INTERVIEW - Underutilized Infrastructure Key To Increasing Europe's Gas Security
In a leaked internal document discussed by the College of EU Commissioners dated 30 January, the Commission proposed 12 concrete actions to realise the Energy Union. The first action explicitly mentions Algeria. In light of the recent approach of Egypt and Russia, which could open the door of the Eurasian Economic Union to Cairo, we tried to understand how Europe can increase energy security, capitalising on the existing infrastructures.
We spoke about it with Manfred Hafner, Professor at Johns Hopkins SAIS, Sciences Po Paris, CEO of International Energy Consultants (IEC), and Associate Researcher at Fondazione Eni Enrico Mattei. We spoke about the role of North Africa and Italy to increase gas security of supply in Europe.
Saying that Algeria utilizes about 60% of its large export infrastructure, Hafner suggests that Italy could become an important gas hub - it could even export gas to Central European countries. We also discussed the Turkish Stream project, and Saipem's participation in the Russian project.
Speaking about the Turkish Stream, you said that it will happen.
I expect that at least two strings of the new Turkish Stream pipeline will happen. Gazprom has a strong incentive to diversify its gas export routes and a large part of the pipes for the submarine section have already been paid for and they are already delivered to the Black sea.
Do you think that Saipem will be involved in the project?
I suppose so. I would expect so.
When do you think we would have more information about this?
Very, very soon. According to the latest Gazprom plans, the first string of Turkish Stream is supposed to be finished by end of 2016, i.e. one year before the first string of South Stream was supposed to be finished. They are advancing at a very very fast speed.
Speaking about gas, you mentioned that Algeria could help Europe to increase its security of supply.
Yes, Algeria has important gas reserves, both conventional and unconventional. Over the last few years, Algeria has experienced declining gas exports because of low demand in Southern Europe, but in particular because of difficulties in Algeria to increase production growth above domestic demand growth. This is due to above-ground issues: low domestic gas prices, which tremendously boost domestic gas demand, and management difficulties of the hydrocarbon sector recently. But fundamentally Algeria has potentially a lot of gas available, and – very important – Algeria presently only utilizes about 60% of its large export infrastructure – both gas pipelines and LNG. For instance, of the 34 bcm export pipeline capacity to Italy, only one third is used, leaving thus a not utilized export capacity of about 20 bcm available. It is in the interest of both the EU and Algeria to create a joint partnership in which the EU helps Algeria to address some of its current problems and improving the energy efficiency of the country promoting also the huge potential in both energy efficiency and renewable energy and in addressing the domestic energy pricing issue. This would liberate additional gas for export which could help Europe to diversify its gas supplies.
An example?
Once the gas reaches Italy it could be re-exported to North West Europe thanks to the new reverse flow capability in the Transitgas pipeline across Switzerland - and thus export gas to Germany, France as well as other Northwest European countries. Similarly, the gas can also supply Central European countries thanks to the reverse flow capability being put in place in TAG (Trans Austria Gasline) or in the future even to the Balkan countries thanks to the reverse flow capability of TAP (Trans Adriatic Pipeline). Italy could thus become an important gas hub from the South to provide diversification of gas supplies to the rest of Europe including those most dependent on Russian gas like Central European countries and South-East European countries. But for this to happen, Europe should proactively engage in a comprehensive win-win energy and gas partnership with Algeria.
You mentioned that there is a lot gas infrastructure already in place between North Africa and in Europe, and that this infrastructure is today largely underutilized. So, what would be the political move that would be required in this context to bring North African gas to Europe? Is it a European approach or a national approach?
Well. Brussels today feels that Europe has a problem with Russian gas. If that is so, you need to think about diversification. Diversification is always very complicated. It is very expensive to build new infrastructures. Given that we already have the infrastructures from North Africa, and that they are underutilized, all we need to do is to ensure that the resources get out of the ground - and we know that gas is there, it has already been found. In this sense, it is all above-the-ground issues. There are several ways of pursuing this. I think that the best way would be an European approach. It would not be easy, but nothing is easy. Still, it is much easier to find solutions to these issues today than it was in the 1980s and 1990s when we had to build all the infrastructures starting from zero. So I think it would make sense to have an European Partnership with Algeria (and potentially Libya as soon as the domestic political situation in the country allows for it) to promote a more efficient use of the resources in the country and to export thus more gas to Europe.
Speaking about interconnectors in South-East Europe - the ones that nine countries started discussing in Sofia earlier this week - to what extent the outcome of the negotiation is based on economics? Or are these political decisions?
Every pipeline infrastructure is also political. There are different possibilities to evacuate the gas from the Turkish/Greek border. There will be different countries who will want to propose different companies, and different routes. I don’t think that the European Commission has to decide on a specific project. I think Europe as a whole (the European Commission, the regulators etc) have to give provide a favourable investment framework to investors so that any of these interconnectors can be built. This is my first point. And secondly, the problem is that the countries in South-East Europe are not well interconnected among themselves nor with the rest of Europe. It is important to create a fully single market, because today Gazprom has a market power in some countries, but once countries are well interconnected, nobody can any longer exert any market power, because otherwise costumers will go to shop somewhere else.
Fluxys said yesterday that TSOs want either long-term contracts or a support from Europe.
In this case, I think that a new pipeline would be very very different compared to Nabucco pipeline. Nabucco pipeline was very large capacity, it was supposed to bring additional gas to Europe for which there were no customers willing to commit with long-term contracts. Now we already have long-term contracts. It is Russian gas, which comes to Europe. What needs to be done is to move the delivery pipes from Uzhgorod-Waidhaus to the Turkish-Greek border. This has to be agreed between Gazprom and the customers, but the long-term volume contracts are there - which was not the case for Nabucco. So there are long-term contracts available, at least for the Russian gas. What you need to have is a favourable regulatory regime so that investors are able to recover in a foreseeable time their investments. Investors may also need some support from the BEI and/or other international financial organizations. All these interconnectors will improve EU’s security of suppy. If we accept that security of supply is a public good, Europe should be willing to pay for the public good component which is an externality and which market forces are not able to pay.
Changing topic, Iran’s NIGC said it wants to increase cooperation with Iraq. Could this increasing focus on its neighbours divert gas that otherwise would go to Europe?
Iran has a lot of gas. Iran does not have problems with the availability of resources. If Iran will get the possibility of export and will export, they should in my opinion primarily go for LNG, which does not mean that there is not room for increasing the capacity and deliveries through the existing Iran-Turkey gas pipeline
After an eventual nuclear deal, how long would it take to Iran to develop its LNG terminals?
It may takeup to 10 years or possibly even longer. It takes time. The LNG projects were there, they have been discussed, but they have been abandoned. I don’t think many people would jump on building new LNG terminals immediately, because at the end of the present decade we expect to have a flood of LNG. At the same time, oil prices are low, gas prices are low - it is not the right time to invest. At the best conditions, it takes between 5 and 10 years, in this case probably closer to 10 years.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci