Baltic States among most exposed to Russian gas cut, says EU report

By bne IntelliNews October 17, 2014

bne -


Estonia, Latvia and Finland, alongside several states in South-Eastern Europe, are the most exposed to a potential cut of Russian gas supplies to the EU this winter, gas stress tests released by Brussels on October 16 revealed. However, the EU executive says that scenario is highly unlikely.

The report calls for member states, mostly in Central and Eastern Europe, to step up co-operation in order to manage potential disruptions in supply stemming from the Ukraine crisis. With winter approaching, Ukraine remains cut off from Russian gas supplies, which were halted in June. That raises concerns that CEE could yet again freeze, as it did in previous "gas wars" between Moscow and Kyiv in 2006 and 2009.

Still, EU states should be able to withstand any supply reduction this time around - even a longer-term full cut of Russian deliveries - thanks to EU efforts to build links between member states that can send gas around the bloc and its neighbourhood, the report concludes. "If we work together, show solidarity and implement the recommendations of this report, no household in the EU has to be left out in the cold this winter," Energy Commissioner Gunther Oettinger said in a press release.

The exercise was carried out by 38 countries, including the 28 EU nations plus neighbouring states, many of them in the Western Balkans. It analyses several disruption scenarios, including a complete halt of Russian gas imports into the EU for six months. In that instance, the Baltics and Western Balkans would be hit hard, while the likes of Poland and Hungry would also experience shortages of up to 30% of demand - unless countries co-operate.

“A prolonged supply disruption would have a substantial impact in the EU, with the eastern member states and the Energy Community countries being affected most,” the report reads. “Finland, Estonia, the Former Yugoslav Republic of Macedonia, Bosnia and Herzegovina and Serbia would miss at least 60% of the gas they need.”

Slovakia and Bulgaria on frontline

However, Oettinger, admits that such a dramatic cut off is not anticipated. Much more likely is that Russian exports to the EU routed through Ukraine would be halted should Kyiv fail to nail down an agreement with Moscow. Around half of Russian gas exports to the EU - which account for about 40% of total consumption - run through Ukraine's transit system. 

Some countries to the east of the bloc, including the Baltics, are fully dependent on Russian gas. However, they have a direct line to pipeline networks in north-west Russia. 

Oettinger's scenario suggests the likes of Slovakia, along with Bulgaria, are more likely to find themselves on the frontline, just as they were in previous "gas wars". However, Slovak Economy Minister Pavol Pavlis claimed on October 16 that his country and others were "better prepared" for any disruptions, thanks to the sort of regional connections Brussels is pushing. 

"It is a different situation than in 2009 when Slovakia wasn't prepared," he told Reuters. "Our ministry and SPP [Slovakia's gas pipeline operator] are ready. Storage is 99% full in Slovakia and we have the contracts for reverse [flow] from the Czech Republic, Germany and Austria." The stress tests show that thanks to a combination of those links and use of the spot market, Slovakia can keep the taps open for industry and consumers through a longer-term cut off, Pavlis claimed.

At the same time, the minister said he would visit Moscow to discuss upping supplies. Bratislava has reported falling deliveries from Russia for weeks, the suspicion being that Moscow hopes to pressure Slovakia into halting reverse flows of EU gas to Ukraine through the country. Pavlis said he will meet Russian Energy Minister Alexander Novak next week. 

Hope vs reality

Meanwhile, the European Commission continues to push for member states to work together, and it made several recommendations to the most exposed in the report. However, many of those suggestions appear more hopeful than realistic.

It said Estonia should finalise an agreement with Lithuania before December to tap into the latter's new LNG platform. However, although Tallinn has demanded Gazprom and its co-owners of Eesti Gas unbundle the country's pipelines by the end of the year, that has not happened yet. 

Estonia should also ensure "clear political will" to accelerate investment in infrastructure such as the Balticonnector link to Finland and the pan-Baltic LNG terminal. The Baltic countries have been bickering over a regional LNG platform for years. The Finnish and Estonian companies working on the project halted talks on cooperation on September 30, adding more delays.

Latvia should "ensure third party access to the Incukalns storage facility and the Latvian gas transport system, despite the derogation from the Third Energy Package," it suggests. The only storage facility in the Baltic region, Incukalns is controlled by Gazprom and Russian independent Itera.

Hungary meanwhile received a political nudge. The report urged Budapest to arrange its carry out gas co-operation with neighbouring countries "on the basis of solidarity". Hungary halted reverse flow supplies to Ukraine last month, three days after Gazprom CEO Miller agreed to boost deliveries to Hungarian storage facilities in a meeting with Prime Miniser Viktor Orban.

Notice: Undefined index: social in /var/www/html/application/views/scripts/index/article.phtml on line 259

Related Articles

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

EU, US partly suspend Belarus sanctions for four months

bne IntelliNews - The Council of the European Union (EU) has suspended for four months the asset ... more

bne:Chart - CEE/CIS countries perform particularly well in World Bank's "Doing Business 2016" survey

Henry Kirby in London - Central and Eastern Europe and the Commonwealth of Independent States’ (CEE/CIS) countries performed particularly well in the World ... more