Mon. Sep 16th, 2024

Budapest. 30 August 2024

Péter Szijjártó, Minister of Foreign Affairs and Trade, said Ukraine has threatened the energy security of Hungary and Slovakia by making Russian Lukoil’s crude oil transit impossible and the European Commission has not taken any action.

Minister Szijjártó told a press conference after a meeting with his EU counterparts in Brussels that his Ukrainian counterpart had also attended the consultations and talked much about the Russian attacks against his country’s energy grid. “Hungary’s position is clear,” he said.

“A country’s energy supply is a matter of national security. As a result, when a country threatens the security of another country’s energy supplies, then it also threatens that country’s national security interests.” “And this is exactly what has happened in respect of Ukraine and Hungary. By making around a third of Hungarian oil imports from Russia practically impossible by legal means, Ukraine is undermining the security of Hungary’s energy supplies or at least subjects it to serious challenges,” he said.

He added that the same applied also in connection with Slovakia where Ukraine had blocked around 40-45% of Russian oil imports. “And I must say that the European Commission has shown its true colours, because either the European Union is so weak that it cannot protect two member states’ energy security against a non-member country, or it has created the whole situation itself and Kyiv had actually been instructed by Brussels to introduce measures that limit energy security for Hungary and Slovakia,” he said.

Whichever happens to be the case, “it is disappointing that the European Union is either so weak or it is trying to hide so boldly behind Kyiv to force Hungary and Slovakia to change their pro-peace position,” he said. Szijjártó said that together with his Slovak counterpart they had expressed their disappointment in connection with the EC’s handling of the issue and noted that both countries were making considerable contributions to the security of Ukraine’s supplies. “Some 42% of Ukraine’s electricity imports currently arrive in Ukraine through Hungary and Hungarian state companies have made significant investments in order to enable synchronised cooperation between European and Ukrainian systems,” he added.

“Without these measures, Ukraine’s electricity supplies would not be secured… And despite this we had to face Ukraine playing with the security of energy supplies for Hungary and for Slovakia,” he said. Szijjártó said there were continual talks with Russian suppliers and the Ukrainian system operator about finding a legal solution to guarantee long-term supplies. “But let me tell you again, it should not be us having to deal with this task but either the Ukrainians should restore the original situation or the European Union should take action in this matter,” he added. With the help of different types of temporary measures, supplies could be successfully secured in the short term and medium term, but in the case of energy only a long-term solution was acceptable, he said. “As a result, we will certainly continue the talks and hope that agreements can be signed soon that will enable the long-term security of energy supplies,” he added.

Source – Government of Hungary

 


Fitch Ratings: Ukraine Sanctions on Lukoil a Significant Risk for Hungarian and Slovakian Refineries

Frankfurt am Main, 24 July 2024

Refineries in Slovakia and Hungary face significant credit risk following Ukraine’s decision to sanction Russian oil producer Lukoil, according to Fitch Ratings.

Crude oil from Lukoil to be shipped across Ukraine through the Druzhba pipeline has been put on hold since June 2024.These volumes primarily serve the Hungarian and Slovakian markets and, while immaterial to the overall European supply balance, could significantly impact energy supply in Hungary and Slovakia over the medium-term.

MOL Hungarian Oil and Gas plc (MOL, BBB-/Stable) operates all refining assets in Hungary and Slovakia, the latter being conducted through its subsidiary Slovnaft. It was utilizing around 65-70% Russian crude in its refining system as of May 2024, where Lukoil is a material supplier. MOL aims to reduce reliance on Russian crude to 50-55% by year-end through various ongoing upgrade projects, however full replacement will foreseeably become possible by 2026.

Both Hungary and Slovakia maintain strategic oil and oil-products reserves of at least 90 days’ worth of average net imports, which can be used to provide additional headroom in case of a protracted interruption of supply. MOL also maintains a very strong financial profile to help cushion the impact of a temporary interruption in access to Russian crude, but long-term solutions will be needed if the situation doesn’t ease in the near term.

So far both Slovakia and Hungary have managed to bridge this supply interruption with additional volumes from other sources, however a broader and longer-term interruption of Russian supply could pose a significant risk to refining operations and energy supply.

Slovakia is more exposed than Hungary owing to physical constraints on alternative supplies. There are also technical limitations on substituting Russian crude oil with other grades of oil, owing to the configuration of the refining systems and associated infrastructure. We do understand however that Russian crude can be shipped via waterborne vessels to other offtake points in the absence of Druzhba pipeline supplies, and affected refineries can operate on other crude grades at a reduced level of utilisation and profitability.

Other Russian producers, such as Rosneft and Tatneft, can continue to deliver crude oil along the pipeline as of now. However it is not clear whether additional sanctions on these entities will be forthcoming from Ukrainian authorities.

MOL’s ‘BBB-‘ rating already reflects the general risk of feedstock supply concentration in its downstream segment, which we expect will contribute around 40-45% of Fitch-defined EBITDA per year over our rating case forecast. The company maintains healthy headroom under its negative sensitivities and we continue to reflect the risk of a larger-scale cut-off of MOL’s access to Russian crude as an event risk to its rating.

Source – Fitch Ratings

 

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