Eastern Europe Shivers Thinking
About Winter Without Gas
By Ladka Bauerova and Misha Savic Oct 24, 2014
As winter approaches, former Soviet satellite nations from Poland to Bulgaria are watching Russia and Ukraine’s stalled gas negotiatons
with growing trepidation. The lack of discernible progress is sending a collective shiver down the spine of Eastern Europe, which
retains vivid memories of Russian energy cuts during unusually cold winters in 2006 and 2009. The ensuing shortages led to shuttered
factories and a return to wood for heating and cooking in rural areas.
Despite the two episodes, little has been done to diversify supplies within a region that remains highly dependent on energy delivery
systems dating back to the Soviet era.
“Parts of eastern Europe are still quite vulnerable
this winter,” said Emily Stromquist, a Eurasia
analyst in London. “The problem is that until
recently the relations with Russia have generally
been good, so perhaps there was no feeling of
urgency to build quickly.”
If Moscow and Kiev don’t reach a compromise
before winter and OAO Gazprom (GAZP) fails to
restart supplies to its western neighbor, Ukraine
may resort to siphoning off gas carried through its
territory. As in 2009, that could prompt Russia to
cut transit through Ukraine altogether, leaving parts of eastern Europe exposed to severe shortages. Poland, Hungary and
especially the Balkan penninsula would be most affected, according to the so-called “stress tests” published by the European Union
on Oct. 16.
Soviet System Connected to the old Soviet pipeline system that runs through Ukraine and Moldova, the Balkan countries rely on
Russia for close to 100 percent of their needs. Moreover, they’re poorly connected with their neighbors and their underground
storage isn’t sufficient to cover demand for the entire winter.
Part of the problem is that, instead of boosting pipeline inter-connectors with each other to
improve trading, those countries pinned their hope on Gazprom’s South Stream project,
designed to bypass Ukraine by joining Russia directly with Bulgaria through the Black Sea.
However, the preparatory work on the 2,446-kilometer (1,520-mile) pipeline was halted earlier
this year under intense lobbying from the EU and the U.S. as the conflict with Ukraine flared up.
“Serbia didn’t work on alternatives and focused exclusively on the South Stream project whose construction doesn’t depend on us,”
said Zorana Mihajlovic, Serbia’s deputy prime minister who served as energy minister from 2012 to earlier this year. Instead, she
said, her country should have been building a pipeline to Bulgaria.
“Other European countries have done much more than us to improve their energy security,” she said.
Limited Buffer Russia and Ukraine were scheduled to return to the table in Berlin earlier this week before Russia presented a lastminute demand for advance payments for future deliveries. That has deepened the worry of eastern European neighbors, following
the talks closely, that the deal won’t get done. Across the EU gas storage facilities were 94% full yesterday, according to GTE.
Relying fully on storage isn’t an option for some of the countries. While Serbia’s Banatski Dvor depot is full, it would last the country
only about 40 days, according to the energy ministry. Bulgaria’s only facility also offers a buffer of only a few weeks and is still only
88 percent full.
“Nothing has been done in Bulgaria since the last crisis,” said Ivan Hinovski, chairman of the Bulgarian Energy & Mining Forum.
“There are some plans, but no new gas inter-connectors or other measures for diversification of supplies are in operation now. A
shortage of gas supplies would induce serious economic stress.”
Storage Tanks Poland, Slovakia and Hungary are better off, with larger gas-storage tanks. Still, they were forced to slow down the
pace of injections into storage by Gazprom, which has cut deliveries in the past weeks after those countries began sending gas back
to neighboring Ukraine, a process known as reverse flow.
Once the transiting Russian gas reaches EU territory, the countries have the right to send it back to Ukraine. Slovakia, for example, is
able to supply Ukraine with up to 10 billion cubic meters a year through the Vojany pipeline. However, Russia has shown it’s willing
to use gas supply as a political tool. After Vojany became operational in early September, Gazprom cut deliveries to Slovakia by 50
percent.
Most Expensive Liquefied natural gas, viewed as
the most expensive solution, is an option for Poland
and Lithuania, both of which are building LNG
terminals on the Baltic coast to receive gas, primarily
from Qatar. Still, they will make only small difference
this winter: while the Lithuanian station is scheduled
to open in December, the Polish one won’t start
receiving shipments until the middle of next year.
Eastern Europe’s shortcomings stand in contrast to
Germany, Gazprom’s largest customer in Europe,
which has depended on Russian gas since the 1970s.
The construction of Nord Stream, the direct link from
Russia under the Baltic Sea, means that since 2011
Europe’s largest economy is largely insulated from
disruptions to gas flows through Ukraine.
In turn, Gazprom depends so much on revenue from Germany it’s keen to avoid breaks in supply there.
Some parts of eastern Europe have made progress in diversifying their gas supply. Hungary and Slovakia are about to finish an
interconnecting pipeline. And, thanks to Nord Stream, the Czech Republic can now import enough from Germany to cover all its
needs.
However, it may be difficult to supply countries farther east and southeast if supply through Ukraine stops, according to Pavel Solc,
Czech deputy minister of industry and trade who is in charge of the country’s energy policy.
“Thank God we are in the safe part of Europe, and we may even have enough reserve capacity to supply Slovakia,” he said. “But with
every other country further south it becomes more and more problematic.”
http://www.bloomberg.com/news/2014-10-23/eastern-europe-shivers-thinking-about-winter-without-gas.html