Hungary-Slovakia gas pipeline battling continued delays

The first commercial gas flows between Hungary and Slovakia are facing further delays as Hungary’s pipeline operator Magyar Gaz Tranzit (MGT) has not yet received certification from the European Commission to be a licensed transmission system operator (TSO). The company needs this paperwork in order to receive an operating permit to transport gas.

The pipeline will diversify supply routes from western Europe eastwards towards Ukraine, which has been relying on more European gas due to tensions with Russia over the past 12 months.

Test flows through the pipe have started but commercial flows have been delayed, according to a Hungarian source close to the matter.

The bi-directional pipe was due to come online on 1 January, but the launch was delayed because of problems with the compressor and MGT’s need to be certified as a TSO. In January, Slovak TSO Eustream said that commercial flows could start in early February.

A spokesman for Eustream said on Tuesday the Slovak part of the pipeline was fully finished and ready for operation.

Hungary’s MGT was originally owned by state-owned power and gas incumbent MVM and the Hungarian Development Bank MFB, who sold their respective 49.98% stakes in the pipeline operator to the state holding company MNV in 2014 (see ESGM 6 October 2014). This was to bring MGT in line with EU rules on ownership unbundling under the third energy package, which states that transmission infrastructure must be run by an independent operator.

As MVM runs a natural gas supply and trading division, MFGT, continued ownership of MGT would create a conflict of interest under EU regulation when the pipe becomes operational.

The Hungarian source said while unbundling is complete, the company was waiting for official certification from Brussels. The necessary documents were sent in December 2014.

A spokeswoman from the European Commission did not comment on the delays.

Market anticipation

Market participants are hopeful the pipeline will boost demand and liquidity in both Slovakia and Hungary.

Eastern Europe has been in the spotlight in recent months as shippers look to send gas from west to east, however this has meant capacity at border points has become highly sought after, particularly at the Lanzhot border point between Czech Republic and Slovakia, and the Baumgarten border with Austria and Slovakia.

“Capacity at Lanzhot is fully booked, and availability at Baumgarten is relatively small,” one trader active in the region said. According to data from Eustream, utilisation of entry capacity into Slovakia was between 84-102% at Lanzhot and 96-100% at Baumgarten. Czech grid operator NET4GAS added about 5mcm/day of capacity to the Lanzhot border point on 16 September 2014 to 65mcm/day because of the high demand to flow gas to Ukraine. Eustream will increase the entry capacity again to 110mcm/day by 2016 (see ESGM 9 December 2014).

Prices

“Flows through the interconnector between Slovakia and Ukraine are increasing all the time. I can’t imagine that prices would go down … when the pipeline opens,” the trader said.

The fact that the price Ukraine is paying for Russian gas is more expensive than that sold on European hubs has created a financial incentive for shippers to sell gas onto Ukraine.

Both Hungary and Slovakia are able to transport gas to Ukraine, as well as Poland. Amy Booth and Miriam Siers