Hungary takes on war risks to secure stable Russian oil supplies via Ukraine

Hungary’s state-controlled oil and gas company MOL has agreed to carry the burden of increased transportation risks across war-torn Ukraine in an effort to secure stable pipeline supplies of Russian oil to both its home country and Slovakia.

The decision follows Ukraine’s warning that it may stop allowing supplies of Russian oil to pass though the country when its contracted status as a transit nation for Russian pipeline supplies of natural gas ends next year.

Together with the Czech Republic and Moldova, Hungary and Slovakia were exempt from the European Union ban on importing Russian crude that was imposed following Russia’s invasion of Ukraine in early 2022.

Russian crude supplies had been sent via Belarus though the Druzhba pipeline, with the northern leg running on to Poland and Germany and the southern leg passing through Ukraine to Hungary and Slovakia.

In a statement to investors, MOL said it concluded agreements with crude suppliers and pipeline operators “to secure the continuous transportation of crude oil on the Druzhba pipeline through Belarus and Ukraine, to Hungary and Slovakia”.

“Following the agreements, MOL will take over ownership of the affected volumes of crude oil at the Belarus-Ukraine border, effective from 9 September 2024,” the statement said.

“The updated transportation agreements and the new takeover arrangements of the Russian oil fully comply with all relevant sanctions and provisions, including those of the European Union and Ukraine,” it added.

In early August, Ukraine imposed its own sanctions on Russian privately held oil producer Lukoil, causing a diplomatic rift with neighbours Hungary and Slovakia.Lukoil is a key long-term supplier of oil to MOL via the southern leg of the Druzhba pipeline.

Sanctions had temporarily disrupted the availability of oil from Lukoil to MOL. However, deliveries were soon restored after Lukoil passed its supply obligations for MOL to other Russian oil producers that were excluded from sanctions.

“The new arrangement provides a sustainable solution for crude oil transportation on the Druzhba pipeline,” said MOL executive vice president Gabriel Szabo.“I consider this a great achievement as it allows for MOL to continue with the most efficient and reliable crude processing technology in refineries in Hungary and Slovakia.”

Russian oil supplies via the northern leg of the Druzhba pipeline to Poland and Germany gradually came to a halt in the first half of 2023 following the introduction of the EU embargo on Russian oil imports in December 2022.

However, the EU agreed to allow Kazakhstan to send crude via Russia to Germany using the northern leg of the Druzhba pipeline, as it allowed Hungary, Slovakia and the Czech Republic to continue importing Russian oil via Druzhba while they arranged alternative routes for crude supplies.

Authorities in Ukraine suggested earlier that Hungary, Slovakia, the Czech Republic and Moldova — the remaining nations importing Russian gas — negotiate a similar change to the delivery point in their contracts with Russia’s Gazprom.

The Ukrainian government suggested the delivery point should be moved to Ukraine’s eastern border with Russia from its location on Ukraine’s western border with Slovakia and Hungary.

Ukraine remains adamant that it will never sit at a negotiation table with Gazprom to extend the existing gas transit agreement that expires at the end of December.However, Azerbaijan President Ilham Aliyev has confirmed that efforts, brokered by the EU, are under way to negotiate a possible extension of gas transit flows via Ukraine next year.

Source:https://www.upstreamonline.com