New EU countries plan pipeline expansions

April 5, 2010
A growing amount of transmission pipeline construction has taken place over the past 5 years in countries that have become members of the European Union in two integration waves since 2000.

A growing amount of transmission pipeline construction has taken place over the past 5 years in countries that have become members of the European Union in two integration waves since 2000.

Most of these countries are in Central and Eastern Europe: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, plus Cyprus and Malta in the Mediterranean. Existing investment plans suggest a continuation of strong pipeline construction activity in the future and development of new national natural gas markets in these countries.

Construction drivers

Several factors drive pipeline construction activity in new EU member countries.

Natural gas consumption patterns have changed during the past 2 decades in most of these countries, moving away from the heavy industrial users the former Communist regimes in Eastern Europe focused on and towards user categories such as households or power generation (and cogeneration) plants. This change requires new gas-fired power plants connected by pipelines to networks and new pipelines to population centers for household consumption.

Natural gas consumption itself has also increased sharply in some countries (the Czech Republic, Hungary, Poland, Slovenia), likewise prompting increased capacity on existing lines and construction of new ones (Fig. 1). Most pipeline projects inthese countries therefore consist of expansions or reinforcements of the national networks.

All the new EU members also depend on oil and gas imports (Fig. 2). The Russian Federation is the largest source of these imports, but transit incidents have plagued Russian supplies during the last couple of years, with negative social and economic effects in the importing countries.

Most, therefore, are now pushing to diversify supply sources in an effort to reach a more stable energy supply. This approach has led to numerous new pipeline, LNG terminal, and gas storage projects in the region, some involving more than one country and high project costs.

The European Union is increasingly encouraging its members to move towards creating an EU-wide internal energy market (especially for electricity and natural gas), based on three successive legislative packages, the most recent approved in 2009. In this context the EU is requiring liberalization of national gas markets and unbundling of production, supply, transmission, and distribution activities in natural gas.

The EU is also requiring strengthening of existing pipeline interconnections among member countries and creation of new pipeline connections to help those countries deal with potential gas supply crises. The EU supports diversification of natural gas supply sources and is therefore backing several major pipeline projects. Some of its policy programs, such as Trans-European Networks-Energy (TEN-E), or the Economic Recovery Package, created to help EU countries recover from the recent recession, are coordinating the EU's involvement in new pipeline construction in Central and Eastern Europe, with financing made available from financial institutions such as European Investment Bank (EIB) or other EU funds.

The fact that a major part of the national pipeline infrastructure in the countries with the most extensive networks was built in the 1970s and 1980s also plays a role in increased pipeline construction activity in the region, the existing pipelines nearing the end of their design lives and therefore becoming increasingly expensive to maintain, rehabilitate, and repair.

The main stakeholders in this renewed interest for pipeline construction consist mostly of state-controlled companies: natural gas transmission system operators (TSOs), national gas companies, and other energy companies (power generation companies, oil, gas, and product supply and distribution companies).

Private companies are also active in promoting new pipeline construction, most of them energy companies formerly owned by the governments and privatized during the energy reforms of the last 2 decades.

Network expansions

Some of the discussed countries have been active in the pipeline sector over the past 5-7 years, with visible results in the revenues of the region's major pipeline contractors. Fig. 3 shows the increased revenues from local pipeline construction activity of the largest pipeline contractors in Romania (CONDMAG) and Hungary (KVV).

The Romanian government announced in 2009 it had earmarked €2 billion for upgrading the country's gas infrastructure over the next 5-10 years. Most of the projects focus on new transmission pipelines and increasing underground storage capacity (OGJ, Dec. 7, 2009, p. 56).

Transgaz, the Romanian TSO, has more than 550 km of new transmission pipelines planned for 2010-15 to reinforce its primary gas transmission network and more than 500 km of transmission pipelines introducing natural gas to new regions or connecting new gas-fired power plants and new underground storage facilities to the national transmission system (NTS).

Transgaz also plans to rehabilitate about 3,200 km of national transmission network pipeline to increase operating pressure in high-use regions.2

Hungary's gas transmission system operator, FGSZ, has several new pipeline projects currently approved or under construction. More than 250 km of new pipelines will reinforce mostly the north-south transmission of gas and create capacity for the future inter-country connections discussed in this article's next section.

FGSZ also plans to reinforce the central and western parts of its network to accommodate higher gas consumption and increased gas transit, with almost 400 km of new 40-in. OD pipelines planned.2

Poland is another country with large gas infrastructure projects either under construction, being designed, or in planning. Gaz-System, the transmission system operator, seeks to create the gas pipeline infrastructure needed to integrate the planned LNG terminal in Swinoujscie—on the Baltic Sea coast—into the national transmission network and link it to the large market in Gdansk.

Gaz-System also intends to reinforce parts of its pipeline network through new construction, mostly in the central and southwestern part of the country, with more than 1,300 km of new large-diameter pipeline planned through 2015 (Table 1).2

The main pipeline project for RWE Transgas Net, the gas transmission operator in the Czech Republic, is reinforcing its western transmission axis to accommodate increased supplies from Germany once Nord Stream becomes operational. The Gazelle pipeline project will use 170-235 km of 56-in OD pipeline (several route options exist), connecting the border metering station in Hora Sv. Kateriny to Rozvadov.2

Similar national network expansion investment plans exist in Bulgaria and Slovenia. Geoplin, the Slovene transmission system operator, has a two-phase network development plan that would add more than 200 km of new large-diameter pipeline to its network, while Bulgartransgaz—the Bulgarian TSO—is expanding its underground storage in Chiren and assessing new storage with a private partner that would use depleted gas fields.

Limited national gas network expansion projects are also planned in the three Baltic countries: Lithuania, Latvia, and Estonia.

Regional interconnections

The EU push for more pipeline interconnections to reduce the risk of supply shocks and diversify supply sources has also driven pipeline construction in the region, especially on the gas side, creating momentum for both interconnection pipelines and major regional pipeline projects such as Nabucco. In March 2010 EU awarded under its Economic Recovery Package more than €680 million in financial support to 19 gas infrastructure projects involving the new EU members, including regional pipeline projects, interconnectors, storage facilities, and equipment for reversing the flows of existing pipelines.3

There are currently some 15 gas interconnectors planned involving at least one of the discussed countries (Table 2). Some, like the Arad-Szeged Hungarian-Romanian interconnector, are already under construction, while others—such as Amber PolLit, connecting Poland to Lithuania—have been put on hold for the time being.

While some of the interconnectors are short (30-40 km, such as the Romanian-Bulgarian interconnector) others, like the 320-km offshore Baltic Pipeline (Poland-Denmark interconnector) are longer and face difficult construction environments.

The EU considers most of the interconnection projects as priority infrastructure projects and supports them financially. Gas infrastructure projects of some of the discussed countries were also included in the Baltic Energy Market Interconnection Plan (BEMIP), part of the EU Strategy for the Baltic Sea Region4 approved in June 2009. The EU will probably include other projects in the pending EU Strategy for the Danube Region, expected to be finalized by yearend 2010.5

Oil and product pipeline projects are less numerous and definitely less visible than the gas infrastructure projects in the region. Other than high-profile regional oil pipeline projects such as the Trans-Balkan (Burgas-Alexandroupolis), AMBO (Burgas-Vlore), and Sarmatia Pipeline (Odessa-Brody extension to Plock and Gdansk, Poland), there are not many projects occurring at the country level. Most of the region's countries have already developed their oil and product pipelines and the oil-consuming industries—refining, petrochemicals, oil-fueled power generation—are in long-term decline in the analyzed countries.

New markets

Among the newest EU members, Cyprus and Malta do not currently use natural gas. Cyprus, however, has initiated an LNG terminal project that could open a new gas market in Europe. The government has started work on the Vasilikos Energy Center project, an LNG regasification terminal and oil product import terminal that would both be operational by 2013-14.

The intended gas users consist mostly of industrial companies such as cement plants and power plants and connecting them to the LNG terminal will require at least 80-100 km of medium-large diameter transmission pipeline.

Offering gas for household use in the larger population centers on the island would require at least another 80-120 km of trunklines. A national natural gas company, DEFA, was created to buy, import, store, distribute, transmit, supply, and trade natural gas, operate the LNG regasification terminal, and develop and operate the gas transmission and distribution system.6

Finally, some EU candidate countries (such as Bosnia-Herzegovina, Croatia, and Serbia) also have extensive expansion plans for their national transmission pipeline networks and have already started work on some projects.

Serbia would like to participate in the South Stream project (the project also includes new gas storage capacity) and is also planning a new refinery in Smederevo and an extensive network of new oil and product pipelines.

Croatia has also been discussing potential participation with South Stream's promoters. Another project would potentially supply part of Bosnia-Herzegovina with gas from a South Stream branch to start in Serbia.

The European Union is encouraging energy transportation infrastructure projects in candidate countries, most of them in southeast Europe, through its Energy Community initiative, active since July 2006. The EU has used this framework to politically and financially support network expansion, interconnection, and gas storage projects.

Regional studies—such as the South East Europe Regional Gasification Study7—highlight future business opportunities in the gas infrastructure sector of southeast Europe.

References

1. European Commission, Directorate-General for Energy and Transport DG TREN, "EU Energy in Figures 2010," 2010.

2. European Network of Transmission System Operators for Gas—ENTSOG, "European Ten Year Network Development Plan—2010-2019; Attachment A: Capacity Development, Supply and Demand Scenarios By Country," Ref. 09ENTSOG-02, 2009.

3. Commission of the European Communities, "Economic Recovery: Second batch of 4-billion-euro package goes to 43 pipeline and electricity projects," IP/10/231, Mar. 4, 2010.

4. Commission of the European Communities, "Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, and Committee of the Regions concerning the European Union Strategy for the Baltic Sea Region," COM(2009)248 final, 2009.

5. European Commission, "EU Strategy for the Danube Region—Scoping Paper for the public consultation," REGIO/E1/EN/NV/OB D(2010), Brussels, Feb. 2, 2010.

6 Kassinis, S., "LNG Supply to Cyprus—Cyprus LNG Project," presentation during the official visit to the Arab Republic of Egypt, Apr. 6-9, 2009.

7. Economic Consulting Associates, Penspen, EIHP, UGS, "South East Europe: Gasification Study—Final Report," submitted to The World Bank, KfW, PPIAF and ESMAP, January 2009.

The author

Vlad Popovici is marketing and sales manager at a major Canadian energy services company with global business coverage. He currently manages multiple economic and strategic assessments of pipeline projects worldwide. Popovici holds an MBA (2005) from McGill University in Montreal.

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