Slovakia wins support for Eastring gas pipeline

By bne IntelliNews May 22, 2015

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Slovakia, Hungary, Bulgaria and Romania have signed a memorandum in which they expressed their political support for the proposed Eastring pipeline, which is aimed at linking CEE gas markets, the Slovak foreign affairs ministry announced late on May 21.

Although the Eastring project was not named in the statement, the agreement is a clear reference to the four countries’ co-operation regarding the project. Eastring was proposed by the Slovak gas transit operator Eustream late last year as an alternative to the now defunct South Stream.

”The parties to the memorandum have expressed support for establishment of inter-connectors and for increasing reverse flow capacities, making use of the infrastructure in their respective territories," reads the statement, issued after the signing at the ongoing EU summit in Riga, Latvia. 

"The memorandum is an expression of awareness of the need to diversify natural gas sources and routes for stable and uninterrupted supplies to Central and South Eastern Europe," the statement continued.

The Eastring pipeline could start commercial operation by the end of 2018, according to a document drafted by the Slovak Economy Ministry. The costs for the first phase are estimated at between €1.14bn and €1.52bn.  

On top of capital from national budgets, Eastring hopes to get EU funding for the project.

“Despite the fact this memorandum is considered as a positive signal for support of all respective governments, EU funding is based on strict rules we need to follow,” Michal Lalik, head of strategic analysis at Eustream, tells bne Intellinews.

“We have included Eastring project to the recently reopened Ten Year Network Development Plan, which will enable its further inclusion to the list of Projects of Common Interest (PCI). Only such PCIs are eligible to be supported by CEF [Connecting Europe Facility] funds. But, hopefully, we are on track,” Lalik said.

"Until the gas pipeline systems are connected and a large-scale strategic gas pipeline investment is carried out, we cannot talk about energy security in the Central and Eastern European region," Hungary's Foreign Minister Peter Szijjarto told national TV late on May 21. 

All the angles

The Eastring pipeline, which would have a capacity of 20bn cubic metres in the first phase of the project, and as much as 40bn cubic metres in the final phase, would link Slovakia to Romania and Bulgaria. With Slovakia hosting the mainline route between Ukraine and Austria's Baumgarten hub, that would plug the Balkans into Western European gas hubs. 

The project looks to be the leading contender to emerge from a gaggle of suggested schemes that appeared in the wake of Moscow's announcement in December that it was abandoning the South Stream project, which was planned to pipe gas under the Black Sea and on into southern Europe. The Balkans region is seen as one of the most exposed to interruptions to Russian gas flows via Ukraine.

However, The Slovak transmission system operator - 51% owned by the state, but managed by Czech-based energy holding EPH - is looking to cover all the angles.

Slovakia is clearly planning ahead with regard to the risk that it could lose the huge transit fees it earns by carrying Russian gas arriving via Ukraine westwards. On May 20, Eustream announced a scheme to expand the north-south link it hosts between the Czech Republic and Austria, stressing the route has grown in importance since Russia's Nord Stream pipeline to Germany launched in 2012.

Eastring would also be able to transport gas the other way - from Russia into Central Europe and then further west - should Gazprom achieve plans to divert supplies currently running via Ukraine to go through Turkey. Eustream has been at pains to stress to Moscow that the project would be "complementary" to its 'Turk Stream' scheme.

On top of that, the pipeline could potentially also carry gas from Azerbaijan, Iran, Iraq, and Cyprus, Eustream has said, clearly keen to pose the project as a cut price version of the 'southern corridor' projects that Brussels is so keen to see developed. The length of the pipeline will depend on the route and will range between 744km and 1,015km.

Eustream insists Eastring will be the cheapest of all the proposals on the table to link the region because it is largely based on existing infrastructure. "The capex will be tiny compared with what would be needed to connect Greece to Baumgarten [Austria]," Lalik says. The project is expected to cost €750mn-1.2bn, he estimates, depending on the route.

Moving quick

Eustream is trying to attract other shareholders in the project. The company’s CEO Tomas Marecek said in January that it was eyeing a joint venture with international partners, and wanted to hold talks with major German players, as well as Austria's OMV and Gaz de France.

Yet it's Hungary's signature on the MoU that will be especially welcomed by the Slovak company. On the one hand, Budapest has been pushing its own scheme, and said in January it has already kicked off talks with Greece, Macedonia and Serbia on developing a route to meet Russian gas at the Turkish border.

On the other, crossing north-east Hungary is by far the shortest and easiest route from Slovakia's network to Romania's existing infrastructure. The alternative would be to run the route through Ukraine, reversing some of the country's creaking pipelines.

"We need to have our Hungarian colleagues on board," Lalik said in February, noting technical and commercial meetings were on the horizon. Slovakia has experienced complications dealing with Hungary on gas connection projects in recent times, with a new interconnector linking the pair having seen long delays, although it is now finally booking capacity.

However, the Eustream official is clearly happier with the way things are progressing. "Things are moving pretty quick now," he says.

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