Slovaks and Hungarians jostle to meet Turk Stream gas route

By bne IntelliNews February 20, 2015

bne IntelliNews -


Russia's plan to divert gas exports away from Ukraine and towards Turkey is causing Central Europe to jostle for the potential lucrative transit trade. 

Slovak gas transit operator Eustream is the latest partner to suggest a meeting on the Turkish border. It told Russian press on February 19 that its Eastring project is a complementary project to Gazprom's Turk Stream plan.

Eustream's PR head Mirek Topolanek - a former Czech prime minister - stressed to Russian state news agency RIA Novosti that the two schemes will not be competitors.

Eastring was proposed late last year as a solution to fears over energy security in the Balkans because of Russia's declaration that it would look to end Ukrainian transit of gas headed into the EU. It would link Slovakia to Romania and Bulgaria to offer them the possibility of importing gas from EU states. Slovakia hosts the mainline route between Ukraine and Austria's Baumgarten hub. 

However, Eastring would be able to carry gas in both directions. The projects “can complement each other and be mutually useful", Topolanek said. He explained that Russian gas, delivered via Turk Stream, can continue its way to Western Europe through Eastring.

Operator Eustream would receive a hit should the route through Ukraine be halted, although Michal Lalik, the head of the company's strategic analysis, tells bne Intellinews that the company's 'ship or pay' contract with Gazprom until 2028 - and the prospect of hugely increasing transit of EU gas to Ukraine - would soften the blow. Reversing Eastring to bring Russian gas westwards would offer another cushion. 

"From a purely commercial point of view Eustream would be happy enough to see Russia re-route gas supplies to Turkey," he says. “At the same time, it is also somewhat of a game from Russia. It really needs to have euros coming in, and has no other possibility to earn that money right now other than routing via Ukraine."

The idea for Turk Stream followed the cancellation in December of the South Stream project, which was set to carry 63bn cubic metres of Russian gas via Bulgaria and on to Hungary. Russian officials have suggested recently that Bulgaria could yet get a pipeline from the Black Sea, but this appears designed to keep as many potential partners in the EU jostling for position, by hinting either could still happen.

Competitors in the region might yet complicate Eustream's apparent emerging strategy to meet Turk Stream. As Prime Minister Viktor Orban controversially welcomed Russia's Putin to Budapest this week, he confirmed that Hungary wants to establish its own project to pipe the gas from the Turkish border to Central Europe. Foreign Minister Peter Szijjarto said in January that Hungary has already kicked off talks with Greece, Macedonia and Serbia. 

Slovakia may well need to route Eastring across its neighbour's north-eastern reaches. "We need to have our Hungarian colleagues on board," Lalik says. "There are technical and commercial meetings set up," he adds, although he admits there have been complications dealing with Hungary on gas connection projects.

This kind of jostling for position will delight Moscow. It offers the chance of strong leverage for Russia in its stand-off with the West - whether or not it eventually manages to bypass Ukraine.

Lalik insists, however, that the competition - should it become concrete - will ultimately be decided by price. "Eastring will be the cheapest 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]."

The project is expected to cost €750mn-1.2bn, he estimates, depending on the route. The initial capacity of the pipeline is planned at 10bn cubic metres per year. However, that could be doubled in the future.


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