Hungary declares energy emergency, bans fossil fuel exports and curbs utility price caps

The Hungarian government declared an “energy emergency,” citing the war in Ukraine and sanctions on Russia by the European Union as the primary reasons. Under the new system, there will be a ban on the export of fossil fuels and the system of government-imposed cap on household utility prices will be revamped.

The government of Prime Minister Viktor Orbán is introducing an “energy emergency” against a backdrop of gas and oil supply disruptions and soaring energy prices in Europe. The war in Ukraine and sanctions imposed by the European Union on Russia have led to an “energy crisis” on the continent, Gergely Gulyás, Prime Minister Viktor Orbán’s chief of staff, said.

Tough challenge
Europe is bracing for a tumultuous period as gas supplies to the continent are becoming tighter and fuel prices are skyrocketing in the wake of Russia's invasion of Ukraine in February and subsequent sanctions.
This is adding pressure to Orbán’s government, which is faced with the highest inflation in decades, a record weak national currency and a stop in the flow of EU development funds because of a standoff with Brussels over corruption and democratic standards in the country.
"The time has come for the government to declare a state of emergency in energy," Gulyas said at a press conference after a meeting of Orbán's cabinet ministers to discuss energy supply problems in Europe. There is “unlikely to be enough gas in Europe for the autumn and winter heating season,” Gulyás noted.
The politician added that the government ordered a ban on energy exports, raised energy prices for high-consuming households and decided to boost domestic gas output to 2 billion cubic meters from 1.5 billion. Hungary will also increase the extraction of lignite (brown coal) and put a currently non-functioning lignite-fired power plant back online while the nation’s only nuclear power plant will increase its production by extending operating times. The measures will take effect from August.

Russian deal
Hungary is highly dependent on fossil fuels imported from Russia from where it gets approximately 65% of its oil and 85% of its gas. The government signed a 15-year agreement with Russian energy company Gazprom to purchase 4.5 billion cubic meters of gas per year. In addition, the government is in talks to buy more gas before the heating season to supplement its long-term contract. Hungary would seek to buy an additional 700 million cubic meters (24.7 trillion cubic feet) of gas before the European autumn from a yet unspecified source.
"We estimate that it is possible to buy 700 million cubic meters of gas before the start of the heating season," Foreign Minister Péter Szijjártó said this week, without specifying whom Hungary was talking to about additional supplies. He also announced that Hungary's storage facilities were 44% full, representing about a quarter of annual consumption.
Financial news website portfolio.hu cited unnamed sources as saying that Hungary may take out a syndicated bank loan to finance the additional gas purchases, estimated at up to EUR 1 billion euros.
Orbán fought vigorously against the EU’s plans to impose a blanket embargo on Russian oil imports, arguing that blocking Russian oil would be equivalent to dropping an A-bomb on the country’s economy. Eventually, Brussels agreed to a concession that allowed a temporary exemption for oil imports delivered by the Russian Druzhba pipeline to certain landlocked countries like Hungary. Gulyás said that Hungary's gas supply was uninterrupted for the time being, and any future restrictions, should they be needed, would affect households as a last resort. "Wastefulness can no longer be afforded anywhere," the politician said. "Every alternative should be looked at that provides incentives for the most sparing use of energy in the economy."