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Energy

Hungary PM's gas ties slated ahead of Moscow deal

BUDAPEST, Feb 27 (Reuters) - Hungary’s government sought on Wednesday to defend its decision to join Gazprom’s South Stream gas pipeline which some observers fear will scupper plans for an EU-backed project to cut dependency on Russian energy supplies.

Hungarian Prime Minister Ferenc Gyurcsany will go to Moscow on Thursday to sign up for South Stream, the rival to the EU’s Nabucco project, handing Russia a victory in the battle to supply gas to Europe after Serbia and Bulgaria signed up too.

Zsolt Nemeth, chairman of parliament’s Foreign Affairs Committee and the opposition Fidesz party’s foreign affairs spokesman told a committee hearing on Wednesday that Gyurcsany should not be allowed to sign up without a parliamentary vote.

“The fundamental problem of Fidesz with the South Stream pipeline is that it increases the unilateral dependence of Hungary on Russia (for gas supplies),” said Nemeth, head of foreign policy for the main opposition Fidesz party.

Gyurcsany has frequently been criticised for his closeness to Russia and the Hungarian government has flip-flopped on the issue of Nabucco as it is dependent on Russia for 80 percent of its gas needs, one of the highest levels in Europe.

Hungary is a key transit point for Russian gas piped from Ukraine and Gyurcsany agreed to join the 10 billion euro ($14.82 billion) South Stream project during a visit by Dmitry Medvedev, President Vladimir Putin’s protege earlier this week.

The U.S. has been pushing the European Union to ensure that Nabucco, a 3,300 km (2,051 mile) $6 billion pipeline across Turkey to central Europe, gets built and warned last week that South Stream could end up costing $20 billion-$30 billion.

The Gazprom GAZP.MM and ENI SpA ENI.MI project would pipe gas through the Balkans to Italy and a spur would come to Hungary under the deal to be signed on Thursday.

Nabucco, expected to start construction in 2010, is backed by a six-company consortium led by Austria's OMV OMVV.VI and also including Hungarian oil company MOL MOLB.BU.

ROOM FOR BOTH, GOVERNMENT INSISTS

Gyurcsany’s Socialist-led government said it remained committed to Nabucco and that it expected rising energy demand in both Hungary and Europe to support both projects.

Some analysts say that South Stream will soak up demand if it is built and make it harder for Nabucco to sign up customers which will place the financing of the project in jeopardy, thus increasing Gazprom’s stranglehold on Europe.

“The planned capacity of Nabucco would be 30 billion cubic metres. We are aware that this pipeline alone would not solve the supply problems of either Hungary, nor Europe,” Economy Minister Csaba Kakosy told the committee meeting.

He said after talks with EU Energy Commissioner Andris Piebalgs on Tuesday, the bloc’s energy chief said Hungary’s participation in the South Stream project was not a problem as long as it also remained committed to Nabucco.

Russia’s Gazprom supplies Europe with about a quarter of its gas needs, and consumption in the 27-member bloc is projected to rise by up to 30 percent in the next 20 years.

“There is big demand for Nabucco ... however, this does not run counter to the fact that the European Union will also need the capacity provided by the South Stream project,” Foreign Minister Kinga Goncz said. (Reporting by Gergely Szakacs; editing by James Jukwey)

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