Austria: Big Infrastructure for the Whole Region

Appearing at the Gas Dialogues event Natural Gas: The Perspectives for Central and South Europe, in Vienna, Austria, Christian Schonbauer, Head of Department Energy and Mining, Federal Ministry of Science, Research and Economy, Austria, stressed the importance of energy supplies in the coming decades, saying that they must be secure and affordable, both for customers and industry. “Energy supply must be a criteria for sustainability, a criteria for environmental sustainability,” he said, in the context of climate change and greenhouse gas emissions.

The main challenge in the coming months, he contended, would be how to create efficiencies so that it was not necessary to use more energy than was necessary. In this context, he mentioned an energy efficiency law being drafted in Austria, something which he said was not an easy task.

“We're at a point where we need big infrastructure, not only dealing with one country but dealing with the whole region. A lot of the projects which are under discussion are infrastructure like gas pipelines in this region,” said Mr. Schonbauer, who added it was crucial to be aware of some conditions and the framework outlining all such activities for countries like Austria.

He stated, “Austria is part of the European Union, the Southeast European countries are also part of the European Union; other countries are part of the European Community – so we have to consider and have in mind the legal framework of the EU: investments and activities have to be in accordance with European law and we must also keep in mind for infrastructure projects which are under discussion.”

Mr. Schonbauer spoke of the expense of generating electricity with natural gas, meaning that more cheaper coal was being burnt.

Another speaker at the event, Peter Szijjarto, Deputy Minister for Foreign Affairs and Trade, Hungary, noted the huge changes in the world, and in light of that how Europe had been struggling for a few years in political and global economic aspects.

Of the changes in Europe, he said, “Our task is somehow we have to stop the decreasing of competitiveness of our continent and the decrease of competitiveness of the European Union itself.”

Energy, he explained, played a key role in the future competitiveness of Europe and the EU itself.

“The key factor of our future competitiveness in Europe is whether we can reduce energy prices radically or not,” remarked Mr. Szijjarto, who noted that energy prices in the US were one third of those in Europe, which made improving its competitiveness an elusive dream.

Energy security, he said, was a precondition for reducing the price of energy. He noted that two-thirds of EU gas demand was supplied by external sources. “In 2013, 140 BCM of gas was imported from Gazprom in the EU. According to the forecast, by 2025 the annual gas demand of Europe will be 168 BCM; by 2035, European gas demand will exceed 225 BCM,” he said.

With that in mind, he said, “Europe needs to create a balanced cooperation with its partners from where we are importing gas, including Russia, on the basis of mutual interest. When we put together the long-term energy security strategy, then we have to be absolutely realistic, because the real situation shows that Russian gas is and will remain an important component of European energy consumption.”

Mr. Szijjarto noted that Europe had no common effective energy policy and if it had had one, the Nabucco project would not have failed in its efforts to secure new sources of and routes for natural gas.

“If you look around, we don't see any new source that would serve the energy security of Central Europe in the foreseeable future,” he observed. While LNG could be an option, he said a terminal in Croatia had not made significant progress; meanwhile, reverse-flow interconnections sought by the European Community for Hungary had not yet been made for Hungary to import natural gas.

In reference to the South Stream gas pipeline project, he recalled that there had not been similar pushback when Nord Stream was being constructed; prior to its completion 75% of Europe's gas had come through Ukraine.

Security of gas supply for the CEE countries, according to Mr. Szijjarto, should not be dependent on political, financial disputes or internal/external political situations of neighboring states.

“Our interest, from the perspective of Hungary and Central European countries, is that the realization of the South Stream pipeline is of utmost importance,” he said, calling it a means of diversification – not sources, but routes. “It reduces transit risks and provides from a reliable source.”

South Stream, he said, in light of the recent agreement with OMV, enhanced the energy security of all of Europe. Building it, he added, was in the interest of all of Europe.

He conceded “We are all aware of the fact that there are some ongoing disputes and negotiations between the European Union and Russia and those states that are involved in this project about how to comply with EU regulations.

“I have to underline that as a member of the EU, our interest is that South Stream comply with all EU regulations.”

Still, he pointed out that all of the documents issued by European institutions contained portions emphasizing the importance of diversification of sources and routes, and how important investments towards these were. Mr. Szijjarto opined, “The leaders of European institutions and of Russia should continue and accelerate the negotiations on how South Stream will comply with EU regulations, because this is in the interests of Hungary, the Central European region and the European Union as well.”

Prof. Alan Riley, Director, LLM Programme, City University of London, said there were a number of problems relating to South Stream that couldn't easily be ignored. European law in the form of the Third Energy Package regarding third party access, capacity limitations and transparent tariffs. “All of that will make it very difficult, in addition to which you have US sanctions, and one of the problems with all of this is how far you can actually build South Stream when you 've got sanctions either imposed by the US or threatened by the US. The issue is, if you're a western company and you engage in South Stream and are also listed on the NYSE.

“If South Stream's route is re directed through Crimea you have a serious additional problem because it's running through annexed Ukrainian territory, and for most commercial organizations to finance that and so forth, or taking gas from that would be very problematic indeed,” he said.

Work together with Russia would require a paradigm shift. Natural gas, he said, had almost been strangled out of the European market, because of badly constructed energy and climate policies, meaning Europe was increasing CO2 emissions, being de industrialized by high energy prices, and had an energy security issue.

Because of low gas prices in North America precipitated by the shale gas revolution, Prof. Riley reported that between USD 70-100 billion of European investment had been going into the US for the last couple of years. Despite the current conflict with Russia, he suggested that Russia and Europe working together would provide a longer-term solution.

“Can we re create the situation in the US - cheap shale gas in Europe – by doing a deal with Russia? If the Europeans were willing to adapt pro gas policies, which means a CO2 cutting target rather than a renewables target, that alone will promote gas. If you promote gas, you potentially increase the size of the market,” he explained, “and that would allow Russia a potentially larger share of the market.”

Drew Leifheit is Natural Gas Europe's new media specialist.