North–South Gas Corridor: Geopolitical Breakthrough in Central Europe
Despite delays, a lack of short-term results, as well as turbulent domestic political agendas, the North–South Gas Corridor (NSGC or NSI) remains a priority for all of the Central European states. There are significant differences among them in terms of the level of market liberalisation, progress in building physical infrastructure, and with short-term priorities; however, first and foremost in common is a deep need to diversify both gas supply routes and suppliers. The goal is to achieve this using the same tools in each country—the development of new infrastructure, especially new interconnectors and underground gas storage facilities, contractual and trade arrangements (the introduction of physical and virtual reverse flows), market liberalisation, and the promotion of competition, spot markers and contracts with alternative gas suppliers.
The V4 governments and regulators should be expected to continue coordination of efforts amongst themselves on a common regulatory framework for unified wholesaler trading zones, in parallel with the EU Single Market process (an integrated entry/exit network, a single virtual trading point, mergers of trading zones, etc.). In the long run, regional market liquidity might be increased through the establishment of a common gas trading hub, possibly at the future LNG terminal in Świnoujście, Poland. This could strengthen the hand of all of the purchasing countries from the region vis-á-vis their traditional suppliers, namely Russia and Norway.
The Central European states should increase their efforts to establish one system of hub-based pricing in the EU, which would be the same for all gas buyers, with the differences in the prices offered reflecting either transportation costs or entry/exit tariffs. This very competitive price formation mechanism would work against the strategy of suppliers that try to maintain a gas price linked to oil prices in their contracts. By taking a unified position against those firms,
Central European companies may therefore renegotiate their long-term contracts with the support of the European Commission.
Bearing in mind the fact that Central Europe is of key strategic importance to securing safe supplies of natural gas thanks to its location in the East-to-West and North-to-South transportation corridors, in a few decades the region could achieve not only significant independence from sole-source suppliers but also could become a crucial player in the European energy market with even opportunities to export energy. In this programme, one could also include the development of unconventional gas.
The NSI, as well as other diversification efforts in Central Europe, coupled with policy changes in the EU will not only affect the positions of traditional gas suppliers in the regional energy sector but also their political heft in the wider region. The Russia–Central Europe relationship in the coming years will thus change. The optimal aim would be a transformation of the region into a single gas market without Russian policy excesses, though NSI has thus thepotential to result in a sort of geopolitical breakthrough in the region in the long run.
The above is an executive summary of a report by the Polish Institute of International Affairs (PISM) titled: North–South Gas Corridor: Geopolitical Breakthrough in Central Europe. It explore such questions as: Can the North-South Gas Corridor really mean a radical strengthening of a political and economic potential of Central Europe as well as its geopolitical weight? Are countries from this region able to work together in order to successfully finish the investment? What are the main challenges for political decision-makers and operators of the countries’ transmission systems?