Why new infrastructure is the solution for CEE gas market growth

Danila Bochkarev's picture
Danila Bochkarev, Senior Fellow, EastWest Institute
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Central and Eastern Europe is described as the region of possibilities, with many projects now gaining both commercial support and political momentum. Europe’s eyes are opening to the opportunities of strategic alliances to connect European gas supply sources from the Baltic, Adriatic, and Black Seas to the rest of Europe.

To hear more about how the governments can evolve the region's industry ahead of the CEE Gas Conference in March, Gastech Insights spoke to Danila Bochkarev, Senior Fellow at EastWest Institute and Executive Advisory Board Member of the CEE Gas Conference.

Gastech Insights: Poland wants to sign a long-term deal for LNG supplies from the US. What impact will this have on the CEE gas market? 

Danila Bochkarev: In the current pricing environment, the impact of U.S. LNG supplies will be limited. The U.S. LNG supplies are still going to more price-rewarding markets in Asia and the Latin Market, while the EU market has access to a cheaper pipeline gas. Nevertheless, political statements in the CEE countries so far indicate a significant interest in CEE for U.S. LNG, but it remains to be seen if the utilities will show the same level of enthusiasm. In fact, if prices will be competitive – consumers in the CEE region will be interested in accessing new supplies, if LNG price is too high, Poland and Lithuania might be the only countries eager to pay a “security premium” for their natural gas supplies.

Gastech Insights: To stimulate gas market growth and demand, how can EU funds be used effectively within the CEE region?

Danila Bochkarev: The most efficient way to spend EU funds is an investment in new infrastructure, allowing un-restricted connections/bi-directional flows between the different Member States. In fact, interconnectors had already helped to align gas prices in Western and Central Europe. For example, the wholesale price in the Czech Republic is currently similar to the Dutch TTF, however, 4 years ago this was not the case – the prices in the Czech Republic were 1/3 higher than TTF.

However, it is essential to avoid unnecessary competition – promotion of infrastructure projects is often fueling national egos in this region. Furthermore, over-investment is often spurred by the politicized security of supply fears which from a purely rational point of view seems to be irrelevant in the context of an already functioning single gas market. The decision on the future PCIs should, therefore, be taken on the basis of a positive outcome for the consumers and not on political considerations or various regional egos.

Gastech Insights: How should CEE governments proceed with developing LNG?

Danila Bochkarev: An LNG project should be ideally assessed against a cost-benefit matrix. We should determine whether LNG will be feasible without subsidies, whether it might facilitate market development and provide a realistic alternative to already existing supplies. Often already existing reverse flow capacity (over 150 bcm) offers supplies at competitive TTF-linked prices. LNG should not be seen as a ‘silver bullet’ per se but should be a part of a broader market-based infrastructure solution.

Gastech Insights: What can attendees of the CEE Gas Conference expect to take away in March 2018? 

Danila Bochkarev: The CEE Gas Conference is a great opportunity to get updated on the recent developments in the regional gas markets. While the "rules of the game" in 'mature markets' in the western part of the Union are already set, the regulatory framework in the CEE region is still far from being static. As well as this, a significant amount of new infrastructure projects will take place in this part of Europe, making the event an interesting venue to discuss both regulatory and commercial issues.

Share your insights and join the conversation: What will be the key developments in the region in 2018? Leave your comment below.

The CEE Gas Conference Executive Advisory Board help deliver an exceptional two-day conference programme on key issues within the region. To learn more and register now, click here.