[NGW Magazine] US-EU energy co-operation ‘historic event’

This article is featured in NGW Magazine Volume 2, Issue 12

By Drew Leifheit

It took almost 18 months from the Sabine Pass start-up, but the first US LNG cargo has arrived in Poland – the starting point for a north-south gas corridor.

A lot has changed in the trans-Atlantic relationship when it comes to energy: events such as the US administration of Donald Trump deciding to place “America First” in its dealing with allies, or its decision to withdraw from the Paris climate agreement (COP 21). 

But LNG selling prices and markets remain commercial decisions for US LNG offtakers to decide, for all the pleasure it gives Poland to remind Russia of its independence.

European and American thought leaders from the world of energy diplomacy recently gathered at the Atlantic Council to discuss the Trans-Atlantic energy relationship and the present challenges and opportunities of energy security in central and eastern Europe, among them the North-South Energy Corridor and Nord Stream II.

Introducing the “new chapter” of Transatlantic co-operation, a former ambassador, Richard Morningstar, noted what he deemed a “historic event” - the actual delivery this month of liquefied natural gas by US Cheniere Energy, which came from its own unsold percentage of its Sabine Pass capacity, to Poland’s Swinoujscie LNG terminal. 

Poland, country of action

It’s one of the milestones for his country’s diversification of natural gas, according to the Polish government’s chief strategic infrastructure head, Piotr Naimski. “The LNG terminal is an important part of our diversification strategy,” he explained. “We are almost 100% dependent on gas imports from Gazprom.”

Recalling that the idea to diversify sources had begun 25 years ago, Naimski stated that Poland is on the verge of success in those efforts, now in possession of its 5bn m³/yr LNG terminal with a possibility of expanding the facility’s capacity to 7.5bn m³/yr.

“We are on a good track to construct a pipeline connecting Norwegian gas shelf via Denmark through the Baltic Sea to Poland,” he reported, adding that an open season procedure had been opened recently, with a framework agreement signed among transmission system operators. 

This, he said, meant Poland was really on the verge of true diversification of sources. He said: “We are practising diversification rather than just discussing the issue.”

Meanwhile, he said that Poland had also been initiating interconnectors with the Czech Republic, Slovakia, Ukraine and Lithuania, meaning that following the country’s ability to replace gas shipments from Gazprom it can also send gas to the region and form a concrete element of the so-called North-South Gas Corridor.

Benefits for the Baltics

Lithuania provided another good case study of how a bit of diversification can change the equation between a country and its sole supplier of gas.  

The country’s deputy energy minister Simonas Satunas recalled that before the inauguration of its LNG terminal in 2015, his country had been 100% dependent on Russian gas, but since 2015 it had seen 40% lower prices. 

“Prices in the Baltics were high, the market was not functioning, so we wanted to create more entry points and sources,” he said.

According to him, one of the key elements to implementing Lithuania’s terminal was the EU’s Third Energy Package. 

He said, “Now we need to create a better integrated gas market, a gas market with the same legislative requirements, same tariffs and to use our infrastructure much more wisely and efficiently So this is where we are working much more closely with our colleagues in Latvia and Estonia, and I’m sure that we’ll succeed.”

But low oil prices have also contributed to low gas prices; and some major Lithuanian end-users are objecting to having to pay Norwegian Hoegh indirectly for the under-used LNG unit Independence on a ten year lease, while the gas is coming not as LNG from Norway but by pipeline from Russia. 

They now have a choice of supplier and have gone for the cheaper, if less politically desirable, option.

Bring on the ‘boring suppliers’

For landlocked countries like the Czech Republic and Slovakia, the Czech Republic’s energy security boss at the ministry for foreign affairs Vaclav Bartuska, said that his country had begun buying alternative supplies to Russian gas from Norway 20 years ago, so the country doesn’t feel the same level of threat to its energy security. 

He commented, “We love to have boring suppliers, because there is no trouble with them. Norwegians give me no reason to go to Norway, as they send gas on time and we pay on time and it’s the most boring thing one can imagine.”

Bartuska conceded that for others, new pipelines or new terminals are the only way to receive concessions on price. “For us, being part of the western European gas market, having the price of gas for the Czech Republic set in Rotterdam is the security we wanted to have.” 

He added that the country only wanted to pay the same price that Germany paid. Germany is a major Norwegian gas importer, coming straight to its coastline.

The Slovak awakening

Meanwhile, Slovakia had been highly reliant on gas deliveries from Russia until it “woke up somehow” back in 2009 in the wake of disruptions in gas deliveries through Ukraine as a result of that country’s dispute with Russia, said Slovakia’s senior foreign affairs ministry spokesman Jan Kuderjavy. 

He offered: “We immediately took action and within a reasonable time made a pipeline system in Slovakia which goes along the whole territory with reverse flow, so now we can make deliveries which traditionally went in the east-west direction; we can now, for instance, supply Ukraine, and from either direction, the Czech Republic and Austria.  

According to Kuderjavy, the capacity of the reverse-flows is even five times higher than Slovakia’s yearly gas demand, although the capacity of the small reverse flow at Budnice is about 14bn m³ and consumption last year was 4.4bn m³.

“Nowadays, we are a bit more relaxed even if we know that the majority of gas delivered is from the same source, but as far as our security is concerned it is a big achievement.” 

Regarding Slovakia’s contribution to the North-South Gas Corridor, while the land-locked country does not have any LNG terminals, he said it was important that terminals belonging to partners in the region are being connected: Klaipeda, Swinoujscie, and eventually Krk, in Croatia.

Kuderjavy reported: “We’re also making our own contribution, building interconnection with Hungary two years ago and now with Poland we have managed to get EU funding for a compressor station in eastern Slovakia which will be the biggest in all of the European Union to make a connection with the Polish hub to make the North-South Corridor operational.”

Meanwhile, he said Slovakia’s TSO Eustream is continuing to lobby for its “Eastring” project to connect north and south and western Europe with the Southern Corridor project. 

Other sources have told NGW that Eustream needs to find more gas to transport, as its only major customer is Gazprom, contracted to ship 50bn m³/yr through Slovakia until 2028, and it is not clear that it will pay the full amount after 2019 when the 27.5bn m³/yr Nord Stream 2 line is due to come on line. 

Gazprom has said it will send gas though the western part of Slovakia and into Baumgarten in Austria, once the Eugal line is built – this will run mostly alongside Opal, from northern Germany to Baumgarten. 

Gazprom is preparing to close down most of the compressor stations in western Russia that are now needed to pump gas through Ukraine – what Ukraine calls Direct Stream – leaving just enough capacity for 15bn-20bn m³/yr. 

Continued US support for European energy security 

As for the other side of the Atlantic, a US State Department energy specialist Mary Warlick, said the Trump administration was firmly committed to the US’ ongoing support for European energy security. 

“While good progress has been made, I think it’s also fair to acknowledge that there’s more work that needs to be done – there’s still a significant number of countries that remain heavily dependent on one particular supplier of gas, and in energy security terms, that remains a risk and a vulnerability,” she said.

The US, she added, remains committed to working with EU member states on the kinds of interconnection projects that the EU is supporting, that member states see as ways in which they can better secure their energy security.

She said: “Certainly, the LNG terminals that have been built in recent years by Lithuania and Poland I think are important infrastructure elements that are adding to the kinds of options that Europe will have in addressing a more diversified energy approach. 

But pipeline interconnections that have been advocated and that we see moving forward, the Southern Gas Corridor and the components of that are very important in terms of bringing into Europe new supplies of gas from a new source.”

Concerns remain, added Warlick, about projects like Nord Stream II, which was also discussed – and for the most part, critically – by the session’s participants.

Drew Leifheit