Looking Beyond Pipes in Central Europe

Eight to ten years ago, everyone was only talking about pipelines when it came to questions of energy security in Central & Eastern Europe, recalled Anita Orban, vice president, Tellurian at a session that was part of an Atlantic Council event last month entitled Towards 21st Century Energy Systems in Central & Eastern Europe. “LNG just seemed a remote possibility, if anything,” she observed.

And when it became apparent that the US would start exporting LNG, everyone thought all of the cargoes would go to Asia, Orban said, adding that now she had only good news to share about the amount of LNG that is forthcoming from America at competitive terms on the global market, in light of the first wave of LNG either having been implemented or presently under construction.

She reported: “Many many cargoes have landed in Europe and some of them in central and eastern Europe, in Lithuania and Poland. Now we are looking at how many second-wave projects will happen.”

According to her, the supply push emanating from the US is coinciding with the demand pull.

“It is estimated by the US government that the US will produce an extra 200bn m³/yr annually by 2025, so this 200bn m³ is just the extra, an addition to today's production,” she said, explaining that this was due to the burgeoning well production as well as to associated gas from oil production.

Because gas demand in the US is flat, Orban said producers are wondering how they can get rid of their extra gas; some even call it a liability, as it requires huge investments in infrastructure to be able to get such gas to the coast for liquefaction and export.

Orban said Tellurian estimates that the US will need another 101mn metric tons of liquefaction capacity by 2025 to deal with the extra natural gas. “That translates to over 150bn m³/yr,” she said, adding that this would require investments of $170bn.

In parallel, she said, the LNG market grew to 300mn mt last year and looks to grow to 600mn mt by 2030. “So the LNG market will double.”

While many point to the growth of demand in China, Orban said that Europe's grew by 18% in 2017, as indigenous production falls. The entry costs of entering the LNG market have become lower, she said, due to the spread of floating storage regasification units, which represent 40% of the import market. Meanwhile, she noted that LNG is increasingly becoming a commodity and American suppliers are devising increasingly competitive pricing structures, offering more flexibility.

'Now or never' for Visegrad 4 Countries

Meanwhile, countries in the Central & Eastern Europe (CEE) region, like those in the 'Visegrad 4' (V4) grouping – Hungary, Czech Republic, Slovakia and Poland – have been working together on their energy security, primarily through natural gas interconnectors that offer access to new sources of gas, like those coming into regasification terminals in Poland and Lithuania. 

Since last summer, Hungary has been leading the V4, pushing through gas diplomacy that critical pieces of infrastructure, like an LNG terminal on the Croatian island of Krk, be implemented.

Now, Hungary's V4 presidency is coming to an end in just a few days' time. Hungary's Ambassador-at-Large for Energy Security, Pal Sagvari, said his country's emphasis has been about putting the finishing touches on efforts to link up the region's gas markets, like finishing the southern leg of the North-South Gas Corridor, to bring new gas to CEE, but also to push for development of offshore gas in Romania for which a final investment decision is to be taken some time this year, he said.

According to him, Croatia's Krk LNG terminal is now back on track, and a decision on state support of the project is expected in the coming weeks.

Krk LNG – a regional project

Listening to the market more regarding that project is crucial, according to Barbara Doric, the head of Croatia LNG, who said her company is trying to justify all of the basic parameters in order to address main market concerns, since the whole project is regional rather than local, just for Croatia, which, despite that, will need to replace indigenous production in the future.

“Without our friends from Hungary, we cannot develop it by ourselves,” she commented, adding that coming up with a competitive tariff for the market is also on the project agenda. Additionally, new open season documentation has been devised as well as terminal user contracts; meanwhile. she said that both capital and operating expenses for the project had been cut dramatically.

She said the project is now based on more “realistic assumptions.” An open season has just been implemented which will run through August. “This is the day when we'll know if the project will move forward or not,” Doric said, adding she is confident that that will happen as the project's yearly booking capacity is now 1.5bn m³/yr instead of 2.6bn m³. Construction is set for October and operations would start in 2020.

Preserving gas transit in Ukraine

Slovakia, which will take over the V4 presidency, plans to continue projects that are aimed at North-South connectivity, according to ambassador Dusan Matulay, the director general,  economic co-operation in the ministry of foreign and European affairs of the Slovak Republic.

He reported that Slovakia had signed a financial investment decision with Poland on a gas interconnector, the North-South project is advancing, and Slovakia had done its part in devising the “Eastring” gas transit project. 

Matulay said: “Despite the positive development, we are concerned about the future routing of Russian gas deliveries to the EU and we are actively advocating the preservation of gas transit through the robust Ukrainian infrastructure.” He added that Ukraine should continue the unbundling process and energy reforms.