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Home / News / Today's Headlines / Hungary May Ship Gas to Europe

07.05.2008

Hungary May Ship Gas to Europe

Exxon Mobil Corp., Mol Nyrt. and Falcon Oil & Gas Ltd. may ship Hungarian natural gas to western Europe to boost supplies in a region increasingly concerned that Russia may reduce exports.

Partners in the Mako Trough area, which holds enough gas to meet German demand for almost three years, may send fuel to neighboring Serbia and Austria, Falcon Chief Executive Officer Marc Bruner said in an April 30 interview. The fields may meet domestic demand once they start full production as soon as 2012, he said.

Gas from Mako, a collection of fields twice the size of Los Angeles, could loosen OAO Gazprom's hold over European supplies. Demand in the 27-member European Union, the largest energy consumer after the U.S., rose by about 10 percent in the past five years. The urgency of finding new fuel sources intensified after European shipments were reduced when Gazprom cut supplies to Ukraine in 2006 over a pricing dispute.

"Exports are possible, provided Exxon, Mol and Falcon can make the technology work,'' Bruner said from Denver, where Falcon is based. ``We are very confident that the answer is yes. It's a very healthy thing for the EU to have this.''

Surging energy prices are prompting producers to drill for deposits in more technologically challenging locations. Gas increased an average 22 percent in the first quarter from a year earlier. Crude climbed 98 percent in the past year and touched a record $122.73 a barrel yesterday.

Deep Deposits

The Mako gas deposits are trapped in rock formations created more than 23 million years ago and extend 7,000 meters (23,000 feet) into the ground, according to the U.S. Geological Survey.

The fields contain at least 340 billion cubic meters (12 trillion cubic feet) of gas, according to Mol. About 30 percent is economically recoverable at current prices, the Budapest-based company said April 16. The Scotia Group, a consultant hired by Falcon, estimated two days ago that the deposits hold about 1.2 trillion cubic meters, with a greater than 50 percent probability.

Hungary relies on imports for 78 percent of the gas burned in furnaces and factories. Gazprom last year sold 7.5 billion cubic meters of gas to the nation, about 70 percent of its imports.

Gazprom and Eni SpA of Italy have signed agreements with the governments of Greece, Bulgaria, Serbia and Hungary to participate in South Stream, a 900-kilometer (560-mile) pipeline that will travel under the Black Sea linking Russia to the Balkans, where it will split into northern and southern routes.

Sergei Kupriyanov, a Gazprom spokesman in Moscow, where the company is based, said he was unaware of the Mako project and couldn't comment.

`Open System'

A competing plan, Nabucco, wants to ship gas along a 3,300- kilometer route from the Caspian region to Austria, via the Balkans. The group includes Vienna-based OMV AG; Mol, based in Budapest; Essen, Germany-based RWE AG; Bulgargaz EAD in Sofia, Bulgaria; Medias, Romania-based Transgaz SA; and Ankara-based Botas.

"Nabucco will be established as an open system,'' Christian Dolezal, a spokesman for the pipeline venture, said in an e- mailed response to questions. "It will be possible in principle to feed gas or to take gas off along the route.''

The Mako group will take years to explore the area and determine whether the fields can produce enough to sell outside Hungary, said Robert Rethy, an analyst at UniCredit SpA in Budapest.

"Let's not get ahead of ourselves,'' he said. "We are not even sure what's there and how much can be produced.''

Mol and Exxon each have about 40.4 percent of the total 1,567 square kilometers that make up the Mako Trough. Falcon holds the remainder.

Development Costs

Drilling may cost as much as $24 billion over the project's lifetime because as many as 2,000 wells will be needed at a cost of $8 million to $12 million each, Mol, Hungary's biggest oil and gas company, projected on April 16. Building the connecting pipelines is expected to cost as much as $28 million, while running them will cost as much as $11 million a year.

Exxon Mobil, the world's biggest company by market value, was brought in for its expertise.

"We come to the table with the resources and technology and experience necessary to do unconventional gas projects like this,'' Patrick McGinn, a Houston-based spokesman for Exxon Mobil, said April 17. Mako ``has potential,'' he said.

Source: Bloomberg  

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