Slovakia Oil & Gas Report Q1 2014
Developing better gas interconnections with neighbouring EU countries is a priority for Slovakia as net gas imports are expected to cost the country around US$3.25bn in 2013. A recently announced EUR5.9bn EU infrastructure programme, which aims to allow for more flexibility when negotiating gas purchases, may boost supply but the country still remains dependent on Russia and current Europe-Russia talks leave unresolved questions over long-term gas supply. Renewables capacity is rising fast in Slovakia but a fall in nuclear output is set to pave the way for increased gas use. 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 that 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 long been 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.
- The European Commission unveiled a EUR5.85bn funding push to diversify gas and power infrastructure across the continent, as part of its long-term infrastructure vision. Approximately 140 projects were aimed at diversification of gas supplies to significantly increase the gas system's flexibility and resilience. This included work in Slovakia for reconstruction, upgrading, maintenance and capacity increase on the JANAF and Adria pipelines
- E.ON said it would mothball its combined-cycle gas turbine (CCGT) in Malzenice, Slovakia, effective October 2013. It made the decision because the CCGT can no longer operate profitably in the current market environment in Europe, owing in particular to low electricity and carbon prices. The Malzenice CCGT, which has a gross generating capacity of 430MW, entered service in January 2011. In the past two and a half years it has only operated for about 5,600 hours. The unit, whose fuel efficiency exceeds 58%, was planned to operate at least 4,000 to 5,000 hours per year.
- Under our forecast Slovakia will consume 8.1bn cubic metres (bcm) of gas by 2017, virtually all of which will be imported. We believe this will rise to 9.5bcm by the end of our forecast period in 2022. However, there is downside risk to this scenario if further gas-fired power generating capacity is closed. SPP announced three measures in June 2009 to protect Slovakia from future gas supply cuts. The first was to diversify its gas imports away from Russia through new supply deals with Western European companies. The second was to speed up the time it takes to reverse gas flows in its pipelines from east-west to west-east, while the third was to fill its gas storage facilities. The company has successfully implemented all three of these measures..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.
- The Ukrainian government is testing the viability of importing natural gas from Slovakia, according to energy minister Eduard Stavytsky. The government commenced gas imports on May 15 2013, Stavytsky added. Ukrtransgaz, a subsidiary of Ukraine's state-owned Naftogas, had suggested the reversal of one of the four interstate pipelines to transport natural gas to the country, enabling the supply of up to 10bcm every year. Ukrtransgaz and Eustream are currently working on the interconnection agreement.
- 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 99,500 barrels per day (b/d) by 2022; this volume will be imported, largely from Russia. Taking into account refinery processing gains, overall liquids production is likely to be around 8,300b/d by 2022.
- In 2013, oil imports are expected to cost around US$2.25bn. By 2017 the cost is forecast to be around US $2.5bn. At the time of writing, BMI's OPEC basket oil price assumptions were US$105.00/bbl for 2013 and US$97.00/bbl in 2017. Gas imports in 2013 add an estimated US$3.6bn to the import bill, which we expect to rise to US$3.9bn by 2017.
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