Visegrad Group grabs energy security by the horns

The new EU member states have shown they are not waiting for Brussels to improve regional energy security of supply. A meeting of the Visegrad + group on February 24th, 2010 in Budapest is proof that the new 2004/07 EU member states have come into their own.

The meeting itself was attended by the Visegrad group of countries, the Czech Republic, Hungary, Poland and Slovakia plus a range of other CEE and SEE countries' representatives and international stakeholders, including the US. At the end of the day, they issued a wide ranging statement concerning energy security and investment. While the content of the statement itself is important and noteworthy. What is the most noteworthy is that these countries came together themselves to address their collective energy security.

Solutions for improving energy security of supply are normally dealt with in a bilateral manner or within the framework of EU meetings. The failure of the MOL initiated NETS plan to live up to original expectations to integrate the regions gas networks (despite it often being cited as a good example) is a case in-point of the lack of joined up political thinking. However, now it appears the prime ministers and high level EU and US officials are in the game. When the first meetings were held for NETS it was the national regulators and TSOs that participated in early discussions. While, progress has occurred in bilateral infrastructure projects, it now appears that the higher political authorities have gotten into the act and are seeing the regional picture as well.

The regional picture for gas as proposed by the Hungarian Prime Minister is a "gas supply triangle," that involves "a liquefied natural gas terminal on Poland's Baltic Sea coast, a similar terminal on the Croatian island of Krk in the Adriatic, and the much talked about Nabucco gas pipeline."

The benefits of regional planning in energy infrastructure are significant for both an efficiency point of view and from an energy security perspective. But like many regional projects that have been proposed in the past, like common auction offices for electricity and a NETS joint stock company, it may be best to offer encouraging words of support to see if the political arena continues its engagement. If it does we can expect to see more robust interconnections and more liquid energy markets. These all contribute towards the EU's Common Energy Market and stability in the region's energy markets.

Ready for nuclear energy?

The International Atomic Energy Agency reports that as of July 2009 there were 52 countries interested in building their first nuclear power plant. A new paper by Jessica Jewell of the Energy Policy Research Group at CEU characterizes and evaluates these "Newcomer Countries" in terms of their capacity and imperatives to develop nuclear power as well as the associated risks and uncertainties. It quantifies several factors historically associated with the development of national nuclear energy programs and then benchmarks the Newcomers against these data. The capacity indicators include the size of the economy, the income per capita, government effectiveness, the size of the national grid and the presence of international electricity grid interconnections. The imperatives are evaluated with reference to the growth rate in electricity consumption and security of fuel supply for electricity production. We also evaluate risks and uncertainties related to political instability. We identify 10 Newcomer Countries which are the most likely to deploy nuclear energy, 10 Countries where nuclear energy is uncertain or risky due to their political instability, 14 Countries where pursuing nuclear energy is possible with international joint implementation or exceptionally strong government support, and 18 countries where the development of nuclear power is unlikely. Recommendations for international nuclear energy policies and further research are presented.

Hungary's Dual Monarchy turns into Dual Pipelines

The roll-out of the gas pipelines continued last week as Hungary sought to add diversity to its gas supply. Diversity in this term refers to diversifying away from the Ukraine as a transit country, but not from Russian gas. The fifth Hungarian-Russian intergovernmental joint committee meeting resulted in Hungary progressing further in its balancing act of supporting both South Stream and Nabucco. The Hungarian state owned development bank (MFB) with Gazprom set up a joint company to begin pipeline preparations. Hungary may soon be bursting at the seams with gas – but why support both pipelines?

The geopolitical balance that Hungary must strike between competing pipelines results in it choosing a dual pipeline approach: a national compromise of sorts that balances the need to anchor it with neighbors for gas supply diversification and its pragmatic trading relationship with Russia. The Austro-Hungarian Compromise of 1867 attempted to balance the need for Hungarian independence and statehood with Habsburgian dominance and, in the age of Bismarck – realpolitic.

Under the Compromise of 1867, Austria and Hungary each had separate parliaments that met in Vienna and Buda that passed and maintained separate laws. Each region had its own government, headed by its own prime minister….The suggestion for a dual monarchy was made by the Habsburgs but Hungarian statesman Ferenc Deák is considered the intellectual force behind the Compromise….He also felt that Hungary benefited through continued unity with a wealthier, more industrialized Austria (Wikipedia).

The fact that the Russian army effectively put down the 1848 Hungarian revolution combined with Hungarian ties to the Habsburg European monarchy were large influences on the Compromise of 1867. The dual monarchy, as is the dual pipeline, is a reflection of Hungary’s continual balancing act. Unable to break free from Russian influence yet striving to be ‘in’ economically successful Europe, Hungary steers a path that reflects east-west relations. The choice between South Stream and Nabucco gas pipelines reflects this same dual approach.

The support given to both projects by Hungary is genuine. The country can benefit from not just diversity of supplies (routes and sourcing) but also from transit and storage fees that both pipelines can bring to the country. In the age of financial meltdown, social tensions and falling revenue streams Hungary is ill placed to deny additional revenue. Hungary’s oil and gas group MOL, last week reaffirmed an agreement with Gazprom to begin the development of an underground gas storage site at the depleted Pusztafoldvar-Dus gas field– which can/will be utilized by South Stream. Thus even in the case of MOL which is a key partner in the Nabucco project, benefits from participating in the South Stream project can be had. In addition, the Hungarian feasibility study for South Stream will be carried out by MOL within a joint venture MOL-Gazprom company. There should be no illusions, even Hungary’s premier Nabucco partner is set to gain from the Hungarian section of South Stream. Whether MOL would also participate in the actual building of South Stream is unknown, but no other company in Hungary has the expertise.

Therefore, whether one or two pipelines are built in Hungary, MOL may also be positioning itself to be involved in these dual projects. Therefore, without undermining MOL’s position and economic interests, the Hungarian government (with MFB) has stepped in to support the ‘competing’ or ‘complimentary’ pipeline (depending on ones perspective). Politically, Hungary can maintain its international relations, balance neighborhood policy and diversify its gas supply by moving forward in a dual manner.

According to Sergei Kupriyanov, Gazprom spokesman in a March 2009 interview with a Hungarian radio station, “South Stream will be built to supply Russian gas to European consumer. The two projects are totally incomparable; Nabucco and South Stream are not rivals.” And this is where the solution for the Hungarian government may lie. Diversification for security of supply concerns, as both South Stream (non-Ukrainian transit) and Nabucco (non-Russian supply) provide justification for the acceptance and support of both pipelines.

This ‘dual pipeline’ approach allows Hungary, as it has in the past, to walk a fine line between supporting the Russian position and economic interests while also showing support to the ‘neighborhood’ pipeline which seeks supply diversification. The dual monarchy that Hungary participated in, was not the ideal solution, nor the full expression of national sentiment – what it did, through Deák’s statesmanship, was satisfy the competing demands of the nation from internal as well as external tension. The failure of the 1848 revolution firmly placed the future state of Hungary within the Russian sphere of influence – along with the reaction (or lack thereof) of England and France – thereby relegating Hungary to the margins of Europe, where to this day, it still relies on realpolitic for economic and social development.

The acceptance of both South Stream and Nabucco demonstrates the continual balance Hungary, and its companies, play in advancing economic development and their security of supply in energy. The participation of France in South Stream while the demands of the EU (including Austria) lie with Nabucco symbolizes the geopolitical fate of Hungary.

Nuclear power plant in Belarus: a short story

The recent decision to built a nuclear power plant (NPP) in Belarus truly illustrates the complexity and a highly contextual character of energy security strategies. At first glance this decision is difficult to explain. It is officially justified by the need to ensure "energy security", i.e. independence from imported Russian gas. However, the critics point out to the fact that the NPP will anyway be built with Russian technology, funded by a Russian credit, obtain fuel and export waste to Russia.

Perhaps, the enigma is solved by the fact that Russian gas exports are fully controlled by the Gazprom, a giant state-dominated monopoly. At the same time, nuclear technology will be procured from Rosatom, another enormously powerful state-controlled organization. Well, it is quite possible that Belarusian authorities try to counterbalance Gazprom with Rosatom, calculating (not without some reason) that the two have somewhat opposite interests. Though Belarus cannot diversity the countries it imports energy from, at least it can diversify the "companies".

The peak-oil debate: 2020 vision

The IEA puts a date on peak oil production. According to The Economist, FATIH BIROL, the chief economist of the International Energy Agency (IEA), believes that if no big new discoveries are made, “the output of conventional oil will peak in 2020 if oil demand grows on a business-as-usual basis.” Coming from the band of geologists and former oil-industry hands who believe that the world is facing an imminent shortage of oil, this would be unremarkable. But coming from the IEA, the source of closely watched annual predictions about world energy markets, it is a new and striking claim."

Forecast of energy security in the UK

Ofgem, the UK energy regulator, just published the first stage of a project which explores the capability of current market arrangements to delivering secure, sustainable, and affordable energy supplies in the UK. This stage set out to identify the risks to: security of supply, achieving the UK's environmental goals, and ensuring affordable energy prices for its consumers; analysis was carried out with 4 different scenarios (based on rapid or slow economic growth and rapid or slow environmental action) and a series of stress tests.

The report found that the levels of investment will likely need to be double the current rates of investment and estimated that this will amount to as much as £200 billion by 2020. This level of investment, combined with volatile or steadily increasing oil and gas prices causes consumer prices to rise in all scenarios. It also found that gas import dependency will increase dramatically under some scenarios, but uncertainty surrounding environmental policies will make forecasting the demand difficult and could lead to a reticence to invest in gas infrastructure. It reports that the biggest risk to security of supply is ensuring sufficient gas supplies through a particularly cold winter. In some scenarios Gas demand will be exacerbated by shutting down nuclear and coal-fired power plants. The report found that under certain scenarios, environmental targets will not be met and suggests demand-side management to help manage shocks in electricity and gas. It also suggests that while a rapid expansion of renewables would help alleviate the risk posed by gas import dependency, it would require more flexibility in thermal-power plants which could potentially increase investment requirements.

"The Vulnerability of Energy Infrastructure to Environmental Change"

A new report from Chatham house addresses the vulnerability of energy infrastructure to climate change. Their main findings are that energy infrastructure is often located in vulnerable areas and that some infrastructure (hydroelectric, offshore oil and gas, pipelines, electric transmission and nuclear power) has already been subject to disruptions resulting from environmental factors. They state that revised environmental standards combined with scheduled decommissioning and stimulus spending are likely to lead to an increase in energy infrastructure investment and state that in the future it will be necessary to design and retrofit infrastructure in order to deal with environmental change.