Poland and Czech Republic look to integrate CE gas network

By bne IntelliNews May 2, 2012

Tim Gosling in Prague -

The integration of the Czech and Polish gas pipeline networks is to be deepened under the auspices of the wider EU drive to reduce reliance on Russian imports, with a new inter-connector planned to boost the capacity of gas flows. At the same time, Polish gas transit system operator Gaz-System suggested it may bid for its Czech counterpart Net4Gas, which is currently up for grabs, local media reported on April 30.

Despite being put on the market by RWE, Net4Gas is pushing ahead with initial plans to build a new CZK1bn (€40m) spur to tap into Poland's network, Czech daily E15 reported, with Brussels to pick up part of the bill, should it go ahead. At up to 10bn cubic metres, the new stretch of pipeline would offer twice the capacity of the Stork pipeline now connecting the two countries, reports Czech Position.

Milan Repka, a spokesman for Net4Gas, told Bloomberg: "The plan for interconnecting Czech and Polish gas pipelines is valid regardless of RWE's plans to sell Net4Gas. The EU will finance only a part of the project." The pipeline operator will first gauge potential interest among gas traders and determine the economic feasibility of the project. That will probably happen in 2015, a year before the actual construction begins, he added.

Meanwhile, E15 also reported that Polish peer Gaz-System may be ready to put in a bid for Net4Gas, which RWE is selling as part of a wider asset disposal. It also plans to exit its 49% stake in Slovak pipeline operator SPP, which is also a link in the mainline carrying a large chunk of Russian gas to European markets.

Czech-Polish cooperation on building the new inter-connector "would be independent of the future owner of Net4Gas" Jan Chadam of Gaz-System told the Czech daily. He also refused to rule out that his company could buy the Czech pipelines.

The availability of the Slovak and Czech sections of the mainline route for Russian gas exports has set many tongues wagging, especially given the threats still being thrown around between Moscow and Ukraine, which is the first transit state on the line. Russian gas giant Gazprom has threatened to stop transporting through Ukraine once it builds the Nord Stream and South Stream pipelines which will offer huge capacity connected directly to the EU, should they all go forward.

However, the threat is simply part of Russia's long-winded campaign to wrestle control of the Ukrainian system for itself. Without gas transited across Ukraine, Moscow would lose much of the leverage over Ukraine that it enjoys.

At the same time, speculation persists that Gazprom is extremely interested in the Slovak and Czech pipelines currently on the market. The main suspicion is that Czech energy group EPH - 40% owned by Petr Kellner's PPF, which has strong Russian business ties - is acting as a front for Moscow, which would likely meet resistance on a political level should it attempt to buy the assets.

Not least, Russian ownership of the land-based mainline all the way to the German border, on top of the sea-based Nord Stream, would provoke severe hand-wringing in Brussels, which is pushing a policy to build an internal, integrated energy market by 2015.

The free flow of gas between all EU member states will require the development of the transmission infrastructure, above all the cross-border connections of gas networks. Gaz-System's Chadam was clearly referencing that strategy when he hinted at possible broader regional plans for the integration of the Polish, Czech and Slovak pipelines, saying they would benefit Europe as a whole.

The planned Polish-Czech gas pipeline also constitutes a significant element in the planned North-South Gas Corridor that will connect Poland's first LNG terminal - currently under construction - through the Czech Republic, Slovakia and Hungary and on to the Adria LNG terminal in Croatia, Czech Position points out. That could open the way for deliveries of Qatari gas to the Czech Republic from the Polish facility, once it springs into operation. At the same time, the network could also allow Poland to export shale gas to the CE region, should its urgent drive to develop its reserves prove able to support exports.

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