BMI View: As a net importer of energy, Slovakia faces the challenge of securing long-term gas supplies without becoming too dependent on Russia. Linking its gas network to others in the region is therefore a priority, as it will allow for more flexibility when negotiating gas purchases. Reduced nuclear power usage points to a greater reliance on gas, until sufficient renewables capacity can be established. However, efforts to raise domestic gas prices are being resisted by the government, which may reduce the attractiveness of the Slovak gas sector to foreign investors.
The key trends and developments in Slovakia's oil and gas sector are:
- German utility E.ON and France's GDF Suez said in February 2013 they have agreed to sell their combined 49% stake in Slovak gas group SPP for EUR2.6bn to Czech investment fund Energeticky a Prumyslovy Holding (EPH). The SPP deal had been long expected and was pending the formal agreement of the Slovak government, whose 51% stake will also be sold to EPH. E.ON and GDF Suez had an equal share of their stake.
- Natural gas demand may rise at a more rapid rate if the power industry builds new gas-fired plants to offset nuclear reactor closures, although the residential gas market is close to saturation. Under our forecast Slovakia will consume 7.2bn cubic metres (bcm) of gas by 2017, virtually all of which will be imported. We believe this will rise to 8.5bcm by the end of our forecast period in 2022.
- Slovakia and Hungary have signed a memorandum of understanding (MoU) to launch an EU-supported gas interconnector pipeline between the two countries. Eustream has come to an understanding with its Hungarian counterpart Orszagos Villamostavvezetek, and will commit to the 71-mile pipeline. It is hoped work on the project will begin in 2013, with commissioning due in January 2015.
- The operators of Poland and Slovakia's gas networks have selected a contractor to study a planned gas link that would be part of a corridor joining liquefied natural gas (LNG) terminals in Poland and Croatia. Poland's Gaz-System and Eustream aim to boost energy security in Central and South East Europe by creating a regional gas market and diversifying away from Russian supplies. If everything goes to plan, the connection could be operational in 2017.
- Slovak oil consumption is forecast to rise steadily, keeping pace with underlying GDP growth over the near term and accelerating as the number of cars on the road increases. We believe that oil consumption will reach at least 107,300 barrels per day (b/d) by 2022; this volume will be imported, largely from Russia. Domestic crude production is predicted to be as low as 3.2mn barrels (bbl) a year by the end of the forecast period in 2022, reflecting the decline of mature fields and the slow progress in locating and developing new reservoirs. Taking into account refinery processing gains, overall liquids production is likely to be around 8,800b/d by 2022.
- In 2012, oil imports are expected to have cost around US$3.0bn. By 2017 the cost, having dipped in the intervening years, will also be around US$2.9bn; rising to US$3.3bn by 2022. The BMI OPEC basket oil price assumptions are US$109.50/bbl for 2012, US$93.30/bbl in 2017 and US$91.55/bbl in 2022. Gas imports in 2017 add an estimated US$3.3bn to the import bill, which we expect to rise to US$3.8bn by 2022.