SOUTH STREAM: GAS SECURITY
Energy ministers from Russia and several countries in Central & Eastern Europe (CEE), chamber of commerce heads and other high level speakers gathered in Budapest, Hungary on 16 September to grapple with energy security issues at the Gas Dialogues event Development and Use of Natural Gas in the Danube Region: Prospects and Opportunities.
Russia's Deputy Energy Minister, Mr. Anatoly Yanovsky, who spoke at the event in Budapest, recalled the deep history of supplying natural gas from East to West, that Russia supplies over 50% of the natural gas consumed in CEE, but that supply cuts in connection with his country's disputes with Ukraine were "unfortunate events."
Because of this, he said improvement of the natural gas infrastructure and interconnection facilities in the region was important for Russia. He stated, "This is necessary to assure security of supply in Central & Eastern Europe."
According to him, the analysis of various risks, including political ones, made it necessary for devising various natural gas transit routes, including those to the Danube region. One pipeline going through Ukraine to Slovakia, he said, had been replaced by the Nord Stream pipeline (which he said would continue to play an important role), but gas supplies to Bulgaria, Romania and Hungary (among others) was the next issue on the agenda.
"These countries depend to a large extent on the supply of gas through Ukraine and the insecurities in this area lend special importance to South Stream," he said.
Moreover, Mr. Yanovsky said that the delivery of Russian gas was assured via long-term agreements. According to the cooperative agreements on South Stream, he explained, the delivery of gas supplies would begin in 2019. Russia, he said, provided its full backing to the project in alignment with the full consent of the countries through which the project will pass.
He said, "South Stream is in full compliance with the Danube Energy Strategy objectives including gas interconnections and pipeline branches that are proposed to be included in the South Stream network."
"In summary, our objective is to provide a secure supply of gas, both to Central Europe and the whole of Europe as well."
Aleksandar Antic, Minister of Energy, Serbia, stressed the necessity to tighten cooperation regarding energy matters in the region. He said that when energy systems collapsed it affected all of the countries in the region, as had been proved on several occasions. Mr. Antic offered the example of how, in the wake of an explosion at an electricity plant in Kosovo, Serbia had stepped in to sustain a stable supply of power.
"Energy is a global question going far beyond the borders of individual countries. Acting on these grounds, Serbia is focusing on regional cooperation and projects," he said. "Cooperation will characterize the future of our entire region."
While use of natural gas had been an important local issue for some time, he said that it was a very high priority on today's agenda. "By the development of infrastructure, gas is gaining ground in more and more areas of use," he explained. "It is becoming the best solution for a large number of countries."
Despite being the cleanest fuel, Mr. Antic pointed out that by 2036 the use of natural gas was set to expand by over 50%. "This means that it will make up over 25% of overall global energy consumption."
He said that the best available technologies should be used in the extraction of natural gas, taking protection of the environment especially seriously, which was important both for the industry and consumers.
Serbia, he reported, had launched an energy reform project to reorganize the industry, primarily aiming to expand access to the sector.
"Serbia, along with others who are dependent upon external supplies of energy, has taken various steps to enhance its energy security, especially with regard to natural gas. Serbia only has a single gas supply route and is only able to obtain natural gas from a single source; local domestic production only covers 20% of our needs."
In order to create conditions for the safe supply of energy, he explained, Serbia had already taken numerous steps.
"Most importantly, we have concluded a long-term gas supply agreement with our Russian partners, specifically Gazprom, through which 5 BCM will be supplied to Serbia whose consumption is 2 BCM/year."
This gave great significance to the construction of the South Stream pipeline, he said.
Additionally, a 400 MCM gas storage was in place in Serbia, an important component of the country's energy security. Meanwhile, Serbia's NIS was working with Gazprom to expand Serbia's gas capacities, he said. The country, he added, was also involved in South Stream and distribution pipelines had been put in place. Serbia placed high priority on interconnectors with some of its neighbors like Bulgaria and Croatia, according to Mr. Antic.
"By putting all these things in place, we can satisfy not only our own consumption needs, but as a result of these developments we can open the door to wider cooperation with other Danube countries. By creating a single market in this region, we will enhance and further expand our competitiveness, able to set prices in a realistic way.
"Natural gas is not only a fuel, an energy carrier, but is also able to produce electricity, which is also part of our plans as such gas-fired power plants are another high priority on Serbia's agenda," said Mr. Antic.
Bulgaria's Deputy Minister of Economy and Energy, Anton Pavlov, said that in light of the difficult situation in Ukraine, Bulgaria was working hard on various issues related to diversification of gas supplies. "Currently, Bulgaria has only one supplier of natural gas – the Russian Federation – along one gas pipeline through Ukraine," explained. "Bulgaria places its main priority on increasing security of gas supplies for Bulgaria, the region of South-east Europe, and the European Union through diversification of supplies and routes."
Among Bulgaria's objectives, he said that the country aimed to increase its consumption of natural gas, in part to decrease emissions that harmed the environment and public health. Along with connecting itself to the gas infrastructure of its neighbors, he said Bulgaria sought to participate in the implementation of South Stream, as well as other infrastructure projects like Interconnector Bulgaria-Greece to connect the country to Azerbaijani natural gas to diversify sources and routes.
Regarding South Stream, Mr. Pavlov said that the offshore section on European territory needed to meet the requirements of the European legislation. But considering the conflict in Ukraine, he said, and the fact that the country was not in control of the region's where main gas pipelines transited, EU sanctions might well impede the transit of natural gas. He said, "We consider that these circumstances give more reasons for constructing the South Stream project. In connection with these, we would like to know the position of all the countries participating in South Stream and suggest holding continuous consultations for coordinating the positions of both parties on the realization of the project.
Bulgaria, said Mr. Pavlov, would continue to express interest in other possible sources of supply like in the Eastern Mediterranean. Gas deliveries to an LNG terminal in Greece could be a possibility via the Interconnector Bulgaria-Greece.
He concluded that increased coordination and cooperation among the EU member states was a must, in the spirit of partnership and European solidarity.
Head of the Hungarian Chamber of Commerce and Industry, Laszlo Parragh noted that Hungary had taken a beating from the financial and economic crisis because the macroeconomic environment was in poor shape with a high level of household indebtedness. "However, in 2010 a major change was implemented in Hungarian economic policy, the results of which have put Hungary on a sustainable growth path, which is currently accelerating."
Now, he said, growth in manufacturing was returning to the levels seen in 2008, signaling that further growth was expected. "This means that Hungary's energy consumption will grow," he remarked, adding that positive signs from Germany would also bode well for Hungary.
Still, Mr. Parragh noted that industrial consumption of energy in Austria was four times that of Hungary.
"By 2010, energy and gas prices were 25-50% higher than in our peer countries; these prices have started to fall," he explained, "and we can rightly say that we have the same pricing levels for gas and electricity as in Slovakia, Austria or in the Czech Republic as in Hungary."
He reported that the Hungarian government was committed to achieving a particular goal: cutting household utility costs, making for decreased energy costs. "Now the Hungarian government has undertaken to expand this policy to industry in the near future, a result of which Hungary hopes to have the lowest energy prices in industry in the whole of Europe. This is a very important change of attitude, because of course the energy sector can be viewed as a profit-generating sector, but it can also be viewed as a component of a country's competitiveness. The Hungarian government has assumed the latter position – prices are viewed as a component of competitiveness, which means our gas consumption will likely increase in all sectors of our economy."
In this context, he said that industrial zones like the one in the city of Gyor would benefit from accessing natural gas from the South Stream pipeline.
Mr. Parragh admitted that the proposed pipeline must be subject to the rules imposed by the European Commission, to ensure free access to South Stream as well as clear ownership of the pipeline. He commented, "The debate is still ahead of us and it's not going to be simple – we have to come to terms with economic and financial interests, and this is not going to be easy."
For this reason, he said it was crucial that the participant countries' chambers of commerce participate in pushing for construction of South Stream.
"As soon as the planning starts we would like Hungarian companies to be given the opportunity to participate in that work," he said, "and we hope that they will earn a profit from the construction period."
Mr. Parragh added that South Stream's construction could contribute to the GDP growth and development of Hungary.
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