Tag Archives: Nabucco

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?

Oettinger: South Stream is the Competition

South Stream can, in the long term, be considered a rival to the Nabucco project,” Oettinger stated as an answer to a journalist’s question during the 10th Anniversary of the EU-Russia Energy Dialogue High level conference in Brussels, 22 November 2010. (Novinite.com)

What do you think? How do you perceive the role that Nabucco and South Stream will play on the security of gas supply in Central Europe? And how viable are these projects? This is what the Southern Gas Corridor Survey is setting out to answer.

Take a few minutes to contribute to the survey to find out if this is what energy professionals believe. Is Oettinger right? Your answers are anonymous.

Southern Corridor Gas Survey

And pass it along to a friend! You only have until December 6th – so do it now!

The Southern Gas Corridor Survey

Have your say! The race to extract gas from Central Asia and send it to Europe is on. But who is going to win? Or rather, which project(s) are actually viable and will be built through the European Southern Gas Corridor. And what is the reason for so many projects? Are they just political or are there solid economic and security of supply reasons behind these? These issues are addressed in this survey. And with your help we can establish what the general consensus is.

I’m seeking your cooperation to establish which of five projects may go forward in the future.

The survey can be found here: Click here to take survey

For better or worse, I excluded White Stream due to both the perceived political and financial backing and the level of general knowledge of the different pipeline projects. So my apologies to the backers of White Stream in advance.

The survey page, with the descriptions of the projects, can be found here.

And I would appreciate it if you could spread the word by email. You can copy this link into your email and spread the word about creating a shared knowledge analysis of the Southern Gas Corridor.

http://www.surveymonkey.com/s/southern-corridor

Further explanation of the reasoning behind launching this survey is giving in the introduction. So get busy and fill it out.. The results will be published in December/January.

Bulgaria: Oh – I have to pay for the pipeline?

Will that be cash, credit or debit?

Bulgaria appears to be ahead of most countries signing up for gas projects. Probably only for the fact that they are the only ones that might be able to squeeze a little extra money out of others. Sofia now wants a little extra help from the EU to finance its pipeline construction to connect to Nabucco. I guess a transit pipeline is not much help if you can’t get the gas out of it. Seriously, though this raises two flags.

One, Bulgarian finances are tight, but so are the other CEE countries – Romania, Hungary, how will these countries be paying, not only to build the actual Nabucco pipeline but the connections for the off-take? Will MOL and Transgaz be able to self finance these portions? For me, this is a significant point as it indicates that the other countries will be coming out with similar requests for financial help or maybe even a reduction in their share of financing portions of the project. If things are financially tight now, for companies and governments alike how will they raise the needed capital in time to begin construction in the next few years?

Point, 1.1 For Bulgaria, Serbia and Hungary it also must be asked:

– What about financing of South Stream connections?

– What about financing for South Stream pipeline portions that are more directly connected to state participation?

Two, we have a on Trend.az, of Bulgaria getting ready to join AGRI. Georgia is keen to export Azeri gas via tanker to Bulgaria. However, while the whole AGRI project remains speculative, it becomes even more unsure when it appears that Bulgaria can’t finance key aspects of the Nabucco project. Security of supply can be increased for each country, but participation in every new gas pipeline project that is announced seems dubious.

And three, what will also appeal to Hungary and Romania, is Bulgaria request to shift Nabucco costs out of national budgets – i.e. debt levels will not be seen.

Overall, the financial crunch is emerging for these projects. While countries continue to sign up and support all alternative routes – the deeper questions of who is going to pay for this still needs to be asked. In addition, if these pipelines/LNG facilities are built how much will gas cost for consumers? Will the cost be so high, as to reduce demand making these projects over ambitious?

AGRI another Gas Acronym and White Elephant for CEE

Supply diversification for securing energy is based on long term persistence. The recent agreement by Hungary to establish a project company to assess the viability of the LNG based Azerbaijan-Georgia-Romanian Interconnector (AGRI), may be an initial attempt. However, current gas projects cast doubt on the viability of this project.

The project company is held with a 25% stake by each of the countries. The plan is to create LNG facilities on the shores of the Black Sea, emminating from Azerbaijan, then transport the gas via upgraded pipelines to storage facilities in Hungary, or onward to points west.

The viability of this project falls flat when you consider the other pipeline and LNG projects that are at more advanced stages, and provide equal or higher supply diversification.

First, the LNG facility under development on the island of Krk, Adria LNG, which at the moment does not have a direct investment from either the Hungarian government or MOL or its Croatian subsidary INA, is a cheaper and more effective option at supply diversification. The cost of the facility is substantial, so much so, that RWE recently pulled out. Leaving a gap that Hungary/MOL/INA can fill. The high cost of one facility to construct with 4 other partners would be substantially cheaper than building two facilities with limited supply diversification.

The fact that the gas that would feed AGRI is the same gas that will be feeding Nabucco or even the Edison backed IGI (if it happens), means AGRI offers very limited supply diversification. If we consider that Turkey and Bulgaria will probably be stable transport countries. Investing in a sea based transport route literally becomes a floating white elephant – with gas.

The limited supply of Azeri gas is already a problem for Nabucco and IGI. Will Hungary and Romania (already Nabucco partners) really compete against themselves for the same Azeri gas? Although it was just stated by Turkmenistan that they have huge reserves they want to export, realization of this supply, in an efficient and timely manner, remains to be determined.

Cost is another component. Can AGRI really compete against a pipeline route? Most likely not. Nabucco will cost €8 billion for 31 bcm, while the Krk facility is planned to cost $1.5 billion for 10 bcm per year. But then use this equation (LNG terminal x 2 + #tankers = expensive).   AGRI has not stated the amount the capacity. I would also assume the long term operating costs are also much lower on a pipeline operation. In addition, the facility is being designed to be expanded up to 15 bcm.

There is plenty of room just in the Adria LNG facility to off set any need in AGRI. In addition, if additional Azeri gas is what Romania and Hungary really want, this can be transported through Turkey and bottled up and shipped via LNG tanker to Krk.

The peanut for this white elephant is the Hungarian government choosing to go with MVM to be the project company. If it was a viable project MOL would become involved in it, not a generation company that already distorts market operations. But just like South Stream is a government supported project with progress now amounting to the number of intergovernmental agreements signed, but limited identification of which Russian gas fields will be used, this project will be long on talk and short on results.

It is important to try to understand why Hungary and Romania are joining this consortium if it isn’t a serious project. I still stand by my earlier assessment of why Hungary is choosing both Nabucco and South Stream. However, I’m more unsure as to the purpose of signing up to this project, maybe it is to turn up the pressure on Russia. They can both press their positions on Gazprom and see if it is serious about building South Stream.

While Gazprom dallies to sign up new partners every day, at the end of the day, it may represent a political shot across the bow towards Russia by Hungary and Romania. They may be hinting to Gazprom to get serious. Romania may be pressuring Gazprom to choose it over  Bulgaria for the Black Sea landing spot,  while the new Hungarian government might just like to throw off balance Russia/Gazprom. Either way, AGRI is not a serious project for supply diversification – rather a mouse used to scare the elephant.

Hungary’s Dual Monarchy Turns into Dual Pipelines


Note: I’m reposting this as it originally appeared in the Energy Security blog, Feb 3, 2010. It still remains relevant in light of the appearance of yet another pipeline project
.

The roll-out of the gas pipelines continued last week as Hungary sought to add diversity to its gas supply. Diversity in this term refers to diversifying away from the Ukraine as a transit country, but not from Russian gas. The fifth Hungarian-Russian intergovernmental joint committee meeting resulted in Hungary progressing further in its balancing act of supporting both South Stream and Nabucco. The Hungarian state owned development bank (MFB) with Gazprom set up a joint company to begin pipeline preparations. Hungary may soon be bursting at the seams with gas – but why support both pipelines?

The geopolitical balance that Hungary must strike between competing pipelines results in it choosing a dual pipeline approach: a national compromise of sorts that balances the need to anchor it with neighbors for gas supply diversification and its pragmatic trading relationship with Russia. The Austro-Hungarian Compromise of 1867 attempted to balance the need for Hungarian independence and statehood with Habsburgian dominance and, in the age of Bismarck – realpolitic.

Under the Compromise of 1867, Austria and Hungary each had separate parliaments that met in Vienna and Buda that passed and maintained separate laws. Each region had its own government, headed by its own prime minister….The suggestion for a dual monarchy was made by the Habsburgs but Hungarian statesman Ferenc Deák is considered the intellectual force behind the Compromise….He also felt that Hungary benefited through continued unity with a wealthier, more industrialized Austria (Wikipedia).

The fact that the Russian army effectively put down the 1848 Hungarian revolution combined with Hungarian ties to the Habsburg European monarchy were large influences on the Compromise of 1867. The dual monarchy, as is the dual pipeline, is a reflection of Hungary’s continual balancing act. Unable to break free from Russian influence yet striving to be ‘in’ economically successful Europe, Hungary steers a path that reflects east-west relations. The choice between South Stream and Nabucco gas pipelines reflects this same dual approach.

The support given to both projects by Hungary is genuine. The country can benefit from not just diversity of supplies (routes and sourcing) but also from transit and storage fees that both pipelines can bring to the country. In the age of financial meltdown, social tensions and falling revenue streams Hungary is ill placed to deny additional revenue. Hungary’s oil and gas group MOL, last week reaffirmed an agreement with Gazprom to begin the development of an underground gas storage site at the depleted Pusztafoldvar-Dus gas field– which can/will be utilized by South Stream. Thus even in the case of MOL which is a key partner in the Nabucco project, benefits from participating in the South Stream project can be had. In addition, the Hungarian feasibility study for South Stream will be carried out by MOL within a joint venture MOL-Gazprom company. There should be no illusions, even Hungary’s premier Nabucco partner is set to gain from the Hungarian section of South Stream. Whether MOL would also participate in the actual building of South Stream is unknown, but no other company in Hungary has the expertise.

Therefore, whether one or two pipelines are built in Hungary, MOL may also be positioning itself to be involved in these dual projects. Therefore, without undermining MOL’s position and economic interests, the Hungarian government (with MFB) has stepped in to support the ‘competing’ or ‘complimentary’ pipeline (depending on ones perspective). Politically, Hungary can maintain its international relations, balance neighborhood policy and diversify its gas supply by moving forward in a dual manner.

According to Sergei Kupriyanov, Gazprom spokesman in a March 2009 interview with a Hungarian radio station, “South Stream will be built to supply Russian gas to European consumer. The two projects are totally incomparable; Nabucco and South Stream are not rivals.” And this is where the solution for the Hungarian government may lie. Diversification for security of supply concerns, as both South Stream (non-Ukrainian transit) and Nabucco (non-Russian supply) provide justification for the acceptance and support of both pipelines.

This ‘dual pipeline’ approach allows Hungary, as it has in the past, to walk a fine line between supporting the Russian position and economic interests while also showing support to the ‘neighborhood’ pipeline which seeks supply diversification. The dual monarchy that Hungary participated in, was not the ideal solution, nor the full expression of national sentiment – what it did, through Deák’s statesmanship, was satisfy the competing demands of the nation from internal as well as external tension. The failure of the 1848 revolution firmly placed the future state of Hungary within the Russian sphere of influence – along with the reaction (or lack thereof) of England and France – thereby relegating Hungary to the margins of Europe, where to this day, it still relies on realpolitic for economic and social development.

The acceptance of both South Stream and Nabucco demonstrates the continual balance Hungary, and its companies, play in advancing economic development and their security of supply in energy. The participation of France in South Stream while the demands of the EU (including Austria) lie with Nabucco symbolizes the geopolitical fate of Hungary.

For Sale: slightly built nuclear power plant

Bulgaria has stopped construction of its second nuclear power plant until it finds a new investor and funds to complete the project, Prime Minister Boyko Borisov told Tuesday’s edition of the daily 24Casa.

“The country has no money for an atomic power plant,” Borisov said. “We will build it when investors come.” (Novinite.com)

I think we can now begin to see the long-term impact that the financial crisis is having on state sponsored energy projects. What is interesting about this is that the Russians lobbied hard to keep construction going on this.  The Borisov government, according to Novinite,  “turned down a 2-billion-euro offer made by Moscow for a stake in the plant, which would have kept the construction work going.”

What is interesting is that Serbia expressed some interest in taking a 5% stake in the plant. Although that is pretty small. If this is going to be revived in the short term then more countries in the region should take bigger stakes in the project. Although this is doubtful, due both to the financial crisis and desire of all countries to be fairly energy independent in the region. As for private investors, it doesn’t seem that they are lining up after RWE pulled out last year.

The big question remains as what other regional projects, involving government financing,  are now under the microscope? What about the proposed merger of Nabucco and South Stream by the two Italian companies, Eni and Edison? Do Bulgaria and Hungary have enough financial muscle to proceed? South Stream is already under examination by the Bulgarians, what will be their conclusion? If they are ready to pull out of the nuclear deal with the Russians are they also prepared to pull out or renegotiate their gas pipeline deal too?