Hungary, Serbia eye China role in Druzhba oil pipeline extension: minister

Hungary and Serbia aim to get Chinese financial backing to extend the Druzhba Russian crude oil pipeline from Hungary into Serbia, forming a "trilateral" project that could move ahead in the next two years, Hungarian Foreign Minister Peter Szijjarto said June 5.

The comment followed talks between Hungarian Prime Minister Viktor Orban and Chinese President Xi Jinping in Beijing in May, underscoring differences between Hungary and the thrust of EU energy and foreign policies aimed at barring Russian oil imports following the invasion of Ukraine.

The planned extension of the Russian Druzhba pipeline system, which still supplies southeast Europe, to Serbia's partly Russian-owned Pancevo refinery is set to be incorporated in China's Belt & Road Initiative on economic cooperation, Szijjarto told S&P Global Commodity Insights on the sidelines of the Baku Energy Forum.

Hungary and Serbia signed an agreement in June 2023 to build a 110,000 b/d oil pipeline to allow Russian oil deliveries to Pancevo, Serbia's sole refinery, but there has been uncertainty over how and when it would make headway. Expected to be built by Hungary's Mol and Serbia's Transnafta, the pipeline would extend 304 km between Hungary's Szazalombata and Serbia's Novi Sad.

Serbia is not yet an EU member and thus not part of the EU's efforts to outlaw Russian oil.

"We are in the preparation phase currently and Mol and its Serbian counterpart have already established a working group, the homework of which is to put together the schedule and the roadmap, and we have negotiated with the Chinese president that this project would be part of the Belt and Road Initiative, so some Chinese financial contribution is also possible," Szijjarto said.

"We'll see -- so now it's becoming a trilateral project to move forward," Szijjarto added. "I hope it will not take longer than two years."

Szijjarto further said, "Both of our countries believe in the very simple truth that the more pipelines the better, because in case of emergency we can help each other. The energy cooperation between Serbia and Hungary is exemplary."

Russia has been battling a drive by G7 nations to limit the price it receives for oil exports, under a $60 price cap mechanism.

However, Russia has been sending its oil further afield beyond Europe, and discounts for its oil have narrowed. Compared with Dated Brent, the discount for Urals crude delivered to India shrank to a low of $3.25/b in the third week of May, according to assessments by Platts, part of S&P Global Commodity Insights.

The 96,000 b/d Pancevo refinery is part-owned by Russia's Gazprom, with a 56.15% stake, followed by the Serbian government with some 30%.

The refinery is currently dependent on crude supplied by Janaf, the pipeline operator of neighboring Croatia -- a pipeline route also known as Adria. The Janaf pipeline previously brought crude from the Russian Druzhba system, as well as from the Croatian coast into neighboring countries including Serbia, although this ended following the Ukraine invasion.

Hungary, together with Czechia and Slovakia, have an exemption to the EU ban on Russian oil imports via the Druzhba system.

Janaf said in January it had extended a crude supply contract with Serbia's NIS for a further two years. Serbia has been a candidate for EU membership since 2012.