Weekly Overview: Gas Advocacy, and Nord Stream's Chances

“We are all in the industry and we must all become advocates for gas,” senior executives in the seemingly moribund sector agreed at the conclusion of the two-day Central European Gas Congress in Bratislava April 26-7.

This view was somewhat modified by one speaker, who said that his company's customers would be better advocates as they were likelier to be neutral.

In his opening address, the executive director of the Slovak Gas and Oil Association Jan Klepac reminded delegates that gas produces 55% less CO2 and 99% less sulphur than coal in the power-generation sector.

“Our major project now is gas advocacy,” he said, pointing to the support for gas from the COP21 agreement reached in Paris last year that had been ratified a few days earlier.

“It is clear that today’s goals are not achievable without gas. Renewables cannot cover the growth in demand. Gas is becoming the strategic partner of renewables,” he said.

This point was picked up the next day in the speech by the general director of Czech pipeline operator Net4Gas, Andreas Rau. He said that low energy prices provided an opportunity to focus more on gas advocacy and push for its use in the power sector.

“We all have to be gas advocates. We are fighting for the survival of the gas industry in competition with the coal industry. We should focus on gas advocacy as much as possible,” he said. In that context he praised the International Gas Union, saying it was doing a “fantastic job” under its president, David Carroll and “developing into a professional organisation.”

Carroll told delegates April 26 that the greater use of gas could be the foundation of pan-European economic growth and health. Germany had poured billions of dollars into renewables but carbon emissions had risen slightly. This is not sustainable if countries like Germany are serious about commitments, he said.

EU Commissioner for the energy union, Maros Sefcovic, on his home turf, said that the EU emissions trading scheme was working technically, but the parameters were too generous and a carbon price around €6/metric tons does not reflect the realities. So coal burn was continuing.

He also said that exchange-based pricing was the way forward, but that would need market change in the east for hubs to develop. Central and eastern European companies paid 16% more than counterparts in western Europe, or €1.3bn more for the same amount of gas, he said, arguing the need for better integration of markets and for more interconnectors.

The aim is for countries in central Europe to have access to at least three different sources of gas, and the EC is helping funding this, such as the interconnector between Lithuania and Poland. He also mentioned the north-south corridor and reverse flows."These will create a liquid gas market with no more barriers to free flow of gas in Europe," he said.

Slovakia will in July assume the presidency of the European Union and its in-tray is filling up fast with a heavy agenda, he said, including the politically sensitive budget decisions and the EU emissions trading scheme.

The customer is always right

One challenge is the Ukraine-Russia conflict; another is that gas, for all its benefits over coal, remains a fossil fuel. "Ask anyone what are his first reactions when gas is mentioned and I guess most will say problems, disruptions, emissions, whatever. Our task is to challenge this. Gas should be solution not a problem," said one speaker.

However it is proving difficult to retain customers, with many being lost to other fuels. And besides, the gas industry naturally is biased towards gas. As the general director of RWE East, Martin Herrmann, said, "Because love gas, we love projects, pipelines, LNG, storage. But this comes at a price. "If we continue to build like crazy the price of distribution goes up. The strongest message to policy makers must come not from us who are biased, but from our customers. Transport fuel is the only section where we see growth and that is because customers like it."

And with so much capacity being built with no regard for neighbouring initiatives and no means of doing cost-benefit assessments, it is unclear how much prices have fallen thanks to these initiatives. As one speaker said, there are all kinds of competition – LNG, pipes, hubs, storage – but the local guy always wins.

There is no objective tender to solve a supply problem. Should we use gas from storage or pick it up at hubs? Or try demand reduction? But it is never a matter of which is the most cost-effective solution; he said he had never seen any cost-benefit analysis ex-post that found out what was the benefit of this or that capacity, or even if it had been used. 

Nord Stream 2 'likely to go ahead': analysts

Nord Stream 2 will probably be built, just as Nord Stream 1 was, according to a panel of independent energy analysts based in the Visegrad countries Poland, Hungary and the Czech Republic.

The pipeline follows Nord Stream 1 and it is intended to bring contracted gas nominated for delivery at Baumgarten in Austria under the Baltic Sea and across Germany, rather than through Ukraine and Slovakia. It was mentioned in many presentations at the conference, and was touched on by Sefcovic, who said that the preservation of transit through Ukraine was important.

"Any project that might jeopardise transit routes, like Nord Stream 2, is a topic of debate," he said. "It was presented as purely commercial project but I have never seen a commercial project debated on such a political level."

However, as one speaker pointed out, it has the advantage over Ukraine of bringing gas to where it is needed: close to the UK and the Netherlands, where indigenous output is falling for natural or political reasons. In fact, early last decade, Gazprom and Gasunie  – as the bundled Dutch gas supply and transport monopoly was then known – unveiled a map at a World Gas Conference for Gazprom's first offshore route.

It showed a dotted line extending from the German coast towards the UK sector of the North Sea, long before the Dutch government capped output from Groningen. It could have tied into the UK offshore, using offshore platforms as their operators' own fields depleted.

At the end of the conference the panel session said the chances were that Nord Stream 2 would go ahead after all, although it flies in the face of policy-makers. The EU commissioner for the energy union said it was not needed, not wanted and did not provide either a new route or a new supply of gas.

Nevertheless, as European gas production falls, especially in the UK North Sea and the Netherlands, some delegates told NGE that it may be more secure to deliver gas to that region by a subsea pipeline to Germany than pay other operators to bring it across continental Europe.

Enlarging on his reason for supposing a more than 50% probability that it would be built, Peter Kaderjak, director of Hungarian energy policy research firm Rekk and a former Hungarian energy regulator, told NGE that some of the companies involved had won good upstream concessions in Russia related to their participation in the project; and Germany had so far shown very strong political commitment. Two German firms are shareholders in the project: Uniper and BASF each have 10%.

William Powell