The Emergence of an EU Gas Strategy?

The emergence of an effective European gas strategy may be close to being realized. After years of deliberation and allowing private companies and member states to take the lead, the ‘new’ EU Commissioner for  Energy Günther Oettinger appears to be butting the heads of companies and governments. This strategy appears in three areas 1) pursuing third country clauses which denies the right to re-export Gazprom supplied gas to other member states (Poland-Gazprom), 2) political support behind the North-South gas corridor in Central Eastern Europe, and 3) most significantly of all, the effort to get European companies cooperating on the southern gas corridor traversing Turkey.

Commissioner Oettinger, when he joined the Commission, was derided as a vanilla kind of guy, even the US in cables released by Wikileaks describes him as  bland. Well, the thing with vanilla is it just takes a little chocolate to liven it up (ok, I couldn’t think of a better comparison than that). He may be a boring guy (according to these reports) but he may be emerging as an effective and pointed leader that can bridge the fundamental divide in the energy sector. Openly stating, “South Stream can, in the long term, be considered a rival to the Nabucco project,” Unifying the strategies and actions of the political establishment with the capital investments of the private companies. This is absolutely essential if Europe is going to diversify its gas sources, through private effort.

There are two notable events that demonstrate this effort of realizing the southern corridor. The recent Oettinger’s statement telling the project companies to get moving  and encouraging  cooperation between the two consortia that comprise Nabucco and ITGI. A gradual and sustained investment approach – without Russian involvement, appears to be emerging as the solution for transporting Central Asian and gas from the Caucuses to Europe. This approach is absolutely essential if the Commission and member states want to exclude Russian participation in the pipeline from this region.

Russia and Gazprom has been pressuring the Commission and member states to grant South Stream priority status, so that it can have access to lower financing cost and receive similar backing as Nord Stream. The lack of it to date, is indicative that the EU wants a non-Russian gas pipeline project.

In June 2010, the Russians announced that EDF would be joining their consortium, only a memorandum of understanding was signed, full partnership still has not happened. The Russian strategy is to come out with frequent political agreements and big statements to demonstrate that their project is moving ahead and is in step with Nabucco. However, if the merger with ITGI and a less ambitious and lower cost Nabucco emerges (at least in the short term), it will have a very hard time to keep up with the European backed project. Financing, access to gas (non-Russian) and continued commitment by member countries (i.e. state owned energy firms) will all work to drag South Stream into the morose of pipeline project graveyard.

In the end it may be a slow death for South Stream because it is not in the financial interest of member states to participate in two large pipeline projects. Essentially what countries have done, is to hedge their bets on which pipeline is built first. This has also allowed them to maintain good relations with Russia – but the day of reckoning has to come sometime. If all South Stream does is redirect Ukrainian transiting gas thorough the southern corridor, it will be a very expensive detour.

The EU energy strategy launched in 2009, and outlined in the second strategic energy review, along with the events and the awakening of the January 2009 Russia-Ukraine gas dispute, have all played a part in seeking ways to increase  Eastern Europe’s security of gas supply. LNG is a viable option. It remains to be seen if the CEE/SEE region can support all the planned projects on the table. These include 3 to 4 LNG facilities plus, Nabucco along with existing gas pipleline routes – in addition to large planned capacity of South Stream. In the Southern Gas Corridor survey conducted in November and December 2010 by this blog, respondents stated that the most favorable configuration would be Nabucco and two LNG facilities (I’m still working to get all the results out – sorry for the delay)

(source: Limax Energy Consulting/energyscee.com)

The ability to bridge the political and corporate divide in realizing energy projects is a main component to successful energy policy. Whether this is the promotion of competitive markets, or the effort to reduce carbon emissions, in the mix of the energy sector public-private cooperation is essential for increasing energy security of supply. The efforts of Commissioner Oettinger, go far in walking the fine line of working both within the legal parameters of his institution, and the more informal role of prompting, even egging on, the private sector to do more. Europe’s ability to diversify its gas supply rests on this cooperative relationship. It is nice to see the many components of Europe’s energy strategy fall in line. Now, let’s just wait for the next big announcement from Gazprom and how they plan to match Nabucco’s slimming down. Maybe after hibernating all winter the Russian bear will also shed a few pounds.

[postscript: after writing this the Nabucco consortium came out and flatly denied any cooperation with ITGI – from what I understand, even on the Nabucco side, there remains room for cooperation, so this shouldn’t be written off just yet]

Coffee tax! Tax my Cabbage Instead

According to a report over at Portfollio.hu, the government may be considering additional tax measures that are unimaginable. One particular tax goes beyond my earlier blog posting about the creativity shown in Hungarian tax policy, to that resembles the diversity of cabbage dishes in the country. I mainly was referring to the different crisis taxes on energy, retail, banking and anything that can’t flee the country. Now it seems they may tax coffee!

The government also contemplates levying a “hamburger tax” on unhealthy food products and beverages. The tax would be slapped on some fast food, coffee, sweets and coloured beverages (e.g. Coke).

I’m not going to argue against a tax on unhealthy food – as health campaigners have some strong points, but clearly this tax is not about improving health, and more about finding ANOTHER thing that can’t leave, to be taxed. So I think we can add to the long list of sectoral taxes, not just in the energy sector but also in the ‘fast food’ and ‘processed food industry’.  Actually I can handle all these taxes, but not the tax on coffee!

Is it too soon to start the international public outcry that surely must be bigger than the one of the Hungary’s media law?

If the earlier taxes didn’t drive investors away, this one most certainly will. “Invest in a country that taxes coffee? Might as well tax cabbage.”

Tax my coffee?

No way!


North-South Interconnector – big news, but long in the making

The great thing about following the energy sector is that projects take a long time to get up and running. This means commenting on a project or policies resembles play-by-play on the golf course. With all this reflection time sometimes you hope to have some deep thoughts on ‘big developments’.

But sometimes, few thoughts come when politicians recycle long-term plans.  ‘Magical moment,’ may not be that magical after all. Particularly, when industry, regulators and TSOs and others have been working for years to increase cooperation. One of these ‘magical moments’ happened recently at the behest of the Hungarians, who are holding the EU’s rotating six-month presidency. There was (verbal?) agreement by the CEE prime ministers after  a dinner in Brussels. They stated they would all work together to form a north-south gas corridor.

The meeting was in the format “Visegrad+” (i.e. the Visegrad Four – Poland, the Czech Republic, Slovakia, and Hungary – plus Bulgaria and Romania), and was attended by Hungary PM Viktor Orban, Czech PM Petr Necas, SlovakiaTraian Basescu, Bulgarian PM Boyko Borisov, and Polish PM Donald Tusk. PM Iveta Radicova, Romanian President

The meeting was prompted by Hungary and one of its stated EU Presidency priority of increasing energy security of supply (aka, less reliance on Russian gas). However, it is clearly a rehash of an event held a year ago in Budapest, under Hungary’s previous Prime Minister. And which I wrote about here.

Now, I really don’t want to be cynical as politicians do need events to signify their influence and progress. Diversification of gas sources in the CEE/SEE region is a prime project that is not only a long-term one, but a necessity. Unlike investments necessary for carbon reductions, which are foundering, security of supply investments in gas are at least getting some attention, and most projects are moving forward. So this is good.

BUT what I fail to provide in the announcement of this BIG NEWS, is an effective analysis that has not been provided before. I think this is because while, Prime Minister Orban is heralding this as a historic moment, I view it as an artificial political moment in a long term technical project that is already well underway. The building of LNG facilities in Poland and Croatia (old news), the building of gas interconnecters in the CEE region (old news). My only observation is, a year ago, they all made the trek to Budapest to demonstrate their effort to work together on this very same plan, rather than meeting on the sidelines of a Brussels gathering.

Hungary

I’m no fan of Orban, and I become less so by the day. Not only does the recycling of the north-south gas corridor event speak of a lack of innovation and sincere effort in energy policy, but his vision looks to be more rhetorical while also being overly ambitious and expensive. As he stated,

Hungary will “free itself from a giant trap” when, in just a few years, the country will be able to take energy deliveries from the Black Sea, the Baltic Sea, the Adriatic Sea, Azerbaijan and even North Africa,  Orban said.

I take this to mean that he will be supporting the AGRI gas project that will ship gas by LNG across the Back Sea. Something again, that I find wholly unrealistic due to costs and the competition it will cause for upstream gas supply with Nabucco and South Stream – which are still failing to secure their own gas sources. Essentially, there isn’t enough gas yet for these two pipeline projects, how will this be secured for a more expensive option? Diversity is great, if the supply/cost ratio is there but this is lacking in AGRI.

Finally, my two -cents-worth may indicate the big rhetoric over this diversification of supply may just be the ground work being laid for giving the Russians the contract to expand the Hungarian nuclear power plant Paks. The Hungarian government announced they will be issuing a tender in 2012 with the bids evaluated in 2013. Ah, just before the next Hungarian elections.

It has been floated that the Hungarians are ready to give the Russians the chance to build this expansion of the nuclear plant. Technically, the Russians are already in a good position, because the current configuration is based on Russian technology. This discussion is also tied up with swapping MOL shares that the Hungarian government would like to get its hands on from Surgetneftegaz, the Russian oil and gas company. All this hoopla by Orban may work to build reassurances for the domestic audience that Russian participation in Paks does not threaten the country’s security of supply. Because after all you wouldn’t want all your gas and nuclear tech to be owned by the same foreign country?