Azerbaijan adds Hungary to energy cooperation map in Europe Alleviating energy security concerns

Azerbaijan’s stake in the energy markets in Europe is growing thanks to deals with new buyers, allowing it both to expand its energy export geography and help Europe have more options to deal with unpleasant energy security scenarios.

President Ilham Aliyev’s visit to Hungary last week paved the way for the country to secure one more market for its gas exports. The latter’s authorities, including Prime Minister Viktor Orban, were quite decisive and optimistic about the purchase of gas from Azerbaijan during discussions in Budapest on August 20.

The negotiations have ultimately fetched a deal for the start of deliveries of fossil fuel to the Hungarian marketplace.

Budapest’s Foreign and Trade Minister Péter Szijjártó announced that the political agreement addresses the export of one billion cubic meters (bcm) of gas from Azerbaijan, of which the first batch containing 100 million cubic meters will reach the consumers in Hungary in the last quarter of 2023.

Last week’s agreement completed a previous deal signed between Azerbaijan’s state-run energy company SOCAR and state-owned MVM CEEnergy company of Hungary in June of this year. Back then, the two companies agreed on the delivery of 100 million cubic metres of gas by the end of 2023.

SOCAR and MVM CEEnergy officials after signing a natural gas purchase agreement in June 2023

Hungary has been seeking natural gas purchases from Azerbaijan since early 2022. In a meeting with Azerbaijani Economy Minister Mikayil Jabbarov in January 2023, Minister Szijjarto reaffirmed Budapest’s plans to count on Azerbaijani supplies as soon as possible, adding substantial infrastructural developments in Southeastern and Central Europe should facilitate it.

Hungarian Prime Minister Orban said in a joint press conference with President Aliyev back in January that a scenario of energy transportation from Azerbaijan was increasingly on the agenda after the failure of the implementation of the NABUCCO project 10 years ago, a postponed 3,900-kilometer (2,400 mi) natural gas pipeline designed to carry Caspian Sea gas to the Central European market.

“Looking at the map, you will see that these volumes of energy coming from Azerbaijan in terms of both natural gas and electricity will pass through Hungary. Therefore, Hungary also wishes to be in a win-win situation in this matter. Also, since we are located on the transport route, the role of Hungary will increase,” Orban said.

Azerbaijan has been supplying natural gas to Europe on the Southern Gas Corridor (SGC) since December 31, 2020, when commercial supplies began on the Trans Adriatic Pipeline (TAP) – the latest portion of the 3,500-kilometer three-segmented mega energy route. Ten billion cubic meters (bcm) per year out of 16 bcm total annual volume on SGC, which stretches from Azerbaijan’s Caspian Sea shores to Italy by traversing Georgia, Türkiye, Greece and Albania, are destined for European customers.

The Southern Gas Corridor

Currently, the European market accounts for the largest portion of daily gas exports from Azerbaijan, with approximately 27 million cubic meters of Azerbaijani gas supplied to European consumers each day.

In 2021, Europe received 8 bcm of gas from Azerbaijan, which increased to 11.4 bcm in 2022. During his recent visit to Lithuania, President Ilham Aliyev announced that the supply of blue energy to Europe would reach 12 bcm this year and is expected to reach 20 bcm by 2027.

Meanwhile, Azerbaijan delivered a total of 6.5 billion cubic meters (bcm) of gas to foreign markets in the first quarter of this year, including 2.9 bcm to Europe, 2.7 bcm to Türkiye, and 0.9 bcm to Georgia.

In addition to Hungary, Slovakia, Montenegro, North Macedonia, Bosnia and Herzegovina, Croatia, and Serbia are also exploring the possibility of receiving gas from Azerbaijan.

Hungary’s energy diversification

Russia has long been dominating the gas market in Hungary. In 2021, the two countries agreed on 4.5 billion cubic meters of natural gas supplies per year from Russia under a 15-year agreement in 2021. They have also supported the further modification of quantities after 10 years.

However, Hungary is seeking to diversify overseas sources, including gas and oil, due to global pressure facing Russia due to its “special operation” in Ukraine. The ongoing war in Ukraine has drastically changed the energy business between European buyers and Moscow with the latter revising its export strategy and the European importers weaning off energy cooperation with the world’s largest producer of natural gas.

As part of diversification attempts, in addition to Azerbaijan, last week, Hungary also secured a deal for natural gas imports from Türkiye. The talks between Prime Minister Orban and Turkish President Recep Tayyip Erdogan in Budapest ended with an agreement for the supply of 275 million cubic metres of gas from Türkiye starting in 2024.

Hungary also settled last week a deal with Turkmenistan to import natural gas from the Central Asian country. Also, Budapest is also studying LNG imports via Croatia and the development of a gas field in Romania. The government of Hungary is also negotiating liquefied natural gas supplies with Qatar and Oman.

Amidst intensified quest for additional sources of energy imports, Hungarian authorities say the new energy cooperation collaborations are not downplaying the contracts with Russia.