Hungarian MOL Group puts its foot on the gas

What does not kill you makes you stronger, at least in the case of Hungarian oil and gas company MOL Group. The dispute between MOL and OMV in recent years has been settled simply by the European authorities.
“The European Competition Commission ruled that the three refineries from Austria, Hungary and Slovenia cannot be managed by one hand alone, because it would be a monopoly,” Mosonyi told Business Review.
Without wasting any time, the MOL Group head has left the MOL-OMV disagreement behind him and has set very specific company development plans for Romania. Mosonyi says the firm will keep on expanding its downstream oil activity on the local market.
“We plan to develop the retail business in Romania. We want to continuously increase the number of filling stations by 10 to 15 units per year. This is our target,” said the MOL Group CEO.

Next step for NETS
In the gas industry, Hungary is taking the first real steps in the New European Transmission System (NETS). Transgaz of Romania, Plinacro from Croatia and Hungary's Natural Gas Transmission signed a memorandum of understanding towards the end of September. MOL officials say that the feasibility study for the project will also be ready in a few months.
“As for the management of the company, we have to leave all possibilities open because besides the Hungarian company, which is privately owned, the other two are state-run. All the firms involved will have to evaluate which assets will be allocated to this project, and the actual investment sum per company will be established in accordance with this. Any real investment activity will start after two or three years,” said Mosonyi.
The tariff system must be harmonized and the sum each company will have to pay for 1 kilometer of capacity must also be established, based on a common principle, added the CEO.
“NETS will supply Russian gas, that's for sure. But if Nabucco works, the connection to Austria will mean we can swap gas from Western sources as well. NETS will not trade gas, it will just represent the infrastructure for the gas swaps,” said Mosonyi.

Oil and gas face tough times
“If the business is growing – and fortunately it is growing – you have to consider all the ways to supply the market and for this we need storage capacities. We have to investigate the logistics needed for the ongoing business,” said Mosonyi, referring to the company's idea to build a deposit of oil products in Romania. “We'll investigate whether investing in an oil storehouse on the Danube – which could receive products from Hungary, Slovakia or the Black Sea region – is a business opportunity. But no decision has been made yet regarding this investment,” said the MOL CEO.
Plans for the construction of a gas storage facility are, however, more concrete.
“We plan to build a gas storage facility with a capacity of 1.9 billion cubic meters, of which 1.2 billion cubic meters will represent strategic capacity and the rest commercial storage. These gas storage units are in fact former gas exploration sites, not tanks as in the case of oil. We have already started pumping the gas in and it will reach 1.2 billion cubic meters by 2010,” said Lajos Alacs, senior vice-president of gas and power at MOL Group. According to him, the total investment in this gas storage facility will reach EUR 600 million.

Costs of the crisis
The international financial crisis has also made its mark on the oil and gas industry by making access to financing for million- or even billion-euro projects a challenge. Mosonyi says that, “If the situation remains as it is, costs for projects such as South Stream, Nabucco and NETS will definitely increase. But, in my view, when we reach the point of real financing for these projects, this crisis will be over. Hopefully by 2009-2010 the financial turmoil will be over and the financial environment will get back on track.”
According to the CEO, MOL will finance its investment plans with a credit line of EUR 2 billion, taken out a year before the crisis started, and the company's own cash flow.
Meanwhile, the share prices of oil companies have dropped, influenced by the situation on international financial markets.
“If we take the major oil companies in Europe, we can see that their share prices have gone down by 40 or even 45 percent in one year. MOL Group's shares fell by 40 percent in one year. But this is a global situation. It is also the case for Gazprom. Their shares have fallen from USD 60 a while ago to USD 24,” said Mosonyi.

Price expectations
The MOL CEO takes a very optimistic view of the level of gas prices for next year. “It's very simple – it's mathematics,” he says. “All the countries buying Russian gas are using a mathematic formula to calculate the gas price. This method takes into account the price of oil on the international market. Due to the current lower oil price, in my opinion gas prices will go down in the second half of next year.”

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Silver lining
As for the price of oil, MOL specialists see a positive side to the international financial crisis for the oil industry.
“Demand growth is still lower than we expected, but the demand is still growing. In the past few years the oil supply was struggling to keep pace with demand. From this point of view we are actually lucky to have a financial crisis because that enables the oil industry to catch up,” says Laszlo Varro, in charge of strategy and business development at MOL Group. He says the firm thinks the price of an oil barrel will reach USD 90. But this prediction is a long-term one, taking into account the fact that the current price is below this level.

By Dana Ciuraru