Can We Defend Our Low Energy Prices in an Energy Union?

In his State of the Nation speech last month, Prime Minister Orbán spoke about energy prices. This government, he said, would “defend the reductions in household utility expenses against cunning machinations in Brussels currently being hidden in plans for the energy union.” That may sound like Hungary is opposed to an energy union in the EU, but we’re not. What’s the issue then?

The idea, according to the latest proposals, does not address the real problems of energy security affecting new Member States like Hungary, especially the issue of dependence on Russian gas imports. At the same time, the plan may require Hungary and other Member States to abandon some of the results we have achieved in fighting high energy costs.

The CEE region would need mostly infrastructural development in order to reduce dependence, like a North-South gas interconnector. Meanwhile, Hungary has managed to keep energy prices down — we cut them by 25 percent in recent years — and we see no assurances yet that if we were to hand over the negotiation of energy prices to a joint, European system that we would be able to maintain these low prices or, perhaps, push them even lower.

In theory, one large, robust energy market could enjoy much better positions in negotiating prices than 28 smaller markets individually. And, in theory, that would bring prices down. But in practice, some Member States have achieved greater results in negotiating prices, where others have been less successful. The common European energy strategy and a future energy union should offer additional benefits for those Member States that have managed to bring energy prices down and should not oblige a Member State to give up what it has already achieved. We wouldn’t want to find ourselves in a position where we have to renounce this progress, nor should any other Member State give up the price reductions they have achieved.

Success on the energy front, practically speaking, really depends on infrastructure and diversification of sources. From that perspective, it’s difficult to draw up regulations until there is something to regulate, like proper infrastructure, competing gas pipelines connecting north and south, east and west as well as functioning infrastructure for LNG transfer. This is especially true in the case of the CEE region where markets remain much more dependent on one source — Russia.

Approximately 80 percent of Hungarian households rely on natural gas for heating. That high rate of penetration is almost unmatched in all of Europe. At the same time, Hungary depends on Russia for 80 percent of the supply of that gas. The result is that Hungary has become one of the most exposed Member States of the European Union.

At this early stage, the discussions around the energy union demonstrate that Europe understands that we all face a strategic challenge with energy prices and energy security and the European Union is actively debating ideas about how to confront it. We should remain optimistic about the possibilities, but, as always, details are important, and many of the important details here have yet to be decided.

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