Natural Gas Infrastructure Developments: “We all benefit”
At the start of his talk at the Gas Dialogues event in Budapest, Hungary, Development and Use of Natural Gas in the Danube Region: Prospects and Opportunities, Attila Ságodi, Partner at KPMG's Energy and Utilities practice, noted the importance of natural gas infrastructure developments in Central & Eastern Europe.
He commented, “I think we're all benefitting if those infrastructure investments will happen.”
Mr. Ságodi said there was a broad consensus that gas was a very important energy source that had significant benefits, like being clean and efficient, that it would provide a smoothening from the current status into the future, providing stability and low CO2 emissions.
He pledged to offer some facts, trends and expectations for the future, which he said were important considerations for decision-making on political and economic levels.
While gas was a clean, desirable energy source, he explained that despite all the benefits, gas consumption had been stagnating, and gone even lower due to the economic crisis. He asked why this was the case.
Lower consumption, he said, could also be witnessed in Central & Eastern Europe, although there were significant differences between countries in the region. “There are countries where the gas consumption increased, like in Poland. And there are others like Hungary, where gas consumption has decreased significantly – by 30%,” he said.
But was this due to a lack of supply sources? Mr. Ságodi said that KPMG's Energy & Utilities practice had looked into this and noted some changes in the supply structure in Europe.
“When we looked at import sources,” he continued, “Russian import is still the most significant; however, it has been somewhat stagnating and, after the crisis, was somewhat reduced, while some LNG sources were increased.”
Further developments were needed, further infrastructure projects were necessary, according to him, to provide a route that could help consumers reach the necessary level of gas.
In terms of pipelines as a means of supply routes, Mr. Ságodi reported that most gas was coming from Russia and there were quite abundant capacities available: Nord Stream, Yamal, and the Brotherhood pipeline, which was the oldest and crossed Ukraine, reaching Slovakia, Hungary and Romania.
While the current capacities were quite significant, he said everyone could look for even more capacities. “We need to look at who the competitors are that we, as consumers of the gas, need to look at and see which are the most competitive, the most cost effective infrastructure item or element which can provide the most competitive gas to this region and to all of Europe to maintain the competitiveness of European industry,” he stated.
He noted the significant LNG capacities that had been built in the last few years which mainly existed in the UK, Western and southwestern Europe. Central & Eastern Europe region, he said, was lagging significantly in terms of LNG capacities.
“The region is mainly supplied by physical pipeline routes.”
However, he explained, there were plans for the region to be supplied by LNG projects, but some were still in the feasibility phase, weighing the demand for such projects. He mentioned projects in the Adriatic sea, in Poland, Greece and in the Baltic states.
“These projects are competing with each other and, of course, competing with the pipeline routes,” he said, explaining delays in decision-making: consumers, financial institutions and the EU authorities were checking and assessing what the existing alternatives were and comparing them before deciding which was the best in providing affordability to consumers.
He added, “We also need to look at what kind of regional as well as local production exists or has potential, even in this region. There have been many studies showing that many countries, some in this region, having significant potentials for conventional or unconventional gas. The most important country in this region is certainly Romania, which we also know has significant conventional production, today and in the past as well.”
According to Mr. Ságodi, it was crucial to assess the availability of gas storage in the CEE region, where there could be significant differences.
“Storage is something which is necessary, especially at winter time when the demand is much higher, mainly because of household demand and consumption for heating. It provides the necessary balancing tool which can help companies as well as household customers to be supplied with more gas when the winter season is coming,” he said.
Hungary, he cited, had the highest level of storage capacity, in terms of both cubic meters and share of the total annual consumption of gas.
He commented, “It is very important that these capacities should be available to the greatest extent between these countries to be able to benefit from this security if a disruption, either physically or for commercial reasons, happens.”
What was needed for customers to gain these benefits, queried Mr. Ságodi, who said his practice had looked at the various routes and decided that Western Europe was fairly saturated with LNG; meanwhile, numerous pipeline routes were available from Russia.
“There are significant capacities that already exist which are from east to west. What is really missing, especially for this region, are the north/south-bound capacities,” he observed.
Pipelines in Poland, he said, connected the Baltic sea to Slovakia, Czech Republic as well as Hungary being connected to the Adriatic sea, Romania connected to Hungary, and Serbia-Bulgaria connected to the Black sea.
He explained, “There are many north/south-bound projects which are on the drawing board today and, of course, they may all be constructed, or we need to look at what the economic consequences will be for the countries if all the projects will be built, or we have to look at what kind of feasibility studies, further assessments are required to convince all the politicians, financial institutions and the EU authorities to give permission for any of these projects.”
Mr. Ságodi agreed with an earlier speaker that energy should be as cheap as possible, “but we are not in a position to spend too much investment money for the projects; we need to look at those which provide the most benefits, in the short-term as well as in the long-term.”
Meanwhile, he noted that Hungary's north-south links would soon be submitted and hopefully soon put into operation; it also had connections to Serbia, Romania and Croatia.
“It's very important to connect the neighboring countries to each other with as much capacity as possible to be able to benefit any of the supply routes and supply sources which can come from Russia or the Caucasus region, because this is the only means that can provide a sustainable, long-term energy supply route for Hungary and for the region, which also provides a sustainable economic means for the competitiveness of our country,” concluded KPMG's Attila Ságodi.
Drew Leifheit is Natural Gas Europe's new media specialist.