The Fidesz government’s latest

We'd better learn a new acronym: AGRI. It stands for Azerbaijan-Georgia-Romania Interconnection. Few people have ever heard of this project that is supposed to deliver natural gas from Georgia and Azerbaijan across the Black Sea to Romania. Although I admit I didn't look very hard, the first mention I found of it was in the Oil and Gas Journal on April 14, 2010. The journal informed its readers that Azerbaijan, Georgia, and Romania had signed a memorandum of understanding to transport Azeri LNH to the European Union and that it could apparently come online sooner than the planned Nabucco gas pipeline.

The Romanians were certainly enthusiastic. They considered this planned pipeline "the fastest and one of the most efficient projects" to bring Caspian gas to the European Union. Plans call for gas from Azerbaijan to be piped across the Caucasus to Georgia's Black Sea port of Kulevi where the gas will be liquefied. Then this liquefied natural gas will be shipped by tanker across the Black Sea to a regasification terminal at Romania's port of Constanta and from there to all over the European Union. Apparently the project was conceived after it became clear that the dispute between Turkey and Azerbaijan over gas prices and transit threatened the Nabucco project. AGRI would cost, according to the article in Oil and Gas Journal, €2-4 billion and it is expected to deliver 7 billion cu m/year of gas, with 2 bcm/year going to Romania and the remainder heading on the other EU states. Romania already contemplated the happy state of being "an important gus hub in Europe, with the potential to supply gas to Bulgaria, Hungary, Serbia, and Austria."

I assume you noticed that there was no mention of Hungary here as a part of the deal or a signatory to the agreement. Moreover, even late last night when the Hungarian public first learned about Viktor Orbán's trip to Baku today, the announcement simply said that "Prime Minister Viktor Orbán will take part in negotiations concerning Azeri-Georgian-Romanian-Hungarian energy cooperation." And in case one might think that this was just sloppy reporting, the report also specified that the project, supported by three countries–Azerbaijan, Georgia, and Romania–came into being on April 13 in Bucharest where the three countries' representatives established a firm entrusted with the realization of the project. MTI, the Hungarian news agency, however, remembered that Teodor Baconschi, the Romanian foreign minister, mentioned to János Martonyi when he visited Bucharest on September 1 that "if Hungary wants to join the AGRI pipeline project it should act quickly."

A few hours later, it was all taken care of. MTI reported shortly after noon that the agreement is signed and sealed. "The signatories agreed to support the project and will do their best to acquire backing from the European Union." They are looking for financial assistance from European states and international financial institutions. Surely, they will need it because the four countries' financial situation is not such that they could undertake such a project alone.

This surprise move of the Hungarian government seems to be a real political coup and it is heralded that way in Hungary. However, it is somewhat odd that the state oil company of Azerbaijan, one of the signatories, forgot about Viktor Orbán's presence and Hungary as a signatory. To quote: "Azerbaijan, Georgia and Romania signed an greement establishing a joint venture under the Azerbaijan-Georgia-Romania Interconnection (AGRI) gas transportation project this week, the State Oil Company of Azerbaijan Republic (SOCAR) told Trend today." The news goes on: "The joint venture will operate in Bucharest. Each participant has a 33-percent equity share." Moreover, Ilham Aliyev, Azerbaijan's president, also talked about only an Azerbaijan-Georgia-Romania pipeline. If this is the case, what did Viktor Orbán sign?

Let's see what Orbán had to say about the deal. He mentioned Hungary's commitment to the project. He pointed out that Hungary will cooperate with Romania "in order to make the project profitable." All that sounds rather vague to me even if Traian Basescu, president of Romania, pointed out that "Hungary's adherence is a very important element of the soundness of the project" and President Mikhail Saakashvili of Georgia said that Hungary's joining the project would give it a boost, especially since Hungary will assume the EU's rotating presidency beginning in January.

Romanian politicians are very optimistic about the success of this new pipeline. Europe will be able to reap the benefits of natural gas coming from Georgia and Azerbaijan within three years. They consider the project relatively inexpensive. According to Basescu AGRI would be the most competitive among the three pipelines planned for this region, the other two being Nabucco and Southern Stream, both of which Hungary also supports. At the same time he emphasized that AGRI would not be a rival to them even if they are going to supply the same countries. He went further to explain the arrangement. The project will unify the key role of Azerbaijan, the greatest producer of natural gas, the geostrategic importance of Georgia and Romania, and Hungary will provide "added value" in transmitting the gas farther west.

Miklós Hegedűs, a Hungarian economist specializing in energy, is skeptical about the project. According to him Azerbaijan indeed has fantastic natural gas reserves but they are still underground. The Shah Deniz reserves, the largest in Azerbaijan, are estimated to be between 1.5 billion barrels (240,000,000 m3) and 3 billion barrels (480,000,000 m3) of oil, and 50 to 100 billion cubic meters of gas. Gas production at the end of 2005 was estimated to be approximately 7 billion cubic meters. However, this is not really enough if Azerbaijan through AGRI wants to export 3-8 billion cubic meters. Hegedűs also disagrees with Romanian politicians concerning price. Liquefication and regasification is an expensive business. He is also worries about how realistic it is for three (or four?) relatively poor countries to undertake the construction of a pipeline.

Of course, we have no idea what the real situation is. Politically the move is excellent. Here is a new government and a decisive prime minister about whom all those western papers have written negative things. With this stroke he is now an important player on the energy scene. While the European Union can't get anywhere with the Nabucco pipeline, he can be part of another project. In a month the Hungarian government managed to get on a deal concerning natural gas supplies from Azerbaijan and Georgia. The question is whether the project has any chance of realization. Portfolio.hu raises another red flag. Apparently Russia recently signed a gas deal with Baku according to which Gazprom has a quasi preemptive right to future Azeri gas output.

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Paul Haynes
Guest
I know very little about natural gas, pipelines or LNG (although considerably more than I did an hour ago!), but on the surface this looks like a sensible move by Orbán (and even Eva sounds like she’s struggling to get much anti-Fidesz capital out of this). There are certainly good resons for thinking this project won’t get off the ground. Natural gas liquification is very expensive (both in capital terms and in running costs), and it’s hardly low-carbon compared to pipeline transportation, because of the energy needed to liquify the gas. But the biggest stumbling block is the amount of gas Azerbaijan is able to produce and sell. One of the main problems with the rival Nabucco pipeline is that the Russians appear to have bought up almost the entire likely annual Azerbaijan gas output. But, even if this project (or the others Hungary has signed up to) fails to get off the ground, surely it’s better for Hungary to cover all bets by making sure they are involved in all such projects? Bearing in mind how vital natural gas is to Hungary and how Russia can behave over its supply (or not), were I the Hungarian PM, I would… Read more »
Eva S. Balogh
Guest

Paul Haynes: “There are certainly good resons for thinking this project won’t get off the ground.”
That’s the trouble. I have the same feeling. The question is whether Orbán knows that or not.

Pásztor Szilárd
Guest

Eva: could you post your opinion on Fidesz’s latest 8-point plan to help those with house loans? I’d be interested.

Paul Haynes
Guest

Szilárd – perhaps you could first help those of us who can’t read this sort of thing in the original Hungarian by explaining exactly what Fidesz’s 8 point plan is?
I ask this seriously, as I have no other way of finding such things out.
I have read the English translations of Orbán’s speeches to parliament, so I have some idea of what Fidesz are hoping to do, but I would dearly love to know the detail.
At the moment, I am left very puzzled as to how a government whose economy is on the verge of collapse, and who claim they will both reduce taxes AND not cut expenditure, can possibly have the money to support thousands of foreign currency mortgages.
And I am equally puzzled as to why a government should put so much money and effort into supporting a relatively small number of mostly well-off people who made the ‘unpatriotic’ choice to bypass the Hungarian economy for purely selfish reasons (and by doing something that Fidesz intends to declare illegal) when there are millions of more deserving cases in Hungary.
The cynic in me ponders if this could be because most of these patriots are Fidesz voters.

Eva S. Balogh
Guest

Paul Haynes: “Szilárd – perhaps you could first help those of us who can’t read this sort of thing in the original Hungarian by explaining exactly what Fidesz’s 8 point plan is?”
Paul, I will give you the eight points in English tomorrow. A couple of the suggestions are so vague and shows such a lack of understanding of the whole banking system that the representatives of the banks don’t even understand them. Others are so outlandish that they would completely bankrupt all the Hungarian banks. But I will give you the translations and then you can judge.

Pásztor Szilárd
Guest
@Paul: you are extremely wrong in each of your statements. How can one make so many “mistakes” in one post? 1. “they will both reduce taxes AND not cut expenditure”: reducing taxes is a must to enable economic growth, there’s just no other option. And they never said they wouldn’t cut expenditure, the said they won’t implement austerity measures. The two differ! Expenditures have already been cut this year without austerity measures. 2. “can possibly have the money to support thousands of foreign currency mortgages”: this is no financial support, this is legal support, and as such, requires no money. 3. “relatively small number of mostly well-off people”: huge number of people and NOT well-off (well-off ppl don’t need loans)! The penknife just opens in my pocket when seeing such an ignorant yet cocky statement. You are talking nonsense about hundreds of thousands of families, all middle-class and working unless they lost their job in the crisis. 4. “made the ‘unpatriotic’ choice”: they had NO choice since the “socialist” government halted the house loan support program and let the banks loose without any legal control, meaning there were practically no other loan types available than swiss franc. 5. “bypass the… Read more »
Pásztor Szilárd
Guest

@Eva: “the representatives of the banks don’t even understand them”
Are you sure about that? *grin*
Of course everyone understands these points as they are perfectly clear. Bank representatives have no problem with understanding at all, they have problem with seeing their profit decrease again.
Why are you mixing these 2 up?

Pásztor Szilárd
Guest
Paul Haynes
Guest

Christ, I hit a nerve there, Szilard!
But thanks for the link. Unfortunately, it doesn’t give much more detail than I already ‘know’. In fact it reads like a straight C&P from a typical Fidesz press release. I will await Eva’s version tomorrow.
And, before you start, that’s not because I am rabidly anti-Orbán and an MSzP supporter (I actually am quite impressed with VO and am most definitely NOT a MSzP supporter), but simply because I want to read both ‘sides’ before forming any sort of opinion (radical, I know, but that’s just silly old me).

Gábor
Guest
Correct me if I’m wrong on this but raising the number of potential consumers with access to the same monopolistic supplier’s product would surely not lower the prices asked, more probably raise it. At the moment Azerbaijan has a contract with Russia (the latter is ready to buy the whole production for geopolitical reasons and because they can sell it to their own customers), they are part of the Nabucco plan (leading to Italy and Austria) and now they has this very vague idea of AGRI. It is not a competition of the supplyers emerging, it is a competition of the buyers on a monopolistic (or oligopolistic) market, therefore what Orbán did and could achieve is to buy the very same natural gas for more. (Just like Azerbaijan would sell its reserves at an auction at Christie’s or Sotheby’s.) It certainly doesn’t seem to be a great idea, although gave him the chance to pose as a statesman. (Well, Hungary’s lack is the state of the budget, the country won’t have billions of euros to build the system.) he real solution wopuld be a transition to other sources of energy and as it would also cost a lot wasting money… Read more »
whoever
Guest

‘The penknife just opens in my pocket when seeing such an ignorant yet cocky statement.’
Is this some sort of phallic reference?

Pásztor Szilárd
Guest

@Paul: why do you wait for Eva’s misinterpretation before forming your own opinion? I intentionally sent you a quick link to see for yourself.
Do you need a biased interpretation, from any wing, before forming an opinion?

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