Hungary’s unexpected oil bonanza

When the Hungarian-US companies Horizon Energy and TDE Services said recently that they had made the largest oil discovery in southwestern Hungary in the last 30 years, global oil markets barely noticed.

But the discovery gives Budapest an added tool in its evolving energy policy and offers respite from complete dependence on imported Russian oil.

The amount of crude oil that is extractable is expected to allow the production of 11,000 barrels per day, with 6,000 barrels already extracted in the area this year.

Read more: Hungarian gas: Devil or deep blue sea?

And the final figure could even be higher, as the development includes an oil transfer station in Szigetvar — some 245 kilometers (150 miles) southwest of the capital Budapest — near the oil field. Capacity extension is expected in the second phase of development, with an increase to 15,000 barrels of oil per day possible, the company says on its website.

This would be more than the country's oil and gas monopoly MOLʼs average production of 13,000 barrels per day in 2018. 

While a big find, the two figures combined cover less than one tenth of Hungary's total consumption. Most of Hungary's oil is imported via the Druzhba pipeline from Russia. Despite temporary closure of the pipeline earlier this year due to contaminated oil from Russia, the Russian source is likely to remain dominant until Budapest's new energy mix strategy kicks in.

Changing energy mix

Deputy secretary of state for climate at the Ministry of Innovation and Technology, Barbara Botos, this year announced plans to phase out coal by 2030.

Coal takes up about 16% of domestic energy and cheaper and environmentally friendlier gas is rising, as is renewable energy, while Hungary has four nuclear power plants.

The government said earlier this year it foresees a 14% increase in final energy consumption between 2015 and 2030 and wants the share of oil in the energy mix to grow. But it also needs to move towards EU climate protection targets.

The EU Climate and Energy Policy Framework foresees a reduction of at least 40% in greenhouse gas emissions at EU level by 2030, a goal that Poland and Hungary said they would not strive to achieve.

Botos said Hungary would plan to reduce its greenhouse gas emissions by at least 52% compared to 1990 levels by 2050. The government is aiming for a 85% cut in this period, according to the National Energy and Climate Change Plan published by the Innovation and Technology Ministry in May. 

Hungary's energy strategy is based on two pillars, nuclear and renewable energy. The four blocks of Hungary's only nuclear power plant have a combined capacity of 2,000 megawatts (MW). Hungary is expanding the Paks power plant with two new blocks adding 1,200 MW each. 

Read more: Will Russia splash rainy day cash?

"In peak times, Hungary needs to import more than 50% of its energy needs, which is why projects like Paks II are key," Michael Keroulle, Chief Commercial Officer at GE Steam Power, told Emerging Europe.

Hungary's target is to raise the share of renewable energy within energy consumption to 20% by 2030 from around 14-15% at present, thanks mainly to biomass. 

But Ada Amon, senior associate at E3G, an independent climate change think tank, told journalists recently that Hungary's ruling Fidesz didn't really bother about European values anymore. "They don't pretend that they would like to go along with the climate policy targets. They keep saying that Hungary has the sovereign right to choose its own energy mix. But this is not true anymore considering the fact that all member states have to comply and have target figures for renewables."