Czech gas supply security will come at a price

05-12-2014

Wanted? Dead or alive? The fate of the South Stream gas pipeline bringing Russian, or perhaps Caspian, natural gas under the Black Sea is still a moot point it seems.

Photo: archive of Czech GovernmentPhoto: archive of Czech Government Most European countries see the Russian sponsored pipeline link as a threat – it bypasses Ukraine and probably offers no new source of gas just more of the same – at best. There are some though, such as Hungary, who have been tempted to give their support to the project.

The Czech Republic in the meantime has its own pipe link problems and, maybe, pipedreams. For pipe problems read the ongoing difficulties building the STORK II Czech-Polish pipeline connection, a part of the strategic North-South corridor which should allow countries in Central Europe to source their natural gas from a new port terminal in Poland or Croatia. Czech gas pipeline operator NET4GAS and its Polish counterpart bid this year for European funds for the project but were disappointed by the outcome. Most of the EU funds are being channeled to Baltic countries where the gas supply threat is judged as much more serious than Central Europe. The Czechs and Poles were offered a bit of cash for ongoing project preparation and that’s it.

NET4GAS says it will apply again next year and hopes for a better outcome. At a conference in Prague last week company bosses were blunt in pointing out that there is no real commercial foundation for the pipeline line. In other words, if the Czech and Polish governments want it, they will have to find their own or EU funds to make it possible.

One of the reasons why the likes of NET4GAS are reluctant to sign up for construction of new gas pipelines is that the gas market itself has changed out of recognition over the last decade. In the past there were long term contracts, lasting 10, 15, 20 or even 25 years, between gas producers and retailers. As a result the former were given guaranteed outlets and the latter got stable supplies and both had the certainty to go ahead with pipeline projects.

Now, long term contracts are on the way out and ever greater volumes of gas are traded on spot markets and the gas retail market has become a lot more diversified. The result is that neither the gas producers or retailers have the same certainty to commit to long term and expensive projects such as the around 900 million euro STORK II pipeline.

One new source of gas on the horizon is shale gas from the United States. Czech Prime Minister Bohuslav Sobotka last week expressed Prague’s backing to get deliveries underway to Europe. And a conference on the possible US contribution to Czech energy security is being planned for next May by the local energy regulator and US Embassy.

But one big question is whether the US shipments would really make sense. The Czech Republic’s biggest natural gas seller, RWE, said that it had looked at possible models for shipping US shale gas to Europe but found they did not add up. Czech ambassador for energy security, Václav Batuška, pointed out that shipments might probably be directed to Asia rather than Europe, though the high Asian prices he was probably thinking have post-Fukushima have eroded over recent months.

Compared with many surrounding countries, the Czech Republic is already pretty well covered for natural gas sourcing and delivery. Whether the price is right for the extra cover is forthcoming is now the outstanding question.

05-12-2014