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Last update: 03 05 2010

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Energy security of Visegrad region

Ensuring stable and secure supplies of energy is one of the key objectives of every government and energy aspects play a decisive role of foreign as well as other policies of each country. How does the energy security look like in Czech republic, Hungary, Poland and Slovakia?

Background

Despite the strong efforts of the European Union and its member state to promote higher use of renewable sources of energy, conventional energy sources as gas, oil or coal still hold the primacy in the energy mix of almost all the member states. The limited supplies, uneven distribution and rising costs of fossil fuels push the states intensively towards ensuring their national energy security.

The V4 countries are among those in the European Union, which are dependent on imports of strategic energy sources such as oil or gas, as their home production is far from being able to secure sufficient supplies for the consumers. Furthermore the V4 countries and especially Slovakia, but also Austria in the case of gas, relies on energy imports primarily from only one county; namely Russia.

This single-track dependency can lead to situations as those in January 2009 when the gas crisis caused by Russia‘s suspension of supplies due to the conflict between the Russian gas company Gazprom and the Ukrainian company Naftohaz Ukrainy over supplies, prices and debts. In order to prevent similar situations the V4 countries are intensively trying to ensure diversification of both, transport routes for oil or gas and alternative suppliers.

The gas pipeline Nabucco is perhaps the most often recalled project which could ensure a diversion of European countries from Russia‘s domination on the gas market. However, the progress of the project which should pump gas to the European markets from the Caspian region is slow going and countries as Poland, Slovakia, Hungary and Czech need to look for other alternatives too.

CZECH REPUBLIC

  • Oil sector

Already at the beginning of 1990s, Czech Republic decided to build up an additional transport capacity for oil for the case of problems at then the only route – oil pipeline Druzhba. The new pipeline with capacity exceeding current oil needs of the country brings in oil from German town of Vohburg (pipeline IKL) where it connects with the Trans-Alpine pipeline TAL that brings the crude oil from Italian port of Trieste. Concerned with the potential closure of Druzhba pipeline on the Russian side and other possible disruptions of deliveries, Czech Republic seeks the ways to increase the capacity of TAL pipeline, possibly also by buying shares in the company. It also continues in building additional storage facilities.

  • Situation in gas sector

In gas, the country is importing 91% of total consumption with more than two thirds of imports from Russia. The rest of the Czech demand is covered by Norwegian gas. Decision on building a connection to German, Norway gas supplied pipeline, was adopted in 1996 in a move to limit a 100% dependence on the Russian gas. The political decision justified itself in January gas crisis, when Norweigan gas (together with large storage capacities) helped Czech Republic to cope with cut of gas import.

Currently, Czech Republic has second largest storage capacity in terms of domestic consumption accounting for 2.3 billion of cubic meters of gas. By 2013 owner of storage facitlities, RWE Gas Storage, plans to build up additional storage capacities that could cover 4.3 bil of cubic meters which represents almost six months of domestic consumption.

  • A need for diversification

Czech Republic is together with other V4 countries strong advocate of diversification of energy supplies. This fact was reflected also in main priorities of the recent Czech EU Presidency where finding priorities in building new transmission capacities, diversification of energy supplies and dialogue with Russia and Caspian region countries became top priorities of Presidency agenda.

In this context, under leadership of center-right government of former prime minister Mirek Topolánek, Czech Republic gave its support to Nabucco pipeline project over competitive projects with participation of Russian Gazprom such as South Stream. Although it is not very likely, things may change with October election in case of the victory of center-left forces as strongest opposition party, Social democrats, are more open to dialogue with Russia.

In the public poll based study prepared by Prague Security Studies Institute (PSSI) in spring 2009, vast majority of respondents (apparently also under influence of January gas crisis) disagrees with increasing gas share in total energy consumption of Czech Republic and sees nuclear, renewable and fossile energy as more realiable energy sources.

  • Security of resources for electricity production

As far as electricity production is concerned, Czech Republic remains one of the net European exporters of electricity. However, the latest version of the strategic document called „Energy concept of Czech Republic“ bound to be discussed by the new cabinet (i.e. after early elections in October 2009) says that country is expected to hit the production limits within next decades due to the economic development and new resources are therefore essential. Document which was created under last Topolánek's government counts on increasing energy security by focusing on domestic energy sources such as coal but mostly on building up new nuclear facilities. Czech energy company ČEZ already asked for environment impact assessment (EIA) for addittional blocks of Temelín powerplant last July and this summer ČEZ launched a public tender for the builder of additional capacity.

The document gathered strong criticism from Greens and environmental groups who are betting on greater energy savings and promotion of renewables. Still, it seems unlikely that the conception will get any significant changes as Greens (as shown by public polls) may not get the second term in the next Parliament and remaining parties are leaning towards greater use of nuclear energy and tend to put lower priority to renewables and energy savings.

  • Security of electricity supplies

Sufficient sources as well as reliable grids that would be able to handle more frequent imbalances in European networks stemming from greater integration of EU electricity market and EU-wide support for renewables (especially wind) also made a significant part of recent Czech Presidency agenda. Czech national transmission operator, state owned ČEPS, is one of the Central European leading forces into better network integration in the region as well as into better management of the grids. With other Central European TSOs it stands behind ENTSO-E, association of TSOs, which was due to their joint effort established ahead of adoption of the third energy package. All these provisions should serve the purpose of stability of electricity supplies and eliminating potential blackouts.

HUNGARY

  • Double-pipeline politics and key players

Because of its geographical position, the flagship of the EU’s energy policy, the Nabucco pipeline is crucial for Hungary and for it’s neighbourhood. Bulgaria, Estonia, Finland, Latvia, Lithuania and the Slovak Republic are 100 percent dependent on Russian gas, and this rate is 80 percent for Hungary. This unbalanced gas-supply caused huge problems to these countries during the January gas crisis, within Slovakia and Bulgaria were facing the gravest situation. Hungarian officials continuously stated that the country has enough reserves until the end of the winter, but some restrictions in industrial production still had to be introduced.

Another reason for the Nabucco’s importance is the position of MOL Group, the Hungarian oil and gas company in the region. In the last few years, beginning with 2002, the MOL Group realized huge international expansion. This included the integration of Slovnaft, the Slovakian oil company, the Austrian retail and wholesale company Roth, but also the 25 percent acquisition of INA, the Croatian oil company. As one of the largest transmitter in the region, and member of the Nabucco consortium, the Hungarian company has extraordinary interest in route diversification and building better energy security in Europe.

As such, the Hungarian government obviously supports MOL’s activities. This became the most visible as OMV, the Austrian oil company tried to buy up MOL shares in 2007. Budapest very soon accepted the regulation only called as “lex MOL”, defending “strategic companies” against inimical buying. The law was studied by the European Commission, but the OMV finally draw back it’s offer, as the Commission already signalized that the fusion of the two companies could be problematic in light of the EU competition rules.

While Hungary seems to have already placed it’s cards on the table supporting the EU’s efforts building the Nabucco pipeline, time to time it becomes visible that the country intends not to let Russia’s hands go if talking about Energy. In march, just few months before signing the intergovernmental agreement in Ankara, prime minister Ferenc Gyurcsány and Vladimir Putin agreed to establishing a company responsible for building the Hungarian part of the South Stream pipeline.

Hungary’s double-pipeline politics also could root in MOL’s next plan, the NETS project. Russia already signed several intergovernmental agreements about the South Stream in the Western Balkan region, the key expansion area for the Hungarian company. The NETS project aims to unite Central and South East Europe’s gas pipeline networks “within a new and independent gas transmission company”, György Mosonyi, executive director of MOL said in his speech at the Second Regional Energy Forum. However such a project is only viable if Hungary does not harm strategic interests of Russia in the region.

  • Unsustainable energy mix

But energy security does not only consist of supply routes. Other sources have to be studied.

Regarding other energy sources, very little of Hungary’s energy -officially around 5 percent- is coming from renewable sources (mainly wood) and around 13 percent is generated in the nuclear power plant of Paks. In a 2007 interview, Attilla Aszódi, president of the energetic committee of the Hungarian Academy of Sciences underlined the importance of this latter energy source and said that Hungary would need new nuclear capacities and a more diversified energy mix.

The environmental policy research and consulting institute, Green Capital Zrt. supported this idea in it’s 2009 #. It emphasized that the Hungarian electricity production is not sustainable in the current form, nor is the consumption. It appointed, that also from an environmental viewpoint, nuclear energy is competitive with renewable energy sources, however it advices to combine both.

POLAND

The main goal of Polish policy in this question is security in terms of energy supply and transit. Other issues, like climate change and the influence of energy sector on the environment, are becoming more and more important as well.

The main problem remains a small energy mix and a great dependence on Russia (more than 90 percent of gas comes from Eastern neighbor). Despite of several attempts to diversify the supply there is still the same one direction where Poland imports gas from.

Another important topic is the need to increase the energy efficiency.
Poland's fast economic growth requires much more energy than before.
Controversial are from the Polish perspective the EC-limits to cut carbon emission. There are estimations that Poland may lack ca. 25 Mio Tons this year. The European Commission agreed to 208,5 Tons of carbon emissions for the period 2008-2012, and Poland expected 80 Mio more.

Almost twenty years after Poland has discussed nuclear power for the first time, this subject comes back now. Polish government speaks now about building 3 nuclear plants, in order to secure energy supply and diversity in the future any more, although there is a quite strong objection in the society against these plans.

Renewable energy occurs in the public debate mostly in the context of meeting the EC-limits. By 2010 the percentage of renewable energy should be 7,5 but so far there are no big efforts made to achieve the goal. There is no crucial governmental support in this matter.

The market of bio-fuels develops slowly as well. One reason is the fiscal one, the other -the driver's skepticism . The nutrition industry has had some fears that an increased production of bio-fuels may increase food prices but it has not been the case.

As the Polish energy sector is grounded on carbon the EU-stimulated development of carbon capture and storage is seen as a chance to implement  new clean carbon technologies. A votary of these solutions is Jerzy Buzek, the former Polish PM, now deputy to the European Parliament. The fact that a lot of rocks in Poland are porous may store carbon emissions.

The estimated underground storage capacity could be enough for more than 100 years. Another possibility of a clean carbon storage that is discussed from time to time in Poland is "packing" it into gas ledge, a technology used since 1995.

Poland may ban utilities from selling European Union carbon emissions permits which many of them will get for free from 2013 as a way of curbing windfall profits, a government source said in the end of August. In 2013 Poland will get as much as 70% of its permits for free based on historical emissions.

SLOVAKIA

  • Gas sector

Almost 98% of the total consumption of natural gas in Slovakia is imported into the country and the number one net importer is the Russian federation. Russia's share in the import volume is close to 100%, which ranks Slovakia together with countries as  Finland, Bulgaria or Austria which are also almost 100% dependent on Russian gas. The Slovak gas company Slovenský plynárenský priemysel, a.s. has signed a long term agreement with the Russian company Gazprom Export in 2008 which should provide Slovakia with gas until 2018, whereas the agreed annual volume of gas is 1 billion cubic meters, which is the highest amount within the whole EU-27.

In order to create a diversification of gas supplies Slovakia aims at signing various contracts with European gas companies. For example in 2009 Slovak SPP has signed  important agreements with the German company E.ON Ruhrgas, the French company GDF SUEZ as well as with the company Verbundnetz Gas. Yet another important source of diversification is the connection between Slovakia and Hungary. If the gas pipeline will be finished in 2013 as it is scheduled, the pipeline could pump up to 5 billions m3 of gas each year. Furthermore the Slovak government supports the international initiatives for creating diversifications of energy supplies such as the Nabucco project, which would be an alternative to the Russian gas.

The gas crisis from January 2009 when Russia stopped the import of gas into Slovakia and the whole EU market, the gas storage tanks played yet another crucial role for Slovakia. The storage tanks in Slovakia are able to hold approximately 2,77 billion m3 of gas which is nearly half of the total annual consumption in Slovakia. Effective and planned management of the storage tanks will be important in the case if a similar scenario repeats.

  • Oil sector

The oil sector in Slovakia follows a similar story as the gas sector. Slovakia is a net importer of crude oil and the imports reach nearly 100% of the domestic consumption. The primary source is Russia, which pump gas to Slovakia through the oil pipeline Družba.

Not surprisingly Slovakia as well as the other V4 countries is supportive of finding alternative routes for oil supplies for its market. In case of a shortage of supplies from Družba, currently the pipeline Adria which starts at the Croatian shore is able to supply Slovakia with 3,5 mil. of oil annually. However this volume is not sufficient and therefore Slovakia seeks to secure other routes.

A strategic alternative is the reverse flow of oil from the Czech IKL pipeline into Družba on Slovak territory. Czech republic has stared with its diversification of energy sources way before Slovakia and therefore today the country is also able to import oil from Germany and Italy. In order for the reverse flow to be fully operational, various technical adjustments need to be done on the pipeline and also agreements on supplies need to be singed.

Currently the most controversial project of energy diversification is the proposed oil pipeline that should connect Bratislava with Austrian Schwechat. Although some representatives from the government and the Slovak oil transit company Transpetrol are in favour of building the pipeline, a vast majority of the non-governmental sector, the opposition, representatives of Bratislava, the region and citizens are against it. The main reason for the opposition is the fact that the Austrian company OMV wants to build the pipeline through the Žitný isle, which holds the biggest reserves of drinking water in Slovakia and it is protected by the highest level of natural protection.

Furthermore those against the pipeline argue that the pipeline will not be able to provide Slovakia with any additional oil from Austria, which is the argument of its supporters and will only serve for the good of those who will receive the fees for transition of the oil through the Slovak territory. Although the current Prime minister Robert Fico declares that the pipeline will not go through the isle, the Austrian side is continuing in the preparations and counts with the route through Žitný isle.

  • The energy mix

Apart from relying on conventional fossil fuels like oil, gas or coal Slovakia also promotes the use of renewable sources of energy in line with the European Union's renewable energy goals. In 2007 the Slovak government has approved the document entitled "Strategy of higher use of renewable sources of energy in SR" and as the document states, one of the main priorities of the energy policy in Slovakia is to increase the share of renewable energy in production of electricity and heat in order to cover the domestic demand.

Until the year 2020 the renewable sources should provide the Slovak energy market with 12% of the total energy consumption. Currently the total share of renewable accounts for approximately 6% and in the production of electricity the share is around 17%, whereas hydropower accounts for more than 50%. The biggest potential is ascribed to biomass, followed by solar, wind and geothermal energy.

The share of renewables is also strictly controlled by the Slovak electricity transmission system (SEPS) in order to prevent the electricity networks from blackouts and unstable supplies of electricity. The most stable source for electricity production in Slovakia still remains in the hands of the two nuclear power plants in Mochovce and Jaslovské Bohunice.