No Nabucco, No Problem

Seemingly, there were some losers following the recent coronation of the Trans Adriatic Pipeline (TAP) by Azerbaijan's Shah Deniz Consortium: not just the Nabucco project, but the countries in Central and Eastern Europe (CEE) that the western-backed pipeline would have passed through.

But things are not all that dire for Bulgaria, Romania and Hungary, according to Ms. Anita Orbán, Ambassador-at-Large for Energy Security of the Ministry of Foreign Affairs of Hungary.

Recalling instances just a few years ago when Russia turned off natural gas supplies going through Ukraine, affecting the gas supplies of CEE countries like Hungary, she says that a lot has changed since those cold winters.

"Compared to even four years ago, we have a pretty different infrastructural and gas storage map of Central & Eastern Europe and in Hungary, as well as a different options when it comes to market integration. In 2009, market integration was not possible - only a remote idea. Now it's a bigger goal and we are gradually moving towards that."

According to Ms. Orbán, the Romania-Hungary, Croatia-Hungary interconnections have been implemented, while the Slovakia-Hungary should be up and running in 2015.

"We've been investing so much into interconnectors and into gas storage," she explains, "that the situation is remarkably different in terms of supply security and different options of the market for natural gas, as well as the EU's Third Energy Package coming into force: it has a lot of value for European market integration."

Implementation of reverse flow of natural gas among CEE countries has also changed things greatly for security of supply, according to her. Additionally, the North-South Energy Corridor has been launched in the region, which she explains is essentially a system of interconnectors.

Meanwhile, Ms. Orbán says that with the choosing of TAP the opening of the Southern Corridor is a huge development for Europe. "Of course in the inter-EU debate we were absolutely pushing Nabucco and it would have been in Hungary's interest out of the two pipelines to succeed, so we did a lot in the hopes that it would happen.

"Unfortunately, for commercial reasons it seems that at this stage the Trans Adriatic Pipeline looked to be more lucrative and most likely came together from a lower transit price and a higher gas price on that end, but the support of the Hungarian government for Nabucco has always been there."

Readers may recall that Hungary's oil and gas company, MOL, a member of the Nabucco Consortium, had expressed its skepticism of Nabucco. Then, in spring of 2012, Hungary's Prime Minister Viktor Orbán made a surprise announcement that MOL was pulling out of the Nabucco project.

As it was the least 'state-owned' among the Consortium partners, MOL was a bellwether that Nabucco was not lucrative commercially.
Of course, Nabucco's skeptics, in and outside of the CEE countries, were numerous.

One of them was Michael LaBelle, assistant professor at the Central European University Business School and in the CEU Department of Environmental Sciences and Policy. Months before the Hungarian PM's announcement, Mr. LaBelle sang the death knell of Nabucco on his website.

Now, he describes the impact of Nabucco's bubble bursting for Romania, Bulgaria and Hungary.

"The impact is less now than a few years ago when the competition with Russia's South Stream pipeline began," he explains, reiterating that because of the interconnectors and reverse flows in the region, the whole CEE natural gas network from Poland down to Serbia has been "beefed up."

He adds: "Now there is also the potential of gas in the Black Sea off of the coasts of Bulgaria and Romania. That could provide a lot of gas sufficient to create a greater diversity of sources in the region."

Austria's OMV, notes Mr. LaBelle, is looking at the Black Sea coast for their long-term strategy.

"Getting that gas to their hub in Austria is actually very essential, so we're likely to see increasing pipeline capacity between the countries."

According to Anita Orbán, it is now clear that for countries in Central and Eastern Europe the way forward is coordination towards security of supply as well as gas-on-gas competition. "Now we need to speed up the market integration, building the missing interconnectors. We have to put reverse flows on every single pipeline and connector in the region, and we have to facilitate access to the LNG market, because that seems a viable option."

She believes that sooner or later the CEE region will have access to gas from Azerbaijan.

"Via the interconnectors we have a realistic chance to reach the Southern Gas Corridor in Greece, Romania, Hungary, Romania and Bulgaria.

"Now we need to look at the Nabucco route and see what the missing upgrades of infrastructure are, the links and reverse flows to have the realistic option of trading Azeri gas," she explains.

With all this in mind, what does the end of Nabucco mean for Hungary's participation in Russia's South Stream pipeline project?

"Our position has always been that, the more pipelines for Hungary the better," says Ms. Orbán. "The more pipelines, the more inter-connectivity in Central Europe as well as Western Europe, the more gas can be traded across borders it will create gas-to-gas competition which certainly result in lower gas prices."

As for CEE's alleged over-reliance on Russian gas, Michael LaBelle says a level of comfort has set in in CEE, as there have been no disruptions of Russian gas supply in the region since the 2009 shutoff. "There's recognition that Russia is a stable supplier. There may have been some glitches, but the stability is there.

"Now you just need some pricing competition and some diversification, which looks more possible than it did at the beginning of this 'mini war' of pipelines," he says.

"Because of the inter-connectivity," says Anita Orbán, "access to Baumgarten as well as the Slovak-Hungarian pipeline, we have access to other hubs in western Europe as well. We are also pushing a project together with Croatia on the island of Krk, an LNG terminal, and we have an interconnector with Croatia with a capacity of 6BCM."

This, she says, shows that market conditions are changing in Europe.

"Of course the major supplier is Russia, but there are more and more opportunities to buy from the spot market and hopefully if things as planned, then in a few years time we'll have the LNG option as well with our neighboring countries."

Poland's LNG Terminal Project at Świnoujście should also be up and running in two years' time, whose gas would reach the CEE market.

Meanwhile, Michael LaBelle says he is left wondering about the rationale for building South Stream, given that there's no longer the perceived threat of the western-backed Nabucco.

"If there's no competition now for Gazprom shipping gas to the region, then why should they build South Stream? It becomes a cost issue. Cost-wise, is it better to build South Stream or to revitalize the transit network in Ukraine?"

And in terms of sentiment in Bulgaria, Romania and Hungary, he says there is a surprising attachment to stay with Russia as the main supplier for natural gas. "Diversification yes, but only for some supply."

Russia, he believes, will remain the regions "friendly" gas supplier for some time.