The Eastern European Energy Void: A Case For American Leadership

By / 9.29.2010

Parts of Hungary may well still conjure drab images of the Cold War: bleak and desolate wheat fields, maybe a blue-gray sky, skeletons of Soviet-era construction.

Stereotypes, of course, often contain a grain of truth. The New York Times’ recent profile of Oroszlany, some fifty miles east of Budapest, harks back to that bygone era.  Some 3,000 of the town’s 20,000 residents work in industries related to coal; with that many directly tied to the industry, it’s not hard to imagine how deep into the economy coal’s tentacles stretch.

But that’s changing — authorities announced that Oroszlany’s coal mine would close within three years.  The mine’s closure is well-intended, as the European Union — of which Hungary became a member in 2004 — seeks to end government subsidies for carbon-producing sources of energy.  Dirty coal is, of course, a chief protagonist.

This noble clean-energy goal has created a painful short-term “bridging” problem: The coal-fired power is disappearing too fast, and Hungary is left with an energy shortfall. It simply doesn’t produce enough domestic power right now to keep up with demand.  Figuring out any role that the U.S. or EU might play as Eastern Europe makes this transition is becoming ever more important.

This energy transition is an issue Gabor Rajnai, Oroszlany’s mayor, understands all too well. He wonders how his town is going to keep warm in the winter.  He frets Russian natural gas will fill the gap.  Rajnai probably remembers New Year’s Day 2006, when Vladimir Putin, then Russia’s president, sent a shockwave across Europe when he directed Gazprom, the state energy company, to shut off the flow of gas to the Continent.  Thanks to a price dispute with Ukraine, Europe froze, as it did again when Russia slowed down gas supply again in March 2008.  To make up for this year’s drop in coal-fueled power, Hungary will again import Russia gas.

This is the latest in a deepening dependency.  In March 2008, Putin and Ferenc Gyurcsany, his then- Hungarian counterpart, signed a contract that deepened cooperation on natural gas projects, including Hungarian financing of a Russian pipeline through the country.  In other words, as NATO-member Hungary transitions to a cleaner fuel sources, it is lashing itself ever tighter to the world’s coldest petro-dictator.

Let’s hope this deal doesn’t end up putting Hungary on par with its Eastern European neighbor, the Czech Republic.  As detailed in a stunning mid-September article in The New Republic, Russia and Gazprom camouflaged a network of Czech shell companies to obfuscate the money trail that leads directly from Prague’s hand to Moscow’s mouth.

The Czech Republic faces the same bridging problem as Hungary, too: As coal plants are phased out, how will the country power itself before domestic, self-sustaining energy sources are brought online?  Nuclear power, as regularly championed by PPI, is an option, but as TNR chronicles, even the Russians are likely to win that bid too.

However, that doesn’t mean Hungary and the Czech Republic are doomed to fall in some sort of Cold War-style Soviet sphere of influence.  According to one industry expert, the region’s long-term prospects of creating secure domestic energy sources are more solid: Alex Cranberg of Aspect Energy thinks Hungary has solid reserves of its own gas yet to come online.

He told me he was first drawn to Hungary because its geological fingerprint reminded him of the southern US, and thinks the country’s natural gas industry — where Aspect has invested — is well-run and could produce a stable supply of clean natural gas over the long-haul.  The trick, he says, is getting to the tough-to-reach underground gas fields, which make up some 90 percent of the domestic supply.  That appears to be happening: in the last four years, Cranberg claims that his joint venture has gone from producing none of Hungary’s natural gas to 20 percent, and that slice of the pie should only grow.

But growing takes time, and ensuring that Hungary — and Eastern Europe — has access to a diverse supply of energy in the interim is an important policy initiative that Brussels, not to mention Washington, seems to have glossed over.  Vice President Biden was in Prague to lobby for Westinghouse’s nuclear bid, but local experts believe it might be too little too late. Helping develop domestic clean power sectors could be a productive initiative for both capitals, from economic, energy, and security perspectives.

Photo credit: Wally Gobets