolio.hu Energy Investment Forum 2015

Date:  Thursday, November 5, 2015 – 8:30 am to 5:00 pm

Roundtables of CEOs – Where are we headed? Orientations and possibilities on the domestic energy sector

Moderator: Dr. Michael LaBelle, professor, Central European University Business School and in the Department of Environmental Sciences and Policy

Conversation participants:
Dr. Eric Depluet, CEO, E.ON Hungária
Sándor Fasimon, COO (Hungary), MOL Group
Attila Ságodi, Partner, Head of Sector Government, Infrastructure, Energy & Utilities, KPMG


 

The Politics of Shale Gas in Eastern Europe: Technology Innovation, Regulatory Legacy and Energy Security

Date:  Friday, November 6, 2015 – 8:00am to 9:15am

Input: Andreas Goldthau, Professor of Public Policy, School of Public Policy, CEU

Commentator: Michael LaBelle, Professor at CEU Business School and Dept. of Environmental Sciences and Policy

Commentator: Andras Jenei, Energy Policy Advisor

Past Events

“The evolving notion of security in law and policies on energy investment: international and national perspectives”, University of Liverpool in London, May 29, 2015

News: Conference Explores the Impact of Public Policy in the Shale Gas Industry, University of Pittsburgh, April 18-19, 2015