Both natural gas and nuclear energy constitute an important pillar of Hungarian security of supply, says Ferencz I. Szabolcs – Chairman of the Board and CEO of FGSZ Ltd., Hungary’s gas transmission system operator. The infrastructure development of the last ten years created ample cross-border natural gas capacity between Hungary and its neighbours, and in the wider SEE/CEE region. Hungary plans to phase out coal-fired power generation by 2025 and establish new gas-driven power stations, and FGSZ is eager to cooperate with its Romanian partner Transgaz in the field of hydrogen, he tells Energynomics.
What is your view regarding the Taxonomy and how to ensure an optimum mix of energy for your country and the South East and Central & Eastern Europe region for the near future, also considering the Green Deal/ Fit for 55 and EU generous funding schemes (Modernization Fund, Just Transition Fund)?
During the development of the Taxonomy Delegated Act, some Member States were supporting the inclusion of natural gas, while other countries were strictly pro-nuclear. Hungary lies at the intersection of those two groups, as both natural gas and nuclear energy constitute an important pillar of Hungarian security of supply in the energy sector – the third pillar being renewable energy. In 2020, for example, the share of natural gas in the Hungarian primary energy supply was around 33%, while the sole Hungarian nuclear power plant accounted for more than 40% of the domestic power generation. One of the tenets of the European Union energy policy has always been that the Member States are free to choose their own energy mixes. Building on this analogy, the Taxonomy regulation – with both natural gas and nuclear investments categorised as sustainable activities – allows EU countries to choose their own decarbonisation pathways.
Perhaps, it also allows these countries to follow the ‘Hungarian model’. The infrastructure development of the last ten years created ample cross-border natural gas capacity between Hungary and its neighbours, and in the wider SEE/CEE region. Hungary plans to phase out coal-fired power generation by 2025 and establish new gas-driven power stations. FGSZ’s interconnectors may help in the distribution of natural gas in the region, thus allowing other countries to similarly phase out coal-fired power generation. It all depends on whether there is enough gas in the pipelines, and the past few months have clearly shown the benefits of diversifying natural gas supplies. Producing natural gas, biomethane or shipping LNG is outside the competence of FGSZ, but hopefully, the Taxonomy will boost new investments in this segment as well – and the EU funding schemes you mentioned hopefully will be also aligned with the Taxonomy measures.
What should our region’s strategy be to make the grids better prepared for renewables?
In the case of the gas sector, making the grid fit for renewables means that you prepare the system for the injection of hydrogen or hydrogen-natural gas blends. Regarding biomethane, compared to natural gas, there is no significant difference from a TSO perspective, therefore hydrogen requires more attention. The European Commission released its draft Hydrogen and Decarbonised Gas Package last December, which lays down the rules for the first few years of the European hydrogen economy, and as such, success or failure of the EU’s hydrogen ambitions largely hinges upon a fit-for-purpose regulation.
However, the Decarbonised Gas Package proposal does not include many target numbers or goals. In this way, it makes it the infrastructure operators’ and Member States’ competence to choose how to best prepare for the cross-border transportation of hydrogen. All the same, countries should align their system development to avoid the formation of ‘blank spots’ on the European hydrogen map. In this context, ‘blank spots’ mean interconnectors in the European gas grid, which do not allow for cross-border transport of significant hydrogen volumes. FGSZ is eager to cooperate with its Romanian partner Transgaz in the field of hydrogen as successfully as we have been already cooperating in natural gas transport. We have been a member of the European Hydrogen Backbone since last year, and it is my sincere hope that Transgaz will soon join the initiative as well. The EHB integrates 29 European natural gas transmission system operators and envisages having 40.000 km of hydrogen pipelines by 2040. As an organisation uniting most European gas TSOs, it is a driving force behind the development of the future hydrogen grid.
Another important factor when considering the renewable grid development in the region is that we should aim to avoid a ‘two-speed energy transition’. This is not as much a regional strategy, as a call to the European Union not to discriminate between natural gas infrastructure operators working under different unbundling regimes – for example, in the current form of the proposal, it would be impossible for TSOs operating under an ITO unbundling model to participate in the development of the hydrogen system, shooting Austrian, German, Hungarian or French hydrogen efforts in the foot.
What should our strategy be in the field of natural gas, and becoming more independent from Gazprom’s imports of gas?
The region has made great strides in the last decade to diversify its natural gas supply. After the Polish-Slovakian and the Polish-Lithuanian pipelines finish construction – hopefully, by the middle of the year – the North-South Gas Corridor will finally be in place. Another long-gestating project, the Krk LNG terminal, entered commercial operations at the beginning of 2021, while a positive investment decision was made for the Greek Alexandroupolis LNG terminal last month.
Last, but not least, we still expect that the Romanian Black Sea gas, particularly those from the Neptun Deep field, will sooner or later reach the market after all. The regional cooperation and the liquidity of the Romanian market are supported by the joint efforts of Transgaz and FGSZ, as Hungary has been supplying Romania with natural gas during this winter. The fact that Hungary can offer supplies towards Romania amid this market tightness shows just how much the regional gas market matured in recent years and that our infrastructure developments (establishing the Hungarian-Slovakian interconnection, expanding the capacities on the Hungarian-Romanian border, and connecting the Balkan Stream to the regional system) offered benefits to a broader region. There is still room for further improvement, and the Black Sea gas sources could go a long way in diversifying Europe’s supply portfolio.
How did the surge in prices of all energy assets affect your KPIs and final results? How did the latest price capping measures affect your investment capability for the future?
Gas transmission is a regulated business, with regulated tariffs, and as such, the company’s investments and operational costs may be recognized through the tariff system. However, even if our costs may be recognized in the tariffs during regular tariff settings by the Hungarian Energy Authority, increasing energy and commodity prices severely impact us in the short term. For example, our natural gas compressors require a lot of gas, around 0.5% of total Hungarian consumption, and to conduct our operation, we have to maintain a certain level of pressure in our pipes. The negative effects of high gas prices far outweigh our lower than usual gas consumption, coming from the lower than usual flows on our system. All market indicators signal that this is the ‘new normal’ and energy prices will stay at record highs for a while.
However, the regulatory requirements don’t mean that we have no incentive in being as efficient as possible – on the contrary, we have always been conscious of our energy usage, an issue made indeed even more relevant by the current energy crisis. We have already seen the first results of our ‘new normal operation’ as FGSZ has surpassed its 2021 business plan by 3%, in a year when the cards were stacked against us – on top of the high energy prices, we also lost a sizable share of our transit revenues due to supply route changes.
Hungary is in a good position, as FGSZ has 6 interconnections with its neighbouring 7 countries. Natural gas TSOs have ‘done their homework’ in the last decade and laid down a well-interconnected pan-European grid able to serve all EU consumers. Our investment plans are incorporating the first hydrogen assets and could target emission reduction as well, we are working on it together with several stakeholders from the industry and the policymakers.
What green projects do you have for the mid and long-term in the pipelines network?
Our pipeline is filled to the brim with green projects, and we will soon begin rolling out the steps of our Emission Reduction Strategy – several projects on the field of energy efficiency, methane or CO2 emission reduction, and hydrogen readiness are going to be listed in the Hungarian Ten-Year Network Development Plan as well. The cornerstone of any successful emission reduction strategy is a thorough assessment of the company’s assets. In 2021, we started a project, which takes into inventory the methane leakages occurring on FGSZ’s grid and assess our capabilities in the field of CO2 reduction. Before that, regarding methane, we didn’t have full-scale measurements and had to rely on approximations when calculating our emissions. After finishing this assessment, we have a much clearer view of where we need to implement emission-reducing investments.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in March 2022.
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