EBRD: Deep Pockets
The European Bank for Reconstruction and Development (EBRD) has some deep pockets, a fact which can mean a lot for the development of natural gas-related projects in Central & Eastern Europe (CEE).
Gabriel de Lastours, Senior Banker in the EBRD Natural Resources team, says the Bank has dealt with projects in natural gas sector transport, but also in processing.
Recent projects of interest, he says, include the financing of the Serbian gas utility Srbijagas, which received an EUR 150 million loan for the development of transmission lines and interconnection with Bulgaria in 2010.
In 2012, the EBRD also provided EUR 75 million of financing to Polski LNG, which is developing an import terminal with an initial capacity of 5 BCM/year on the northwest coast of Poland. This, he reports, was co-financed with EU structural funds and monies from the European Investment Bank for a total investment of EUR 691million.
Given those investments, Natural Gas Europe queried Mr. de Lastours about finance for large-scale natural gas infrastructure projects in Europe, the prospects for the funding unconventional gas in CEE, and how the Bank goes about deciding where its funds go.
Huge natural gas pipeline projects in Europe are always a hot topic. Would the EBRD be amenable to financing, say, a project like South Stream?
All options are open. We have lots of experience financing pipelines. For example in 2004-05 we co-financed the Baku Tblisi Cehyan (BTC) pipeline, which delivers oil from Azerbaijan to Turkey. We've also been involved in smaller transit projects in South Eastern Europe.
Regarding South Stream and Nabucco West, at the moment we're considering them very carefully and all options are open.
Could you give us some notions as to what the EBRD considers in financing such projects?
Transition is our first priority and guiding principle.
One of the Bank's objectives is to support energy competitiveness in the sector, with the liberalization of regulation of gas markets in Eastern Europe and Russia; we support, for example, unbundling in the Balkans.
It is also the EBRD's objective to promote energy security. In respect of this, the Bank's approach is to try to find the best possible compromise between a number of different priorities.
Could you speak about those priorities?
Energy should be delivered reliably. Energy is fundamental to social and economic activity and therefore it's crucial that energy supplies be stable, reliable and of good quality to enable the countries of operation to rely on energy supplies for their economic growth.
There's a strong link between this and support for liberalization of the gas market and integrating it in Europe. In terms of projects, this means support for international connectors—in line with the European Commission’s objective to develop interconnectors.
The Bank’s priorities include energy security/reliability; affordability of energy, especially in economic difficulties; and climate change to support a low carbon transition, which includes renewables investments..
How does the EBRD weigh in on one versus the other?
We're committed to renewable energy projects—decarbonization/low carbon objectives—and we support their expansion to play a significant role. However, we also acknowledge that renewables cannot be the only source of energy, so the Bank's approach is to continue very extensive support for renewables, but also for other sources of energy, especially in the power sector.
We hear a lot these days about how more coal being burnt than natural gas to complement renewables. How does the EBRD see this?
The Bank’s investments in natural gas or coal generation will depend on where and when those projects correspond to the best possible balance between the three priorities (energy security, affordability of energy and support to low carbon transition). Of course, natural gas is a fossil fuel, with lower emissions than coal. When assessing the needs of a country or region, the Bank looks at these criteria to see how the objectives are best met. It's a compromise: lower carbon, making sure it's affordable and enabling them a level of energy security and stability of supplies.
Where does the bank stand in terms of the development of unconventional gas?
We're paying a lot of attention to the boom in the US, looking at our region and wondering to what extent that could be replicated. Speaking with our stakeholders, there is a very significant potential for shale gas, but there are still a number of elements that make its economic viability uncertain. Significant exploration still needs to be done before a project would be bankable and see EBRD finance coming.
Might we see the Bank funding shale gas projects?
Economic viability is necessary for the Bank to provide a loan. Of course we've seen a lot of investment, but before these reserves are sufficiently proven, the risk of development reduced, I think it would be difficult for the EBRD to consider shale gas projects. From what we hear, significant exploration needs to be done.
And speaking of shale gas, could you talk about how the EBRD is assisting Ukraine in meeting its energy needs?
Ukraine still needs to adopt new technologies for oil field development which we've tried to help via financing a number of private projects in the natural gas sector. For that reason it's too early for the EBRD to play a significant role for shale gas development in the country. We also take environmental impacts into consideration very seriously and comprehensively.
What are your thoughts, though, on such countries developing indigenous sources of natural gas, given that much of the region relies on supplies from Russia?
Indigenous supplies of gas from CEE countries would strengthen their individual energy security. There are also other elements contributing to this like the development of LNG terminals of which there are a number of projects planned or in progress; continental transport pipelines as well as development of the interconnector transport network. Of course, on the supply side shale gas could play a role.
As the board of the Bank includes the US and Australia, does that provide any impetus for the EBRD to become involved in funding unconventional gas?
The US and Australia are shareholders, but the Bank also has 62 other shareholder countries, as well as the European Investment Bank and the European Commission, so we work on the basis of consensus on how things go forward. The US and Australia definitely have important voices in the EBRD, especially given their experiences in shale gas development and other unconventional sources of energy, and the importance of natural resources in their economies. But the Bank works on the basis of consensus and takes all shareholders’ views into account when deciding on a project.
There's also been a lot of talk recently about Europe losing its industrial competitiveness, given the US shale gas revolution appears to be rejuvenating industry there.
There's a lot of uncertainty in the market at the moment. To what extent the shale gas development in the US will affect the European market and to what extent the current historically-low price of gas in the US will remain at that level? Many analysts say that the US gas price will likely go up, so there's a lot of uncertainty on the price and how the shale gas development will affect Europe.
Regarding the US coal being exported to Europe, we understand that one of the sources is stockpiles from actual power utilities in addition to production from coal mines, allowing the price it is being sold at in Europe to be low.
So to what extent the unconventional boom can be a game changer in Europe, or more an addition to the different dynamics, like the development of LNG import terminals or the construction of a number of pipelines from Azerbaijan with a likely connect to Turkmen/Northern Iraq natural gas, remains to be seen. There are numerous different dynamics and at this date it's difficult to predict. The Bank will try to address these issues in its new energy policy which is expected to be approved by the shareholders before the end of the year.