Agata Łoskot-Strachota: Everyone Wants Integration

Energy diversification in Ukraine is an opportunity for the V4 countries. Slovakia and the Czech Republic have already benefited from it. The direction of the gas transmission has changed, it now flows not only from east to west, but also from west to east—says Agata Łoskot-Strachota interviewed by Zbigniew Rokita.

ZBIGNIEW ROKITA: Has the energy security of our region increased since 2004 and since joining the European Union by the Visegrad countries?

AGATA ŁOSKOT-STRACHOTA: Yes. First, integration of transmission networks with the European Union and between the countries of the region is progressing. Second, the directions of the transmission have changed: as a result of the Russian-Ukrainian conflict the gas flows not only from east to west, but also from west to east—via other V4 countries. And third, new sources of supplies have appeared: one example is the LNG terminal in Świnoujście opened in 2015 or the integration of Czech pipelines with German ones, allowing the Czech Republic to import Norwegian gas.

At the same time, the problem is that the transit role of some Visegrad countries is declining. The construction of Nord Stream 2 will decrease the role primarily of Slovakia, and probably also of Poland as a transit country. Until now, this role served as a counterweight to the large – although on the region-wide scale gradually diminishing – dependence on gas supplies from Russia (and not only gas, but also oil or nuclear fuel). The region is not a monolith, however, because at the same time, thanks to the Nord Stream 1 pipeline, the transit role of the Czech Republic is growing, for more gas has started flowing through this country to the Austrian hub in Baumgarten.

Our thinking about risks is shaped by the memory of numerous breaks or limitations in supplies to the countries of the region in the last few years and further back.

Does this mean that the interests of the Visegrad states are beginning to diverge?

Yes, especially Nord Stream and its implications do undermine the cohesion of the region. The only planned onshore leg of the Nord Stream 2 pipeline, Eugal, is to run from Germany through the Czech Republic to other European Union countries, including Central Europe, which will boost the transit role of the Czech Republic even more.

Poland and Slovakia are guided by the belief that due to their still important
transit role should political tensions arise, supplies of Russian gas through their territories will not be suspended, for it would strike at Moscow’s key partner, that is Berlin. Once, however, we find ourselves at the so-called end of the pipe, the risk of supply problems will increase. And our thinking about risks is shaped by the memory of numerous breaks or limitations in supplies to the countries of the region in the last few years and further back. Negotiations are under way regarding the future of transit through Ukraine. We now know that it is possible to send the entire Russian gas contracted by the Czech Republic and Slovakia through the Nord Stream 1, that is completely bypassing Ukraine.

Energy acquired from low-emission nuclear plants plays a huge role in the energy mix of Hungary, the Czech Republic and Slovakia. Rosatom plays a significant role in this sector in these three V4 countries; it received the contract for extending the Hungarian power plant in Paks. The Czechs and Slovaks also have to think about modernizing their nuclear power plants. Given that, will gas become more or less important for the region in the immediate future?

It is not all that clear, although recently an increase in the use of gas in the region can be observed. Its role may decline though in future, for example, because of problems with security of supplies. Hungary, the Czech Republic and Slovakia already have nuclear power plants and in Poland there has been advanced discussion about it. If sources of supplies are diversified, however, and gas reaches the region from many directions—which is particularly important for Poland—its role will probably grow.

The construction of Nord Stream 2 will decrease the role primarily of Slovakia, and probably also of Poland as a transit country. Until now, this role served as a counterweight to the large dependence on gas supplies from Russia.

At which points do the views of the Visegrad countries on energy issues coincide?

The desires are similar, but the emphasis is placed on various things.

In the case of the Czech Republic, integration with the German market is more natural than, let us say, in the case of Poland. Hence the difference between the Polish and Czech perspective.

We all definitely want to integrate and reduce our dependence on Russia. Poland—similarly to Lithuania, to give just one example—places a special emphasis on diversification of supplies of energy sources. One manifestation of this aspiration was building the LNG terminal in Świnoujście. There is also a widespread belief in Poland that you should be as independent as possible and capable of satisfying domestic demand for energy from your own resources to a significant degree.

Other countries—this is explained by various factors, from their geographic position to the size of the marketplace a greater importance on integration of the gas market or on costs. The Czechs think primarily about having an adequate number of connections with neighboring countries, mainly with Germany, and about bringing in gas from various sources through the German infrastructure.

This means that they are also interested in diversification of supplies, but understood and implemented in a slightly different way. They see integration as a crucial guarantee of their energy security. Prague assumes that the Western European gas market will be stable, increasingly more flexible, more liberalized and integrated, there will be no price manipulation, and that sound regulations will be introduced and enforced. The security of supply of the German market is expected to also provide security for them.

This is a situation involving major dependence on Germany. Is there really no risk of price manipulation?

Some argue that it is impossible under the EU conditions, while others say that this is already happening. Time will tell. The size of the Czech market and its location play a role here—in the case of the Czech Republic, integration with the German market is more natural than, let us say, in the case of Poland. Hence the difference between the Polish and Czech perspective: Warsaw would prefer having a large hub in Central Europe—optimally in Poland, so that the Central European market would be a place for trading and shaping prices rather than an echo of what is happening on the markets of Northern and Western Europe. By the way, Ukraine has the same ambitions—and should they become true, a quite large gas market would emerge in the region.

I understand that from the Czech perspective the second branch of the Nord Stream is beneficial? In November 2017, during a visit to Russia, President Miloš Zeman expressed his support for NS2. The position of the Czech government is ambiguous.

The Czech perspective is not uniform. On the political level, part of the Czech establishment has expressed critical opinions on the project, being opposed to the Russian aggression against Ukraine and skeptical towards the greater presence of Russia in Central and Western Europe. From the economic point of view, however, as we have already said, Nord Stream 2 is beneficial for the Czech Republic. This is why the country is straddling the fence.

Let us look at the Nord Stream 2 in a wider context and attempt to assess how its construction might influence the energy security of the Visegrad region.

It depends on how long it takes. If the pipeline is completed quickly, a number of processes appear. First, it will limit the possibilities of importing gas to the region from alternative sources, as Russia will be able to sell its own relatively cheaply. Second, and we are already observing this, the existing and currently constructed connectors in Central Europe will be reserved either for Gazprom or companies working with it which want to import Russian gas. And as the available capacity of the pipelines will be thus curtailed, it will be physically impossible to import gas from elsewhere, even if we do find an alternative source.

Currently, the presidency of the European Union Council is held by a state which is one of the greatest supporters of the project. Austria is in fact trying to slow down the work on a gas directive.

Gazprom reserved for many years in advance the entire capacity of the not yet existent Eugal pipeline, that is the southern onshore leg of NS2. Third, the price differences between Northern and Western Europe, on the one hand, and Central and Southern Europe, on the other, may increase—gas in this region will be more expensive. Needless to say, another consequence of the success of the NS2 project will be the increased importance of Gazprom in the EU, including Central Europe.

The project is vehemently opposed by the United States. In May 2018, for example, the Assistant Secretary of the Bureau of Energy Resources in the US State Department Sandra Oudkirk announced that the United States “will use all possible means of persuasion for the project not to be implemented” and repeated her threat of extending sanctions to European companies involved in North Stream 2. In your comment for the Centre for Eastern Studies you wrote that such a step would probably result in suspending the project. Could Washington really block it?

We do not know if the United States will actually make such a decision. American policy is also quite unpredictable in this respect. Donald Trump is opposed to the project as is the American Congress. It is true that the American side is increasingly threatening to introduce sanctions. At the same time, Washington emphasizes that it is the European Union itself that should block Nord Stream 2. This is not, however, to be expected in the nearest future. Currently, the presidency of the European Union Council is held by a state which is one of the greatest supporters of the project. Austria is in fact trying to slow down the work on a gas directive meant to be an EU instrument capable of blocking the second branch of the pipeline.

As of 2016, Ukraine no longer imports gas from Russia, although previously it was highly dependent on it. It currently satisfies domestic demand with its own resources and imports from the West. To what extent is this energy emancipation a chance for the V4 countries?

Slovakia and the Czech Republic have already benefited from it. The direction of gas flows has changed, as we have already said, for now gas flows not only from Ukraine through Slovakia and the Czech Republic, but also in the opposite direction—from the EU through the Czech Republic and Slovakia to Ukraine. Ukraine thus receives gas from the West, which could be Norwegian, but also Russian. Contracts with network operators in Hungary and Poland have also been signed and an expansion of the Polish-Ukrainian connection is planned.

For Poland, the Ukrainian diversification of supply sources may also be beneficial in the context of the planned expansion of the LNG terminal in Świnoujście and building of the Baltic Pipe from Denmark. On the other hand, it is difficult to say what the domestic consumption of gas and its extraction in Ukraine will look like. We know that this country has significant possibilities for increasing gas production. The long-term perspectives of supplying gas to Ukraine through Poland are also unclear.

For Poland, the Ukrainian diversification of supply sources may also be beneficial in the context of the planned extension of the NLG terminal in Świnoujście and the building of the Baltic Pipe from Denmark.

Hungarians are considering buying Russian gas, meant to flow to the European Union through Turkey, using the planned Turkish Stream pipeline—a project replacing the South Stream abandoned in 2014.

The Turkish Stream is being constructed even faster than Nord Stream 2. There are no such problems in Turkey with environmental permits, protests of third countries or transatlantic relations as is the case in the EU.

So the gas will flow to Visegrad countries from the South?

Yes, it is possible that it will flow through the onshore legs of the Turkish Stream. Hungary is pursuing a two-pronged policy. They want to secure non-Ukrainian routes of Russian gas supplies, but are also seeking alternative sources of supplies. You can see that the priority of Budapest’s energy policy is now connecting with Romania and securing supplies of gas from the Romanian Black Sea shelf, where works on increasing production are increasingly advanced. They also want to integrate with Central Europe, which means import of some gas from Poland—the LNG terminal or the Baltic Pipe—is being taken into account. One should remember, however, that Świnoujście is not the only LNG terminal in the region—there is also gas terminal in Klaipėda and yet another one planned in Croatia, so Hungary could be able to buy gas there as well.

To what extent should we be concerned that the extension of the energy infrastructure, with the participation of Russia, may translate into an increase in military threats—that Russians may, for example, install spying devices?

Such threats are perceived by the Baltic and Scandinavian states and by America. In addition to possibility of placing  new listening and  and monitoring technologies, we also have an increased number of various kinds of Russian ships in the Baltic. In addition, bypassing Ukraine as a transit country exacerbates the risk of escalation of the Ukrainian-Russian conflict. The role of Kyiv for the EU will decline and the risks for Moscow will be lower, for in case of a larger-scale war it will not lose revenues from exporting gas to the West.


AGATA ŁOSKOT-STRACHOTA

is an analyst of the Marek Karp Centre for Eastern Studies. She is a senior fellow at the Centre for Eastern Studies (OSW) focusing on energy policy. Her areas of expertise include the oil and gas sectors of Russia and countries of the Caspian region, Central, Eastern and Southern Europe and the Balkans; the energy dimension of international relations and energy policy in the EU and the post-Soviet area.

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