MUNI FSS Energy sectors and economic development in post-communist European countries Martin Jirusek, PhD 1 Regions and defining features 2 The Baltics ■ Russian proximity as an ever-present feature ■ Exceptionally close structural ties to the former USSR ■ Experience of supply leveraging ■ Geopolitical reasoning dominating the discourse Natural gas and power generation as the most significant features of past ties, and also sources of concern Strong self-consciousness even during the CW, higher living standards comp. to the rest of the USSR, exceptionalism (within the USSR) Central Europe (Visegrád) ■ Crucial transit countries ■ Self-perception of exceptionalism ■ Self-distancing from the eastern Europe ■ Head start in economic transition Diverging attitudes towards Russia in later years Borderline of the former spheres of influence 4 Southeast Europe ■ Delayed economic transition ■ Higher dependence on Russian supplies ■ Unstable political environment Subjected to political bargaining (also in connection to infrastructural projects) ■ Sparse or incompatible infrastructure ■ Declining role in transit 5 Western Balkans ■ Plagued with internal struggles ■ Delayed transition Constraints to public administration and governance ■ Diverging trajectories (North vs. South) ■ On the periphery (transit- and supply-wise) ■ Missing incentives 6 Infrastructural projects and trends ■ Various platforms for infrastructural development - PCI, PECI/PMI ■ Number of various projects (pipelines, intetrconnectors) with varying viablity Often dubious financial/market reasoning - unsufficent potential demand to justify the project in several cases (e.g. projects in the western Balkans) ■ Non-EU members on the path to implement IEM rules - Energy Community ■ Penetrating the formerly monopolized area with market principles 7 Membership EC's Projects of Common Interest EC's way of supporting infrastructural projects, upadted every 2 years Financial assistance, visibility, reliability for potential investors Dubious (economic) logic - projects come and go Current list (2019) - many projects drop out or were stripped of some financial support Dropped out: Eastring, follow-up infrastructure to the Krk LNG terminal, BACI (CZ-AUT) Decreased support: BRUA Nord Stream 2 ■ Victory of commercial rationale over geopolitical reasoning? ■ 55 bcm/y (110 combined with NS I) ■ Change to traditional directions of gas flows From E-W to N-S(E) ■ Important factor in replacing the UA transit ■ Contested by (some) CEE countries Main (remaining) opponets - PL & UA ■ In potential breach of IEM rules update to the Gas Directive - application of the liberalization package to pipelines coming to and from 3rd countries 11 Nord Stream as a game-changer Compromise proposal - maintaining certain level of UA transit (12/2019) ■ UA transit as the sticking point Agreed amount as a guarantee of political stability? ■ 12/2019 - agreement on five-year transit - 65 bcm/y in 2020 (25% < 2018) 40 bcm/y in 2021-2024 Favourable setting for Gazprom UA transit secured on a low, yet stable level Change of supply patterns to Europe confirmed ■ Sticking point in US-EU(German) relations 12 New challenges to the region ■ Issue of Russian supplies/pipelines spills over to foreign policy ■ Cleavages in Europe but also within CE/V4 ■ 2016 - letter to the EC president (CZ, EST, HU, LAT, LIT, PL, SVK, ROM) objecting NS2 ■ 2017 capacity auctions - 50bcm/y to go through CZ, SVK southwards Network expansion to accommodate increased volumes 2020 - CZ, SVK content with the outcome, HU uninterested (TurkStream?), PL against Missing unity in goals and measures in V4 After transformation and integration, goals diverged 6 Update to the Gas Directive 3rd Energy Package rules applied to pipelines to/from 3rd countries Germany's push to clear the way for NS2 2/2019 GER-FRA compromise Application of the rules as a duty of the state of landfall 11/2019 Germany adjusted the legislation so that NS2 will comply 12/2019 - US sanctions, NS2 construction stopped Allseas pipe-laying company pulled out "Race to the shore" (3/2021) EU's climate goals Decarbonisation - EU's goal of carbon neutrality by 2050 CE - Energy-intensive economies with a cautious approach - CZ, HU, PL, EST - initially refused to join the initiative (6/2019) CZ - conditionally agreed PL - given time to adjust EC "mentioned" that nuclear energy can be a part of the solution Meaning? Got CZ&HU aboard 15 EU's climate goals ■ A spur to the CEE countries or a punching bag? ■ Use of the Just Transition Fund financing ■ Big players vs. decentralized power generation ■ Lack of dedicated (non-transactional) policies ■ Impact of Green Taxonomy? ■ Post-pandemic recovery as a part of energy transition Departure from hydrocarbons - Support for natural gas as a transitional technology? Reduced (if any) ■ Mid-term only (2025) ■ Impact on Russia's position? Supply patterns 17 Supply directions - Northern route ■ Utilization of UA transit declines ■ Gazprom prefers to supply CE & WE via non-UA lines (NS, Yamal) ■ UA transit utilization - around 50% in 2017-18 ■ 2018-2019 supply to CE & WE = current non-UA transit +NS II, TS i.e. UA transit can be decreased and will be needed in case of demand increase/balancing UA transit as (underutilized) backup (?) ■ Transit deal signed for 2020-2024 period looming US sanctions? ■ Sustainability of UA network? need for stable flow and transit fees to maintain the infrastructure 19 Supply directions - Southern route - South Stream - Sign of growing Gazprom's appetite in late 2000s - (Geo)politicized - Clash with EU principles - To circumvent UA - To challenge competitors in the South -Nabucco, TAP - Cancelled 2014 20 MUNI FSS TurkStream ■ Replaced South Stream ■ To Turkey instead of Bulgaria ■ Turkey as an important market for Gazprom - growing consumption ■ 1 st string (15,75 bcm) - to Turkey ■ 2nd string (15,75 bcm) - Bulgaria, Serbia, Hungary Gazprom strived to get as close as possible without struggling with the IEM rules ■ Offshore section finished (11 /2018) 21 TurkStream PROPOSED TURKISH AND SOUTH STREAM PIPELINES 22 cr.ri Trans-Adriatic Pipeline (TAP) ■ Aimed to connect to the TANAP and supply Europe with non-Russian gas ■ Part of the Southern Gas Corridor ■ In competition with the Nabucco Pipeline - winner ■ In operation ■ Small scope (10 bcma) ■ Limited supply ■ Unclear prospects of expansion and thus competition to Gazprom 23 Trans-Adriatic Pipeline (TAP) Eastring ■ Pushed by Slovakia ■ To retain the transit status - in the aftermath of the South Stream cancellation ■ To curcumvent UA ■ Later, a posibility to bring gas in West-East direction introduced ■ Dropped out of the EC's PCI list (see below) 25 Eastring