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13.12.2017

PE in Austria proves the need for new Russian gas pipelines

The accident on the large Austrian gas hub Baumgarten overnight deprived Italy, Slovenia and Croatia of access to Russian gas. An emergency has already been declared in Italy. And although there is no strong threat for European countries, the main victim is already clear. And this is not Austria, but Ukraine.

Deliveries of Russian gas from the largest Austrian gas hub Baumgarten are suspended at once to several EU countries - Italy, Slovenia, Croatia, Slovakia and Hungary. This is a forced measure because of the explosion occurred yesterday at the gas distribution center of Tarvisio. As a result, one person was killed, about 60 people were injured. The reason, as reported by the police, is a technical malfunction.

About Baumgarten, about a third of Gazprom's gas is physically pumped through Baumgarten. Gazprom Export stated that it is working on the redistribution of gas flows and is doing everything possible to ensure the continuity of supplies in this transport direction. There is an alternative route through Arnoldstein. However, according to Platts, there is as yet no real opportunity to provide transit from Austria to Italy.

Because of the explosion, the transit of Russian gas to Europe via Ukraine (Uzhgorod corridor) on Tuesday could fall by a third - up to 91 million cubic meters instead of the expected pumping in 142,2 million cubic meters, Slovak gas operator Eustream reported.

Italy announced a regime of emergency in the gas sector due to the cessation of gas supplies from the Austrian hub. However, while it is impossible to say that Italy will freeze. This is rather a formal precaution. According to the head of the Ministry of Economic Development of Italy Calenda, interruptions in gas supplies are compensated by the reserves available in the Italian gas storage facilities.

How serious the destruction is and how long the transit of gas through Austria will last is not yet clear. Meanwhile, the transport operator Gas Connect Austria Gmbh reports that the gas hub may resume operation in the near future if the first signs of no damage to the infrastructure are confirmed.

The leading expert of the National Energy Security Fund, the teacher of the Financial University Igor Yushkov doubts that it could be a terrorist act. According to his forecast, the transit of Russian gas will be resumed within two days or by the weekend. "Gas flow is blocked, as far as I understand, more from fears of repeated accidents or gas leaks. I think that within two days it will become clear what exploded, was preserved, where it is possible to rock and where not, "Yushkov argues.

Gazprom's damage from the whole situation is insignificant. Loss of profit from short delivery will be minimal, Yushkov said. Gazprom will promptly establish gas supplies from its own underground gas storage facilities in Europe.

In recent years, Gazprom has actively either built, or bought, or leased the capacity of underground storage facilities in Europe. For what? In order to quickly fulfill additional requests of consumers during severe frosts and not wait until the gas reaches Europe (and this is 10-15 days). "This strategy will now show its advantages. I think that it is possible to get through the pipeline operatively from the UGS, in which Gazprom has accumulated a lot of gas in time for the heating season, "says Igor Yushkov.

In a court against Gazprom, too, hardly any of the Europeans will file, because this is a force majeure, in which the Russian holding is not to blame.

The situation in Central Europe as a whole is better than in Italy, because the volumes of consumption there are small, and the power system is more diversified. For example, the same Hungary can provide fuel flow from other countries via the Yamal-Europe gas pipeline (the Belarusian route) .

But Italy because of its geographical location and the scale of the economy can feel worse due to the closure of the Austrian Baumgarten. "However, Russia is not the only gas supplier to Italy. The second major supplier is Algeria, plus Italy has an LNG terminal. Therefore, in Italy, too, no one will freeze, "says Yushkov.

However, in the commercial plan, because of this accident, the whole of Europe, and Ukraine as well, will suffer.

The fact is that this emergency led to a sharp rise in prices on the hub in Baumgarten, that is, in the spot market. Already by lunch, the price of fuel for delivery "the next day" increased from 292 to 413 dollars per thousand cubic meters, and for gas with delivery on Tuesday - and at all to 537 dollars. And the price of gas jumped immediately in all the spot markets in Europe.

In recent years, a real war has unfolded in Europe against the oil price tie, traditionally used by Gazprom in its long-term contracts. He was led, for example, by the Norwegian Statoil, which transferred almost all of its contracts to the spot market. Gazprom also had to make concessions and place a spot in the contracts, but in its contracts the share of the spot is still no more than 10-15%. "This is exactly the danger that Russia has always pointed out. The system of long-term contracts better levels such spikes in spot prices because of frosts or because of similar accidents, "Yushkov said. That is, the growth of gas prices will now be felt by all European consumers, but buyers of Russian gas are to a lesser extent.

But Ukraine will suffer most of all, which buys Russian gas in the reverse mode from Slovakia and Hungary. Kiev pays for this fuel only at the price of the spot market in Europe.

"Prices instantly jumped two or three times in European hubs, and therefore, for Ukraine, too. The only way out is not to overpay for thousands of cubic meters - temporarily stop buying a reverse. But then Ukraine will need to speedily pump gas from its own UGS,

- says Yushkov. By this winter, Kiev unexpectedly downloaded more than in previous years. On the other hand, this winter Ukraine will increase gas consumption by its own TPPs due to a shortage of coal. Therefore, to start in early December - when all the winter is still ahead - it is more risky to pump more from the UGS. Then, when severe frosts hit, the pressure in the UGS may not be enough.

But on the whole one main conclusion arises. "All this history shows: the more you have the capacity to transport gas, the more routes, the better. We are constantly told that "Nord Stream - 2" is not needed, "Turkish" or "South Stream" is not needed, leave us a wonderful transit through Ukraine. It was not rushed in Ukraine because of the deterioration of the pipe, but in Austria. If there are new pipelines, there would be more opportunities to throw gas. Russia constantly talks about the risks of the Ukrainian route. For energy security, we need an alternative and interchangeability, "says the expert of the NESB.

In addition, another interesting moment emerges. Gazprom's contracts prescribe the only gas-delivery point-the Austrian Baumgarten hub. And Europeans do not really want to change that. Perhaps it's time to think about adding new entry points for Russian gas to the European market.

The accident in Austria can help the EU and Italy make a choice as to which European route the Russian gas will flow from the second thread of the Turkish Stream. Now we are discussing two options. One of them is the supply of fuel from Turkey to Bulgaria and then through the Balkans to Austria. The second option is the implementation of the Poseidon gas pipeline, where gas comes from Turkey to Greece and further to Italy.

A source: LOOK

Author: Olga Samofalova

Tags: Austria, Incidents, Gas, Europe, Italy, Slovakia, Croatia, Slovenia, Hungary, Gazprom, Economy

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