The explosion of gas hub installation in Austria forced Italy, dependent on its gas, to implement crisis mechanisms. This is a test of the revised EU regulation on security of supply (SoS). It also shows what Poland can expect if Europe allows for Nord Stream 2 – says Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
The explosion is paralyzing the gas hub
On the morning of December 12, there was an explosion at the installation of the Central European Gas Hub (CEGH) in the Austrian city of Baumgarten. The reason was to be a technical failure. The fire was extinguished the same day, but this problem, combined with bad weather conditions, made it difficult to supply gas to Italy, which was dependent on the distribution of the Russian raw material via the Austrian hub.
Baumgarten is one of the largest gas distribution points in Europe, which has been operating since 1959. The main gas supplier is Russia, although raw material from Norway also reaches there. PGNiG signaled in the past that in the event of problems with Baltic Pipe, Poles could import Norwegian raw material “via Slovakia”, i.e. from the Austrian hub. The annual transmission through Baumgarten according to the Austrian OMV is 40 billion cubic meters plus 7.9 billion cubic meters for the Austrian demand.
The installation is connected with the Trans-Atlantic Gas Pipeline (TAG) to Italy, Slovenia and Croatia, as well as West-Austrian (WAG), which supplies Germany and France and – on the reverse – Central Europe. In turn, the Hungary-Austria gas pipeline (HAG) supplies raw material to Hungary and Slovakia. There are plans to build BRUA – a gas pipeline linking Baumgarten with Romanian gas deposits, but the project is not progressing due to the misunderstandings of Romania and Hungary.
In Baumgarten, the spot price of Russian gas is developing, which dominates supplies to this point.
Test of SoS regulation
After the accident in Austria, neighboring Italy is preparing to declare a threat in accordance with the regulation on gas supply security (SoS Regulation). According to this regulation, the country may implement early warning, alert and emergency level. Depending on the severity of the threat, deliveries to individual clients are limited, excluding sensitive ones, such as schools or hospitals. If necessary, the country can also reach for reserves that it is required to create in line with the SOS Regulation. The situation in Italy is another test of the regulation.
The price effect is the area for manipulation
Spot prices on the VTP in Baumgarten increased after the explosion from 292 to 413 dollars for 1000 cubic meters. Then again they dropped to 388 dollars.
In response to CEGH’s problems, gas prices on the British stock exchange jumped up by 35 percent. It cost 92 pence per thermal unit, which is the highest in four years – The Guardian informs. PSV gas prices in Italy alone increased by 97 percent to 47 euros per MWh. It is worth noting, however, that the increase in the Great Britain was also related to the break of the largest import system from the North Sea – Forties (FPS) – and the attack of winter, which paralyzed the Heathrow airport. Repairs on Forties may take several weeks, and with them a higher price of the raw material may be maintained, regardless of the situation in Baumgarten.
Gas Connect Austria informs that it is already removing the defect and the transfer in the normal regime is about to be restored soon. It is worth praising PGNiG for the reflex, for offering technical assistance, despite differences in the vision of the European gas market in relation to Austrian partners.
Conclusions for Poland
The Baumgarten incident makes it possible to draw interesting conclusions for Poland:
1The transformation of the gas hub in Austria into a real gas switching station from Russia poses a risk to security of supplies. In the event of a failure, it results in a sudden increase in the price of the raw material. It also gives the Kremlin the opportunity of political manipulation with the gas price in the region through supply regulation.
2According to the European Commission, after completing Nord Stream 2, which joins the Nord Stream 1 in the Baltic Sea, up to 80 percent of gas will reach Europe via one route. This will reduce the dependence of the region on the Ukrainian route, but increase the German one. In the event of problems with deliveries through the Baltic Sea, there may be a threat to security of supply, e.g. to Poland and a similar price effect in the form of galloping increases.
3In this context, it is possible to recall the Breugel center, which warns that due to infrastructural bottlenecks there may be a problem with supplementing shortages in Central and Eastern Europe. A possible crisis may end up worse for it than for Italy. However, the Polish authorities declare that strengthening of solidarity mechanisms under the SoS Regulation will ensure security of supply even in such a dark scenario.
4Gas from Nord Stream 1 is sent to Germany and from the Druzhba gas pipeline to Slovakia. From there, it reaches Austria and Western Europe. This mechanism is not reliable, as one can see. The Russian media ex officio began to convince that the Baumgarten defect proves the need to build Nord Stream 2 to increase security of supplies to Europe. The problem is, however, dependence on one source, not the route. Similar problems of Nord Stream 2 in future could lead to higher prices and problems with deliveries to European customers. If the Italians had the Trans-Adriatic Gas Pipeline – TAP (for gas from Azerbaijan), it would not be a problem, as Italian development minister Carlo Calenda admitted. However, Italy became dependent on supplies from Russia. In 2016, they imported from Gazprom as much as 24.69 billion cubic meters, which is more than three times the amount Poland imports from it (over 8 billion cubic meters per year). After the launch of TAP in 2020, Italian customers will receive 8 billion cubic meters per year from the Shah Deniz deposit in Azerbaijan. For this reason, the course on real diversification, that is, becoming independent from Russia not only in contracts, but also in infrastructure, is desirable.
5The incident is another argument for the further development of two-way cross-border connections in the European Union and with its partners, such as the BRUA, Poland-Ukraine gas pipeline and other investments that will improve the security of supply. The defect reduced deliveries to Ukraine. Should the Ukrainian side agree to build a new gas pipeline to Poland, it would not have to use the winter reserves. Now it had to use them.
6It is worth preparing the infrastructure of the planned gas hub in Poland for possible defects, similar to the one in Baumgarten, as well as terrorist attacks and sabotage that could bring about a similar or more severe effect.
7Until full independence from unexpected events on the gas supply routes to Poland, the development of gas energy in our country will not be economically safe. However, it is not known if this is going to happen. The best guarantee of the lack of problems with deliveries will be own raw materials and this is an argument for clean coal technologies and the development of domestic gas extraction.