Desperately seeking an alternative to Gazprom

By bne IntelliNews October 2, 2014

Nick Kochan in Budapest -


As winter looms, the Ukraine crisis has sent a shudder through all the countries in Southern, Central and Western Europe. All face a winter dependent on Russian gas, largely delivered by Gazprom.

They are concerned that the diplomatic battle over Ukraine will flare to a point where Russia turns off the gas to Europe via Ukraine as a response to intensifying sanctions. Another possible risk is that the critical  pipeline from Russia through Ukraine that supplies natural gas to central and southern European countries such as Hungary, Serbia, Bulgaria and Slovakia is cut off by the re-outbreak of fighting in the east of the country. These countries are at least 60% dependent on direct gas supplies from Ukraine and their energy systems could be crippled. 

This is the context behind an accelerated programme of gas storage on the one hand and a search for alternative supplies on the other. According to Professor Alan Riley of London’s City University: “The EU is already looking at how to replace all Russian gas. Every storage facility in Europe is full or being filled, in case anything goes wrong in Ukraine. The Qataris have been talked to, ships have been identified, there is a coordination unit in Brussels running the whole thing making sure we can keep on the lights. We are going to put connectors in place. Investment decisions are being speeded up to build interconnectors between countries to make sure less and less of Europe is disconnected. They will have identified all the coal power fired stations in Europe which have been switched off. They are now being refurbished so they can be put on again.” 

New partners

Riley, who spoke at the conference in Budapest "Development and Use of Natural Gas in the Danube Region, prospects and opportunities" in September, said every European country has appointed an "energy ambassador" whose job is go out to the market to track down supplies of energy and energy partners for their home markets. 

One such emergency solution has been adopted by the government of Serbia. Its Minister of Energy Aleksandar Antic, speaking to bne at the Budapest conference, said the country has been in touch with Bulgaria with a view to accessing Bulgarian coal in the event that energy supplies through Ukraine are affected. Another source of emergency energy for the country is Hungarian gas. Hungary has extensive gas storage facilities that neighbours can draw on should flows be interrupted. Recent flooding affecting Serbia, which put out of action its leading electricity production plant, may force it to draw on these supplies, irrespective of a worsening in the Ukrainian crisis. 

Longer term, Serbia is looking to diversify, says Antic. “This is a priority. In the first place it is supply route diversification that we are trying to achieve. South Stream [the proposed pipeline bypassing Ukraine and going through Southern Europe] is a most important project but simultaneously we are planning to build more interconnectors with neighbours Bulgaria and Romania.” 

Antic expects Serbian dependence on Gazprom to continue. “We have not received a better proposition concerning natural gas supplies than from our Russian partners, so we have a long-term contract with Gazprom. But we are planning to diversify our supply routes.” Such dependence may explain the country’s relative indifference to European pressure to raise the tempo of sanctions on Russia.

Some countries are exploring further afield to find newly discovered gas reserves. Tsvetan Simeonov, president of the Bulgarian Chamber of Commerce, says that Bulgaria is in discussions with Noble Energy, the company leading the exploration of gas fields gas off Israel and Cyprus. The development of a pipeline between Cyprus and Greece is now  a priority, he says. Azerbaijan is another potential source of gas for Bulgaria and a ministerial visit from Bulgaria to Baku is imminent. 

Efforts to bring natural gas from Turkmenistan and Azerbaijan to Europe via a direct pipeline called Nabucco hit the rocks, because of Russian and Ukrainian opposition, according to Andras Deak, senior research fellow at the Institute of World Economics in Hungary. The cost of transporting Azerbaijan gas has risen considerably, but countries are prepared to take the hit if a crisis undercuts other sources of supply. 

Meantime, all countries of Central and Southeast Europe are walking a tightrope in their negotiations with Gazprom. Deak says that gas supplies from Russia to Europe have so far been unaffected by the Ukraine crisis. But there are ominous signs. “The Russians are putting more resources into their Far Eastern trading relationships. Countries that say no to Russian gas bear a heavy responsibility for finding alternative sources of energy.”  

He warns that countries need to think through very carefully the consequences of a strategy that could put at risk relationships with as powerful a player as Gazprom. Deak asks, "What will happen to the market over five years? More energy will have to be brought to the market, this will mean more competition with the Far East, so natural gas on the continent will become more expensive. It will be good from the supply security point of view as we say goodbye to Russia. But I would like to increase my supply security with reasonable costs and I don’t know if this is reasonable. At the moment there is no strategy. Countries are walking a tightrope in our relations with Russia."


Source: Stratfor

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