Natural Gas TSOs: Models and Modifications
Sometimes transmission system operators (TSOs) can set agendas in European gas markets; sometimes they wake up in new worlds, forced to come up with new strategies.
Two European TSOs recounted vastly different experiences at the European Natural Gas Conference in Vienna, Austria.
Walter Peeraer, CEO of Fluxys, a gas infrastructure company with operations in northwest Europe, spoke of the challenges of building a strong natural gas market in Europe, and offered Belgium’s infrastructure as a model for the rest of Europe.
Mr. Peeraer reported that Belgian infrastructure had been developed into a crossroads, which enabled that gas could be delivered in any direction. He said he believed it was what European system should look like in the future, to easily trade gas in the marketplace.
Such a system meant that gas could be moved flexibly from any border point to the customer, and also made for easy transfers of gas between trading places.
Of natural gas, he stated: “Today we are in a garden of forking paths: ‘destination’ or ‘transitional fuel’ in the renewable energy future of Europe. It is critical for reaching carbon targets in 2030.”
While the European Commission was encouraging massive investments in gas infrastructure, national policy makers, he said, were potentially preparing for the phase out of natural gas, and depreciation on natural gas infrastructure typically spanned 50 years. Peeraer contended that policy needed to stake its claim for natural gas in the face of “increased stranded asset risk.”
According to Mr. Peeraer, the market was discouraging long-term investors via lack of perspective.
“We must encourage investors that natural gas is here to stay,” he insisted. “Back up power generation for renewables is essentially natural gas. Power to gas technology for storing excess electricity and natural gas infrastructure as a vehicle for biogas.
“Natural gas can bring a solution for transport - carmakers are already endorsing the technology, so it’s necessary to invest in infrastructure.”
In power generation, he said, natural gas was an important enabler for renewable production. Power generation with gas-fired power stations, he pointed out, resulted in 55% less carbon emissions.
“Policy must endorse natural gas for investments into infrastructure. Investors need a reasonable long term view,” commented Peeraer.
Another advantage, he said of natural gas, was the diversification of sources.
“There are prospects for other sources, like shale gas, and new reserves being discovered in Norway – it’s one of the biggest advantages.”
His presentation hypothesized that shale gas from the US could possibly be exported to Europe, and Europe might produce its own shale gas in an environmentally safe way.
He showed that energy cost was the major part of the end user price, but that transport costs still factored into the price of gas for end consumers, industrial or residential.
“As a TSO,” he explained, “our approach is to cooperate with other gas infrastructure companies, connecting trading places. We must make sure gas markets are interconnected, and need to develop the power and gas network, and help renewables – all of which requires money.”
He noted that the projected investment need in gas and power infrastructure in
Europe totaled EUR 200 billion.
Mr. Peeraer said this required long-term demand, commitment, and showed the need to have a stable regulatory framework for stimulating development; external finance was also a challenge.
“Funding new investment is becoming more and more of a challenge, as banks are less willing to finance industry,” he said, adding that some were turning to alternative financing sources, like pension funds, etc. Upon economic recovery, he believed alternative sources would probably turn to higher return profiles.
In terms of emissions reduction targets for 2050, he said policymakers needed to endorse gas for this period and beyond.
He concluded: “To keep gas affordable we must connect markets and gas trading places. Financing new gas infrastructure is also an important challenge.”
The conference in Vienna also offered the perspective of a TSO on the other side of Europe, specifically in Central & Eastern Europe. Antoine Jourdain, Chairman of the Board of Directors at eustream provided his views.
He was adamant: “Even if we are a TSO, we still have to make money.”
Headquartered in Slovakia, Jourdain said eustream was part of a big group focused on the transmission business, transporting about 75% of gas flow from Russia to Western Europe, through Slovakia. But things were changing for eustream, he said, due to the increasing “pipe-to-pipe” competition.
The company has 800 employees, a transmission volume of 74 bcm and achieved turnover of over EUR 800 million last year
“When we see all the projects for Russian gas importing to the West, it’s a huge capacity. Do we need 100 bcm or just a few bcm?” he asked.
“Our transmission capacity will decrease,” he explained, “because if we don’t have any contracts we can’t maintain huge capacity for free. After 2013-14 we will have a huge capacity free, so the question is ‘is it reasonable to have so many routes?’”
He recalled the gas crisis in 2009 that deeply affected some countries in Central & Eastern Europe: “In this region it was a very major event because no one was expecting such a crisis. For us it was very important to secure the Slovakian market, to have reversed flow with the Czech Republic, and Austria, and now it’s possible to do it with Ukraine.”
Jourdain explained that eustream’s vision was to develop a Central European “Gas Turntable,” trying to work with all the countries surrounding Slovakia.
“First, we went to Ukraine, and now we are able to make reverse flow with Ukraine, one of the golden apples in the region, so there’s 20 bcm of capacity right at the border. It could be interesting for them to get gas from Baumgarten,” he said.
eustream had also enhanced reverse flow with the Czech Republic, and connected to Nord Stream. “With Austria, we have a supported hub at Baumgarten.”
Mr. Jourdain introduced a “Gas Target Model.”
He mentioned Poland and Hungary, saying the latter would be connected to all the pipeline projects – South Stream and Nabucco.
“Now we have more than 50 contracts in contrast to the past when our contract was only with Russia,” he said.
Showing a map of the North-South Gas Corridor, he said there were 43 projects overall including new pipeline construction, the upgrade of existing pipelines and LNG as part of the EU’s infrastructure package; he also depicted the Slovak projects within that scope.
Of an interconnector with Hungary, Mr. Jourdain said it’s capacity would be 5bcm/year. He commented: “The route is quite easy and will join in the region of Budapest; to make the cross border connection is quite tough. In Hungary we had to create a new TSO, Magyar Gas Transit.”
Among his conclusions, he contended there was a risk of high competition between the routes and a risk of transit overcapacity. eustream, he reported, was developing all services in cooperation with adjacent TSOs to enhance fluidity of the natural gas market and said that eustream was the central backbone of the North-South Corridor.