Piping Gas to Europe Needs Good Rules: Conference
Growing demand means more pipelines are needed to bring gas into Europe, a panel at the European Gas Conference in Vienna agreed on January 29. But how much capacity is needed; and will investments survive an increasingly complex regulatory environment?
Following several years of lower demand in Europe, growth returned in 2014, and r0se by 30bn m3/yr to 548bn m3 in 2017. A similar story in 2018 has suppliers dreaming of a long run of expanding demand, as economic growth, lower production in northwest Europe and the need to lower carbon emissions combine to send up gas demand, in the power generation and industrial sectors in particular.
That has the industry mulling opportunities. Ongoing supply projects will offer Europe around 100bn m3/yr of new supply and represent over €25bn ($29bn) in investment, according to the senior vice president at Italian infrastructure operator Snam, Maria Rita Galli.
Among those projects of course are Russia’s Nord Stream 2 and Turkish Stream. Both are making rapid progress as Gazprom seeks to beat opposition to the projects by making them a reality on the ground. In the case of Nord Stream 2, the project is facing proposed amendments to the EU gas directive that could place restrictions on its utilisation.
“We’ve laid over 500 km of Nord Stream 2,” reported Paul Corcoran, chief financial officer of the Swiss-registered project company that is wholly owned by Gazprom. “The German section is complete, and we’re now laying in Swedish and Finnish waters.”
“It’s a repetitive message,” he admits as he asserts that rising European gas demand and falling production mean Europe desperately needs NS2. “The import gap is likely to be higher than our project’s original 100bn m3/yr assumption in coming years, but still some in Europe don’t seem to get it,” he said.
“Europe was very grateful this winter for Nord Stream 1,” he continued, even though despite the boom, consumption in 2017 still lagged that of 2010, when Ukraine’s transit system remained the major route for Russian gas flows into Europe.
The proponents of Russian diversification projects also agree that Europe will continue to secure fewer LNG cargoes, as prices will be higher in the east. Although not all of the panellists concur, they also agree that without a massive increase in deliveries of LNG, even more pipelines from the east will be needed.
“It will not be sufficient to have Nord Steam 1+2 and Turkish Stream 1+2,” claimed Reinhard Mitschek of Austria’s OMV, a financial partner in NS2.
The Trans Adriatic Pipeline (TAP), in which Galli’s Snam has a major stake, is another of the ongoing projects. Likely to be the first project to emerge from the EU’s efforts to open the “southern corridor” to tap reserves in the Caucasus and central Asia, the 10bn m3/yr route that will run from the Greek-Turkish border to Italy is finally making serious progress, according to Luca Schieppati, managing director of the project company.
“We’re stepping closer to bringing Shah Deniz gas to Europe and opening the southern corridor,” he announced. “We have 97% of the pipes in the ground, and the project is 80% complete. We’ll go for commissioning in the second half of this year, with operations to start in 2020.”
However, even if all the projects now being built fulfil their full potential, it’s unlikely to be enough, the panel said. There are already plans for more. “Ongoing projects are only equal to around 20% of current volumes,” Galli noted. “Another 40bn m3/yr of new pipeline and LNG capacity is planned, requiring a further €5bn in investment.”
However, there is a risk that few will ever see the light of day, warns Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies. “The growing complexity and lack of clarity on the future of the EU’s regulatory framework means there’s a risk that very few projects - except for those already under way - will get built,” Yafimava said.
As an example of the potential difficulties, the only significant question regarding the construction - if not operation - of NS2 remains securing the paperwork to build through Danish territorial waters. “Will Denmark be reasonable and provide a construction permit,” pondered Mitschek.
“We have reapplied,” replied Corcoran, “and we expect Denmark will perform according to its own law and we’ll get a permit later this year. However, the third energy package amendment clearly creates uncertainty and doesn’t enhance security of supply,” he added.