[Premium] Market Analysis Writes Off Some EU Gas Projects

Ireland's first LNG terminal, the Baltic cluster of interconnectors, Croatia’s Krk LNG Terminal, and ITB pipeline between Turkey and Bulgaria are financially viable and will go ahead on a market basis, writes Sara Vargas.

But the outlook is not so positive for other gas pipeline projects in Europe such as the Galsi (Algeria to Italy) line, the Poland-Slovakia interconnector, Midcat (Spain-France), the Baltic Pipe (Poland-Denmark) or BACI (Austria-Czech Republic).

These are the results of a study by the SET-Nav project, aimed at backing EU policy choices on gas infrastructure with information based on sound economic modelling. Researchers and stakeholders involved in the project presented their preliminary conclusions September 28 at a conference titled "Europe’s gas infrastructure needs towards 2050: which Projects of Common Interest should be prioritised?" It took place at think-tank CEPS' headquarters in Brussels.

SET-Nav researchers use not one, but three different economic models to analyse the long-term cost-benefits of building transmission capacity and LNG infrastructure.

The research assumes that the Trans-Adriatic Pipeline (TAP) will be completed successfully, as well as the interconnectors between Greece and Bulgaria (IGB), and Bulgaria-Serbia (IBS), and models predict high utilisation of all three.

Models also point at successful completion and future use of the Shannon LNG terminal project in Ireland, the country’s first terminal. This new option is attractive with the falling production of Norwegian natural gas and also because of a certain unpredictability in developments related to Brexit.

The study also points to positive economic results from the so-called Baltic cluster, which includes project interconnections between Finland-Estonia, Estonia-Latvia, Latvia-Lithuania, and finally an LNG terminal in Estonia. Croatia’s Krk LNG terminal, and the interconnector between Turkey and Bulgaria, are also described as “both financially and economically viable on an EU level.”

All the projects mentioned above are part of a list of “Projects of Common Interest” or PCI, drawn up by the European Commission to reinforce the internal energy market, and thus benefiting from administrative and economic support. The list includes 195 projects and is set to be updated in the coming months.

However, there is a consensus among involved researchers and public authorities that the majority of projects in the list should not be implemented, as the European Commission foresees falling demand. That is not to say that no further infrastructure is needed, but it should cater to identified needs and reflect positive cost-benefits, as the above-mentioned projects do.

Although the finished SET-Nav study is not yet available, the total cost of new investments is predicted to  range between €5.5bn ($6.5bn) and €6bn, with new cross-border capacity set at 975 GWh/day, and new LNG capacity at 154 GWh/day.

Sara Albadalejo Vargas