Russia-Owned Energy Giant Strikes Natural Gas Deal With Pro-Putin Hungary After Stopping Supply To Italy

Russian energy giant Gazprom PJSC OGZPY will reportedly permit Hungary to delay payments for natural gas if necessary, as surging imports threaten to derail the country’s strained budget. 

The move comes days after the company suspended natural gas deliveries to Italy in an apparent tussle over regulation in Austria.

What Happened: Hungary has won a three-year delay on gas bills coming due in the next six months, reported Bloomberg citing the Economic Development Ministry.

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At €300 ($292) per megawatt-hour, that would amount to €3.5 billion to €4.5 billion, the report said, quoting the ministry. The agreement is between Gazprom and Hungary’s state-owned energy company MVM Zrt.

Natural gas prices in Europe dropped, with the benchmark futures declining 10%, in the wake of signs the continent will be able to navigate this winter with sufficient inventories, an influx of LNG and steps taken by the European Union to contain the crisis.

Owing to the war in Ukraine and supply issues, natural gas prices have witnessed bouts of volatility this year, hitting their peak in August before prices dropped. 

Price Action: The United States Natural Gas Fund, LP UNG has gained over 75% this year while the First Trust Natural Gas ETF FCG gained over 35% in 2022. Gazprom shares closed 0.86% down in Russia.

Why It Matters: The development comes as a much-needed relief for Hungary as billions of euros in EU funding are locked over concerns about corruption under Prime Minister Viktor Orban, according to the report. International reserves are not enough to cover at least three months of imports and the Hungarian currency forint is trading at an all-time low despite the EU’s highest key interest rate, partly due to Hungary’s dependence on imported Russian gas, it said.

The cost of oil and gas imports surged to an estimated $19 billion this year from $4 billion in 2019, the report said citing government data.

According to Finance Minister Mihaly Varga, additional purchases of natural gas from Gazprom, on top of Hungary’s long-term contract, will lead to an extra cost of 740 billion forints ($1.7 billion) this year and widen the budget deficit to 6.1% of gross domestic product from a targeted 4.9%, the report said.

Interestingly, Turkish officials have asked Russia to delay a portion of the country’s payments due for natural gas, according to a Bloomberg report.

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