Erste Sees Ukraine Woes Likely Dooming Plans for Adriatic Gas Corridor

The political tensions in Ukraine will most likely disrupt its joint plans with Croatia and Hungary to link up their pipelines to create a gas corridor that will connect to the planned Trans Adriatic Pipeline (TAP), an oil and gas sector analyst at Erste Investment said.

"I am not aware of any concrete fallout for the project at this stage, but Ukraine’s fate is rather shaky at the moment so I doubt the joint initiative would go ahead as originally planned,” Tamas Pletser told SeeNews in an emailed interview.

In October, Croatian deputy economy minister Alen Leveric told SeeNews in an interview that the startup of gas flowing along the Adriatic Gas Corridor was seen by 2022.

Leveric added at the time the prime ministers of Croatia, Hungary and Ukraine should sign by the end of 2013 a joint declaration as a precondition for the Adriatic Gas Corridor to become a Project of Common Interest and receive EU funding. That document is yet to be signed.

TAP will transport natural gas from the giant Shah Deniz II field in Azerbaijan, connecting with the Trans Anatolian Pipeline near the Turkish-Greek border at Kipoi, cross Greece and Albania and the Adriatic Sea, before coming ashore in southern Italy.

Pletser believes that the current political turmoil will push back by at least several years the deadline for the completion of this project provided Ukraine survives intact as a country.

Even if Ukraine drops out, the gas corridor concept will still make sense, in his view, since connecting Hungary with the liquefied natural gas (LNG) terminal planned by Croatia on the Adriatic island of Krk would improve the security of supply for both countries.

Under the downsized format, the transport capacity should be significantly lower, Pletser said, adding that instead of 10-20 billion cubic meters (cu m) per year, 3.0-6.0 billion cu m would suffice. This would also significantly lower implementation costs. Both markets – Croatia and Hungary – have experienced a very sharp fall in gas consumption, probably the largest in Europe, the official added.

SEE GAS PRICES SEEN DROPPING BY 5.0-10%

Pletser expects gas prices in Southeast Europe (SEE) to fall by some 5.0-10% as Russia's Gazprom is under pressure to offer rebates to protect its market volumes.

Bulgaria, Moldova and FYROM are probably in the worst position in the SEE region – they have the least options for supply diversification, so they are likely the pay the highest price for Russian gas in the future, the expert said.

At the same time, Turkey has ample supply options – it has two LNG terminals as well as Blue Stream, the trans-Black Sea gas pipeline that carries natural gas from Russia into Turkey and has some surplus capacity at the moment. The country also receives natural gas through Bulgaria and Iran.

UKRAINE TENSIONS MAY SHARPEN FOCUS ON LNG TERMINALS

Asked if the current tensions between Ukraine and Russia may act as a catalyst for gas supply diversification projects in the region, Pletser said this was possible as the international community no longer sees Russia as a 100% reliable partner, but rather as one that wants to use energy as leverage to influence some countries’ domestic politics.

"The most likely impact will be on the liquefied natural gas [LNG] market – more receiving terminals are likely to be built in Europe allowing more LNG to be shipped here.”

He sees the same thing happening with cross-border gas link projects in the Central and Eastern Europe (CEE) region.

"CEE will operate as a single, integrated gas market 5-10 years from now, similar to Western Europe.”

Source: SeeNews