E.ON Makes Case for TPA Exemption for OPAL Extension

The European companies that recently signed the Shareholders’ Agreement on the implementation of the Nord Stream II with Gazprom continue their tour through Brussels, intervening in several conferences in the European capital to voice their interest and deliver their message. They argue that the project connecting Russia with Germany is good news for European energy security. 

Their strategy hinges on two main pillars: i. they are asking politicians and the public to acknowledge the role of natural gas in the energy mix, especially in light of the looming Paris climate negotiations in December, ii. they want to convince that strong ties with Russia imply energy security, arguing that the Nord Stream II project would decrease risks connected to gas transit countries. 

Despite the clear opposition of the European Commission, Gazprom’s five partners in the Nord Stream II project remain united. Against this backdrop, on Thursday, E.ON made the case for third-party access (TPA) exemption for OPAL extension.  

“There is a number of options” Christopher Delbrück, CEO of E.ON Global Commodities, said on Thursday, referring to pipelines connecting the Nord Stream II with consumer markets - Italy and Austria are reportedly considered the two likely main destination markets. 

Remembering that “there have been a number of exceptions being given for pipelines” used for transit purposes, Delbrück argued that TPA exemptions are instruments designed for projects to bring gas to European markets and avoid that transit countries pay for pipelines “benefitting other consumers.” Delbrück explained that this is exactly the case for OPAL, which would connect the Nord Stream II in Northern Germany to other European markets, possibly to Baumgarten in Austria.  

The general message is that exemptions are the norm, and that E.ON, Shell, Wintershall, OMV and ENGIE would like to benefit from this routine. 

Their position was somehow confirmed by Katja Yafimava, Senior Research Fellow at Oxford Institute for Energy Studies. 

“There has not really been any single piece of major infrastructure built in Europe under the Third Energy Package. Any significant piece of infrastructure was built under an exemption regime… So far there has not been established a detailed procedure on how any new pipeline infrastructure could be brought in place, and also how capacity in it would be allocated” Yafimava said during the conference organised by Platts. 

Later on during the day, Yafimava told Natural Gas Europe that the first ever gas auctions conducted by Russian Gazprom Export in September showed that there is little interest for OPAL. Gazprom Export did indeed sell 1.23 Bcm of natural gas of the 3.24 Bcm offered during auctions on September 7-10 for winter 2015/16 delivery in North-West Europe.  

This intrinsically makes the case for Gazprom’s five European partners to advocate for exemptions for OPAL.

Speaking with representatives of some of these companies on the sidelines of the conference, it seemed clear that OPAL is their preferential solution to bring Russian gas to European markets, while NEL or new pipelines remain feasible alternatives. 

OTHER SIMILARITIES: COAL, AND GAS SUPPLIES

Similarities between the five European companies don’t end with their interest for onshore pipelines in Germany. As said, they also share the same positions on ETS, asking the European authorities to decrease the attractiveness of coal in the energy mix.  

Additionally, they have similar forecasts on future gas supplies to Europe: Russia is set to remain the main gas supplier, Norway’s gas production is set to decrease, African gas will stay on current levels, while Caspian potentials could stumble upon the lack of infrastructure in South-Eastern Europe (SEE) and Central and Eastern Europe (CEE).

“Southern Corridor has considerable potential to bring gas to Europe in the long run but also requires the right infrastructure in SEE/CEE which is not in place yet” E.ON’s Delbrück added.  

For what concerns African gas, their understanding of the situation suggests that a likely increase in Africa’s gas production will be used domestically. 

Indeed, Wintershall said it expects pipelines from Africa to account for 7% of European gas supply in 2020 and 2030, exactly like in 2014. During his presentation, Martin Bachmann, Head of Exploration & Production Europe and Middle East at Wintershall, shared these figures, adding that his company expects European demand for natural gas to increase from 445 bcm in 2014 to 500 bcm in 2020, before reaching 505 bcm in 2025.  

Apart from supplies from Africa via pipelines, Bachmann also confirmed that the role of gas shipped through pipelines from Russia and the Caspian would remain on current levels: 28% in 2014, 26% in 2020 and 30% in 2030 of European gas supply. 

On the other hand, the expected dramatic decrease in EU production and the moderate decline in gas supplies from Norway would then be offset by a significant growth of LNG, whose share of European gas supply should jump from 8% in 2014, to 19% in 2020 to 27% in 2030.

ASSET SWAP BETWEEN WINTERSHALL AND GAZPROM IS “GOOD NEWS FOR EUROPE’S ENERGY SECURITY”, SAYS WINTERSHALL 

Bachmann also commented on the multibillion-euro asset swap with Gazprom, which would allow BASF’s subsidiary to expand its oil and gas production, while exiting gas trading and storage.  

“I think that it is good news when we are right there at the source, and we know what’s happening. I think Europe should see it as good news” Winthershall’s Bachmann said.  

The deal, which seemed dead in December 2014 and took experts by surprise earlier this month, gives Wintershall the economic equivalent of 25% plus one share of the blocks IV and V in the Achimov formation of the Urengoy natural gas and condensate field in western Siberia. The two blocks will be jointly developed by Gazprom and BASF’s subsidiary. 

SO WHAT? 

The five companies are actively pushing their proposals forward - Shell sponsored a Politico’s conference on Wednesday, while E.ON, ENGIE and Wintershall entered the debate on Thursday during the conference organised by Platts.  

Despite the European Commission and Eastern European players voicing their opposition to the Nord Stream II project, the results of Gazprom Export’s gas auctions could give these five companies a bit of an edge. What remains to be seen is whether the divergent interests could further create fractures in Europe, adding to the already existing different approaches to the migration crisis.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci