BRUA pipeline resuscitated
The fortunes of the “BRUA” natural gas interconnector pipeline may be improving, according to a report on Euractiv, which writes that the parties involved – Bulgaria, Romania, Hungary and Austria – have signed a memorandum of understanding at the 4th meeting of the Central and South Eastern Europe Gas Connectivity (“CESEC”) group that recently took place in Bucharest.
By using existing pipeline structure and interconnecting the pieces, BRUA, according to the report, will make it possible to pump natural gas in either direction to satisfy needs during periods of peak demand or emergencies, and increase Central & Eastern Europe’s diversification of natural gas sources. Ideally, it would be able to transport sources of gas from both the Caspian and Black Seas.
Past the obstacles and according to plan?
But this past summer, the project’s fate seemed up in the air, when, first Romania said Hungary was out of the picture and, later, Hungary killed the open season on the entire project, claiming that on the Hungary-Romania section of the project was viable.
Romania’s Energy Minister told Euractiv that work is underway on BRUA, with contracts having been signed and permitting processes underway. Pipe procurement, he said, is expected in December of this year and construction should begin in the spring of 2018.
In the piece the Energy Minister states that the various project phases should occur concurrently between each country involved in the project, as agreed with the European Commission when BRUA received the body’s approval and funding.
Hungary vying for TurkStream gas
Meanwhile, the Daily Sabah is reporting that via request Hungary wants to be the first country to tap into natural gas supplies via Gazprom’s pending TurkStream gas pipeline, hopefully by 2019.
Hungary hopes to receive gas via the second string of TurkStream, which could bring the gas to Central Europe and west of the Balkans. The country’s foreign minister says Hungary would complete infrastructure developments to enable it to receive gas from TurkStream.KEEP READING
Nord Stream II. You’re either for it, or against it.
There may be no middle ground when it comes to the building of the controversial natural gas pipeline, according to an analysis on Petroleum Economist which explains that while Gazprom is determined on seeing that NSII is built, lawyers for Poland contend that the pipeline would undermine the EU’s goal of creating a single energy market.
Nord Stream II, you may recall, would deliver 55 billion cubic meters of gas from Russia, traversing the Baltic Sea on to it’s final destination, Germany. The gas is needed there due to declining production, notes the article.
Gazprom has gathered a consortium of heavy hitters in oil and gas, a group comprised of Shell, Austria’s OMV, France’s Engie and Germany’s Uniper and Wintershall, all of whom are pitching into funding the project with substantial financial contributions.
As we are aware in Central & Eastern Europe, Poland and others are working to decrease their reliance on a sole supplier of natural gas. Polish pressure, the piece notes, has elicited European Commission efforts to regulate the “non Russian” section of the pipeline that is in the Baltic Sea, and that means impeding Gazprom from determining the sources of supply traversing the pipeline, perhaps saving the gas transmission running through Ukraine, which Gazprom would like to stop using.
Recently, a European Council report leaked to the media implies that the Commission would have no basis for regulating the Baltic Sea section of Nord Stream II.
European Council leaked document, sanctions, economic benefits
A recent report on Euractiv writes that the Council’s legal arm is rejecting the view that Nord Stream 2 undermines the EU’s security of supply and that it argues that the opening of alternative routes like NSII would actually increase the resilience of the Union’s external supply networks. The Council also says that the Third Energy package does not apply to the Nord Stream 2 pipeline, supporting the positions of the pipeline consortium.
Meanwhile, the Petroleum Economist points out that while US sanctions are likely to impede the project, most notably in terms of finance, according to a Nord Stream II-sponsored study the alleged benefits from NSII for the EU include “the equivalent of around 31,000 full-time jobs created over a five-year period and the addition of €2.26bn to GDP.”
When László Varró speaks, people in the energy industry are all ears. The Chief Economist of the International Energy Agency (IEA), his specialities include energy demand analysis, energy and climate policy, regulation and financing of energy infrastructure, and portfolio modelling in energy. He has also served as Head of Gas, Coal and Electricity Markets at the IEA, and as both Strategist and Economist at Hungary’s MOL Group after working a stint at the Hungarian Energy Office.
In preview of the Budapest LNG Summit, at which Mr. Varró will be speaking, he provided us an exclusive interview, offering his expert perspective on the development of a single gas market in Central & Eastern Europe (CEE), as the region taps into new sources of natural gas via liquefied natural gas terminals in the region and the vital interconnections that link up the markets and allowing them to tap into new sources of gas, and provides insight into what he believes will be a key competitive advantage for the growth of the LNG industry.
As the Chief Economist of the International Energy Agency, how do you view the natural gas market integration that is happening in Central & Eastern Europe?
László Varró: First of all the infrastructure is much better than it used to be, the efforts of the European Commission to facilitate the development of a genuinely integrated single market are bearing fruit.
The second thing that is happening is that the LNG shortage following the events of 2013-2014 very quickly turned into an abundant LNG supply. This was partly due to a rapid ramp up of American production and the emergence of the US as a major exporter – of course there is a huge industry in Australia as well, but the Austrian investment consisted of long lead times and projects which were reasonably predictable.
The US had a very rapid ramp-up in shale production and quickly turned from a significant LNG importer to an LNG exporter.
But, I should also add, the imports to Japan, which is the largest LNG importer in the world economy, were stabilized and then they began to decline, because nuclear power is coming back to the Japanese energy system, several new coal plants were built, solar power is doing very well in Japan, and of course the country has always been very successful in energy efficiency and in squeezing energy demand.
So, overall, we saw a ramp-up of supply and declining demand at the largest importer coinciding, and all this created a very abundant LNG supply in global markets.
Gazprom is quite a smart company and did not stand idle in the midst of this. The company reacted and the subsequent action was that they changed their marketing strategy quite significantly: they renegotiated long-term contracts, adopted more flexible, market-oriented pricing. They are prepared to compete very hard to maintain market share.
Despite the abundance of LNG in international markets, Russian gas exports to Europe are at an all time high – they’ve never exported more gas to Europe than last year. This was achieved by a sharp competition between LNG and Russian gas.
If I combine the better infrastructure, better regulation and better competitive conditions in global markets, the effects are quite significantly positive for Central & Eastern Europe.
How do you see the future of natural gas in Central & Eastern Europe in terms of security of supply and decarbonization?
In the region in general renewables are lagging behind the leading European countries. Romania, for one, has a decent wind and solar fleet; Poland has some wind in the Baltic Sea region, but overall the growth of wind and solar has been less rapid in CEE than in the West.
At the same time, in general the political environment is much more favorable to nuclear power in Eastern Europe than in most European countries. In our region there are several important countries where the government has declared publicly nuclear power as strategically important.
This means that gas will have to find the niches, there is a fair amount of ageing coal capacity in Eastern Europe. I can foresee some coal plant construction here and there but not to the extent that the old coal plants will be decommissioned.
So if I combine the future decommissioning of coal, the slow growth of wind and solar, and even with the pro nuclear politics, there are some interesting opportunities for gas.
Considering the future of gas in our region and the various infrastructure projects, LNG terminals, etc., how much of the actual LNG will be consumed? Or is it just part of creating diversification of sources?
The entire point of the drive towards a single integrated market in Europe is that in a genuine single market it doesn’t really matter where the LNG is coming in.
Take the example of Germany. It doesn’t have an LNG terminal at all and many German companies have investigated the viability of an LNG terminal in northern Germany, near Hamburg, and the result was always that it is not commercially viable. However, Germany is very well interconnected with the Netherlands, with France and the North sea system via which the Norwegians can send gas either to Germany or to the UK. That region has four gigantic LNG terminals – Dunkerque, Zeebrugge, Rotterdam and South Hook – all more than half empty.
That LNG region has a very powerful impact upon the German gas market, even without a single LNG terminal in Germany.
Of course, this is not nearly the case in Central & Eastern Europe – it doesn’t have that very intensive infrastructure integration that Germany has with Northwestern Europe and the distances in CEE are also bigger. So projects like the Polish LNG terminal, the Lithuanian LNG terminal, a possible terminal in Croatia, they do make a difference in terms of integrating the region into LNG markets.
But the fact that the gas pipeline system in the Czech Republic, which plays a very important role as a hub, is fully reverse-flow capable and can deliver gas from the east to the west and from the west to the east, is also a very important development. It was not the case just a couple of years ago.
Are there any interesting LNG takeaways you could tell us about from the International Energy Agency’s latest outlook?
We currently see a strong decline of LNG investment as the big projects in Australia are completed.
The investment spending is still sizeable, but most of the spending is committed to projects that were launch before 2014 – that was the year when global prices collapsed.
It’s fair to say that a long period of high prices for oil and gas at the first half of the decade made the industry a bit complacent, so several large LNG projects experienced cost inflation and project delays. There’s a very strong realization in the industry that they have to shape up and get better.
One interesting thing that we see is an increasing interest in brownfield projects, e.g. adding one more liquefaction train to a US project, taking advantage of the existing pipeline structure in the US and independent shale upstream. That’s an interesting area.
We also see an increasing interest in 1 – 2 million tons/year-sized floating liquefaction units. In fact, some of the most interesting projects that succeeded in attracting investment finance in the current market environment, like Cameroon or one of the projects in Mozambique, they used this smaller sized floating LNG technology. Instead of taking a decade to build a gigantic land-based facility, they construct a floating unit of 1-2 million ton size in three years, and if market conditions allow they can bring in another one.
Last but not least, not all projects are created equal, and some displayed better project management than others Papua New Guinea LNG for example is located in an extremely challenging remote region nevertheless it came online on-budget and ahead of schedule. I think project management capability is going to be one of the key competitive advantages for the industry.
László Varró will be speaking in a session entitled “LNG in Transition” at the Budapest LNG Summit on 16-17 October.KEEP READING
The organizers of the Budapest LNG Summit are proud to announce that Gas Infrastructure Europe (GIE), one of the continent’s most significant organization’s representing the interests of the natural gas sector, has come onboard as an institutional partner for our event which takes place 16-17 October 2017.
More about GIE
Gas Infrastructure Europe (GIE) is a representative organisation towards the European Institutions (European Commission, European Parliament, Council of the European Union) as well as the European bodies of regulators (ACER, CEER) and other stakeholders. GIE is representing 69 member companies from 25 countries, gathering operators of gas infrastructures across Europe: transmission pipelines, storage facilities and LNG terminals.
The GIE objectives comprise mainly but are not necessarily limited to those listed: – Contributing to a safe and reliable European transmission system suitable for meeting present and future transportation needs; – Contributing to the development of a fully operational European transmission system; – Enhancing cross-border transmission; – Supporting interoperability of the European transmission systems; – Promoting market solutions; – Contributing to the setting of a stable public policy framework; – Voicing the opinion of the its members in Europe according to the previous points.KEEP READING
Mirror mirror, on the wall
Despite the company maintaining one-third share of Europe’s natural gas supplies, the FT does not see good things on the horizon for Russia’s Gazprom.
Things have been good for Gazprom. Last year, the company exported a record-high amount of gas to Europe, the paper observes. But the challenger to the company’s success in European markets is the growing supply of liquefied natural gas – a familiar story, perhaps, to all of us. Rapidly growing output from the US and Australia will go beyond the demand of Asia, and any excess gas is likely to end up on European shores.
Gazprom’s strengths, strategies
But, writes the FT, how the story ends all depends on how Gazprom reacts – will it attempt to price out LNG from markets? The FT article notes the company’s strengths as the largest single supplier to Europe: low marginal costs and significant excess production and export capacity.
By going lower on price, Gazprom could reduce investments into European production and consumption. It could even start a price war to hold on to market share. The FT piece surmises that the company would need to offer a 25% price reduction to stave off supplies of LNG.
What happens when you go low on price
Over a longer-term timeline, by lowering the cost the company would give an incentive to higher gas demand in Europe and could also disincentivise investment in European gas production, according to the article.
Gazprom also faces another challenge – that Novatek and state-owned Rosneft are vying for access to Russia’s natural gas export pipelines so those companies can also access European markets where they can earn higher revenues. That could also force Gazprom to get competitive on price.
Read the full piece here.KEEP READING
ExxonMobil’s Vice President of International Gas coming to Budapest
The Budapest LNG Summit is honored to announce that Peter P. Clarke Vice President, International Gas, ExxonMobil, will be participating in our event on 16-17 October in Hungary’s gorgeous capital.
Peter is responsible for ExxonMobil’s natural gas and power marketing activities in Europe, Russia, Caspian, Australia, Malaysia and Thailand, as well as being responsible as Lead Country Manager for the company’s oil and gas affiliates in the UK. He is Chairman of ExxonMobil International Ltd.
He was previously Vice President – Asia Pacific, Africa & Americas, overseeing the marketing of pipeline natural gas and natural gas commercialization efforts across the three regions. He has also been responsible for ExxonMobil’s 5GW global power portfolio and, as planning manager for ExxonMobil Gas & Power Marketing Company, was responsible for global strategy, planning and business analysis.
Peter joined ExxonMobil in 1987 and is a graduate in mechanical engineering from University College Dublin.
Two opportunities to hear Exxon-Mobil’s Peter Clarke
He will be a participant in Budapest LNG Summit session dedicated to new gas routes and to Black Sea production.
ExxonMobil is a Gold Sponsor of the Budapest LNG Summit.KEEP READING
Upper management at Poland’s Gaz-System S.A. would reportedly like to expand the country’s LNG terminal at Świnoujście, according to an article on Ship&Bunker, which writes that design and preparation works have been ordered to expand the terminal, which is named after Poland’s former president Lech Kaczyński. The planned expansion would include a loading berth for LNG bunkering, among other expanded capacities. A Gaz-System representative said the expansion plan is part of an overall “Baltic Energy Market Interconnection Plan” for natural gas, which would include the implementation of reverse flows such as through the proposed Amber PolLit pipeline between Poland and Lithuania, among other measures
According to Ship&Bunker, a second jetty at Świnoujście could be complete by 2021.
When all of the pieces don’t fall into place
Things may not be going according to plan for OMV and ExxonMobil when it comes to how some of their pending natural gas production from the Black Sea will make its way to Austria’s Baumgarten Hub, according to an article on the FT.
And it’s not how Romania envisioned things, either. It was back in 2012 when the country swooned over its big plans to tap into Black Sea gas, specifically in the Neptune Bloc, which was estimated to bear 80-100 billion cubic meters/year of natural gas (now estimated by some analysts at 6bcm-12bcm/annum). The country had designs on becoming a gas exporter to the region, as that amount of gas was nine times Romania’s annual consumption.
Meanwhile, the piece notes, European governments were making huge investments into gas infrastructure, which could only help in Romania’s big plans to supply gas to the region, increasing gas supply diversification – but the plan has changed for a crucial piece of infrastructure that would deliver that gas to Austria when, this summer, stakeholders in the BRUA pipeline decided to focus their energies on the Hungary-Romania section.
The FT notes that Black Sea gas is a part of the European Commission’s priorities to reduce Central & Eastern Europe’s reliance on Russian sources of natural gas. The article surmises that Hungary becoming the final destination of such gas in lieu of Austria could boost the former’s prospects for gas trade.KEEP READING
Because of the present overcapacity, global prices for LNG are just too low right now to send the price signals needed for investments into more liquefaction, say experts at a conference in Japan. And that means the industry could see a shortfall in a few years, according to an article on Reuters.
That means there may not be enough LNG for countries like Japan, which is the world’s biggest LNG buyer.
To avoid a shortfall, speakers like Total SA Chairman and Chief Executive Office Patrick Pouyanne called for more investment into LNG in the future, but investments in such projects can run in the billions.
LNG projects typically require billions of dollars of investment over many years of development. The industry has usually relied on long-term contracts linked to oil prices to ensure producers can get financing on favorable terms.
Entering a new phase
Not much has been heard lately of “Eastring,” a natural gas pipeline alternative, originally to the ill-fated South Stream, proposed by Slovakia’s natural gas network operator Eustream.
Signing a contract for a feasibility study on the pipeline, Eustream is touting it as a “new phase” for its Pan-European pipeline project including Bulgaria, Romania and Hungary.
Aims of feasibility study
Euroil, Hungary’s engineering and consulting firm, will carry out the study, according to Eustream’s news release.
According to Eustream, the aims of the feasibility study include definition of the technical, economical, financial and environmental details of Eastring.
Backing from Brussels
The European Commission’s Connecting Europe Facility fund is paying for half of the costs of the research, which is set for completion in June of 2018. Eastring is on the Commission’s “projects of common interest” list.
Eustream’s CEO says he believes Eastring will improve energy security for customers in Central and South Eastern Europe.KEEP READING