Business Gas pipeline dreams confront reality

28-03-2014 13:08 | Chris Johnstone

Czech and other governments have a wish list for how they can fill in the gaps in current gas pipeline infrastructure and supply to diminish dependence on Russian gas supplies and Ukrainian pipelines. But the wish lists are already coming into conflict with reality.

Photo: European CommissionPhoto: European Commission Czech Minister of Industry and Trade Jan Mládek graced the opening of a European gas conference in Prague this week aimed at putting the spotlight on the region’s failures when it comes to creating liquid gas markets.

There are still big price differences for natural gas between the Czech Republic, Slovakia, Hungary, and Poland, which testifies to the fact that national markets and barriers still largely prevail.

One of the most significant problems is the current infrastructure. Most of the pipelines are still heading from the east to the west with few links running north-south. Although liquefied natural gas (LNG) terminals are now being built in Poland and Croatia, there was previously not much gas to be pumped into either for onward vertical shipments.

This is largely a legacy of a gas network planned 30-40 years ago with the sole target of taking gas from the Soviet Union to its satellite states and further west.

Mr. Mládek’s presentation represented a bit of a wish list to the gas retailers, pipeline companies, experts, and European association representatives present. He wanted to get them onside for the Czech stand on EU climate change: one sole goal of 35 percent, or a conditional 40 percent cut, in carbon emissions by 2030. There are no real problems there since the gas lobby is saying the same thing.

The minister also underlined the fact that both Czech and Polish governments are backing a second gas pipeline link between their two countries and that Prague is seeking sales of US LNG to be covered in a new free trade agreement between the EU and US so that current obstacles to the trade can be overcome. Lithuania’s energy minister this week joined the calls for US LNG to be shipped to Europe. The Baltic state is also opening a new LNG terminal aimed at easing Russian dependence.

Jan Mládek, photo: Filip JandourekJan Mládek, photo: Filip Jandourek On the second Polish connection, Mr. Mládek is on somewhat shaky ground. While Czech gas pipeline company NET4GAS and its Polish counterpart have started official procedures for the new pipeline link to be built, the Czech pipeline company says it is not convinced yet that it has mustered a convincing economic argument for the pipeline and the associated Morava pipeline project diagonally across Moravia to go ahead.

For the cross border link, much depends on the stand of energy regulators on how quickly the pipeline companies will be allowed to recoup their investments and what sort of European funding might be available. The minister therefore should be knocking at the door of the Czech energy regulator, though pressure there is not supposed to be allowed since it is an independent institution. The regulator is currently drawing up its framework for how gas companies can recoup costs and it does not look like being in the mood to be generous.

Most people in the gas sector are skeptical whether US LNG could be priced low enough to make a real impact in Europe. Even the optimists on this count warn that US imports might only have an impact within three to seven years. The

European gas association, eurogas, suggested that Europe should take a more positive stance on the development of shale gas, one of the main factor’s in US energy self sufficiency and its industrial recovery. The Czech Republic currently has a national moratorium on prospecting for shale gas and has a pretty negative stance on the technology caused by the use of destructive chemical extraction methods in the past.

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