Friday, June 29, 2012

Study: The Future of Natural Gas Security in the V4 Countries: A Scenario Analysis and the EU Dimension

The project assesses the impacts of new transit gas pipeline infrastructure on the security of supplies to the Czech Republic and other V4 countries. It also deals with the impacts of Treaty of Lisbon on energy policy as such. The research team presents number of scenarios corresponding with particular routes of supplies and further evaluates them using formal modelling. The study results in the choice of economically optimal distribution of supplies within the infrastructure network, the assessment of scenarios and the options to pursue them on the multilateral and European level.

Structure of the Study

1. Introduction
2. SWOT Analysis of the V4 Countries
     2.1. Czech Repulic
     2.2. Slovak Republic
     2.3. Polish Republic
     2.4. Hungary
3. Scenarios of Transit Infrastructure Projects and Their Impact on the V4 Countries
4. EU and Czech Energy Interests Advocacy
5. Conclusion to the Results of the Study and Final Recommendation

Methodology

The methodology of the research project is based on a combination of quantitative and qualitative data. The quantitative data is represented by the MEOS modeling tool. The qualitative data were obtained from primary or secondary literature, specialized reports, indepth interviews and field trip experience. The research method consists of a multi-criteria assessment of various supply, demand and infrastructure scenarios.

Scenarios

A combination of two demand scenarios (Baseline and High), two supply scenarios (Baseline and LNG Glut) and six infrastructure scenarios (Reference, Nord Stream, Nord Stream and Nabucco, Nord Stream and South Stream, Nord Stream and South Stream and Nabucco, Nord Stream and North – South Gas Corridor) is being evaluated in the study by two following tools:

MEOS model

The MEOS model combines the specific features of models GASMOND and EUGAS, which have been previously successfully used for network and flow simulations. The aim of MEOS model is to determine an economically optimal allocation of flows in the network, i.e. primarily to use the least expensive sources and distribute them through the least expensive routes. The MEOS model is a nodes and edges computing model built on the network of more than sixty gas transit routes through Western, Eastern, Central and Southern Europe and their respective characteristics such as direction, length, capacity and transit tariffs.

Indexes serve as a bridge between solely quantitative nature of outcomes provided by the model and otherwise qualitative nature of the research data. The indexes cover the four most relevant dimensions of the energy security:
  • To assess the diversification of sources and routes, the Hirschman-Herfindahl index is used. The HH index is a sum of squares of ratios of the respective sources or routes. The interval values stretch from 0 (perfect distribution) to 10.000 (1002) for a total concentration.
  • The substitutability index is a representation of the dominant source/route ratio, which can be substituted by the rest of sources or routes.
  • The reliability index is based on the Business Monitor International intelligence reports. The index represents a weighted average of BMI's country risk ratings for producing and transit countries included in given scenarios.
  • The costs index is again based on the weighted average of the production costs of the relevant sources and of the sums of transit tariffs in respective transit countries for each scenario.
Recommendations

If we accept the partial assumption that in the Central European context the reliability of supplies is derived from the variability of transport routes and that low prices are derived from the variability of sources, the Czech Republic should consider the following points:

An understanding of the security of supply as the dominant aspect of Czech energy security in the gas sector:
  • A preference for the variability of resources, which brings the possibility of choice and competition among suppliers;
  • Interconnection with spot markets – Baumgarten, LNG Poland;
  • Pressure on the flexibility of long-term contracts and minimization of the take or pay clause; on the other hand, acceptance of the importance of long-term contracts for the investment cycle;
  • State support for the construction of critical infrastructure in the case of failure of economic stimuli (for example, LNG Adria or Hungary-Slovakia interconnection).

Support for infrastructure (and measures) that contribute most to the transformation of the linear character of transit to the network character:
  • LNG terminals in Poland and Croatia as real resource alternatives
  • Nabucco as a provider of quantitatively significant volumes complementing the importance of LNG
  • The North-South Gas Corridor as a key project of breaching the linear nature of transit
  • Institutional integration of the markets (such as the NETS project) as a stimulus for the entry of new traders, limitation of the influence of domestic monopolists, and thus increase in pressure on the construction of new transit infrastructure

The Dimension of the European Union and Its Energy Policy

In the part dealing with the European Union, we have been attempting to answer the question of the extent to which European energy policy, which can be currently viewed as one of the most important areas of interest of the EU altogether, has changed in relation to the approval of the Treaty of Lisbon.

The answer is as follows. The Treaty of Lisbon legally anchored the status quo, in which Title XXI Energy introduces a separate policy and includes it in the shared competence. The Treaty nevertheless also leaves key questions of the energy mix, usage of own resources and fiscal instruments fully in the hands of national states. The clause dealing with the mechanism of solidarity in the case of (a mainly energy-related) crisis is by contrast vague to the extent that one cannot expect its practical use unless it is elaborated in more detail.

On the other hand, an increase in activities in the area related to energy is obvious in the EU, be it in the external dimension, in the area of a common energy market or in the energy-environmental area.

We state here that European energy policy will influence the energy sectors of national states with growing intensity. These states should therefore devote corresponding attention to the EU level. In the case of the Czech Republic, this means the need to substantially strengthen the European dimension of the energy sector.

This is also related to the need to reassess the energy priorities and interests of the Czech Republic and to complement them at the EU level, i.e. to determine how one or other priority can ideally be addressed in the EU and which stance should be adopted by the Czech Republic in the related questions.

This EU level should be regularly updated through cooperation between the Ministry of Industry and Trade, the Ministry of the Environment, and the Office of the Government and by means of consultations with non-state subjects.

From the perspective of efficiency of interest representation, we then recommend more detailed analysis of the existing system from both the formal side, i.e. with regard to the distribution of competences and organization of work, and from the perspective of the real efficiency of this structure’s operation, typically using comparison with comparable countries.

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Filip Černoch, Břetislav Dančák, Jana Kovačovská, Petr Ocelík, Jan Osička, Tomáš Vlček, Veronika Zapletalová: The Future of Natural Gas Security in the V4 Countries: A Scenario Analysis and the EU Dimension, first issue, International Institute of Political Studies of Masaryk University (IIPS), Brno, 2011, 312 pages.
The data set used in the study was collected in 2010.
The study is available in English.

International Institute of Political Science of Masaryk University
Jostova 10
602 00 Brno
Czech Republic
Web: http://www.iips.cz

To order the study click here.
For further information please contact jirusek@ics.muni.cz

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1 comment:

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