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A well-functioning gas system is the bedrock of a secure energy transition – interview with Szabolcs I. Ferencz, CEO of FGSZ

Szabolcs I. Ferencz will be one of the speakers of the Budapest LNG Summit, to be held on 6 December 2021.

Central and Eastern Europe’s gas market is continuing to develop further. It is headed toward full integration through strategically important new gas infrastructure projects. Croatia’s Krk LNG terminal with its recently-launched operations is among such projects. So are the upcoming ones that include the Southern Gas Corridor which brings Azerbaijani natural gas to the CEE region and the North-South Gas Corridor, the connector of the Krk LNG terminal in the South to the Baltic terminals in the North. There is also Poland’s gas pipelines with Slovakia and Lithuania that are scheduled to start commercial operations by mid-2022.

CEENERGYNEWS spoke with Szabolcs Ferencz, the Chairman of the Board and CEO of FGSZ Földgázszállító, Hungary’s transmission system operator about the gas market infrastructure integration within the Central and Eastern European region, the role of switching to gas for greenhouse gas (GHG) emissions reduction, Hungary’s hydrogen potential and the preparedness of the country’s gas transmission infrastructure for the inflow of liquified natural gas (LNG).

There is much that remains to be done for a truly integrated and well-functioning pan-European gas market which can both decrease the likelihood of market disturbances and respond to climate change, according to MrFerencz.

“In most of the Western Balkans countries, for example, there is no significant gas network in place yet, instead, these countries rely on the more polluting coal in their energy mixes – this dependency can be mitigated by establishing more cross-border natural gas capacities”, MrFerencz tells CEENERGYNEWS.

“When construction of the Interconnector Greece-Bulgaria pipeline is finished, the region may also access Azerbaijani gas for the first time ever and Hungary as well, through the Romanian route. Hopefully, the possibility for importing Azerbaijani gas through Serbia will also become reality in the future”.

With respect to Hungary specifically, its transmission system operator FGSZ, together with its Slovenian counterpart, Plinovodi is taking steps to implement the Hungarian-Slovenian interconnector — the country’s last missing cross-border interconnection.

According to MrFerencz, further development opportunities include the creation of firm capacities in the Hungarian-Ukrainian direction too.

“With the start-up of Krk LNG terminal, the Croatian-Hungarian route could serve the supply diversification goals of Ukraine as well,” he underlines. “Enabling firm capacities at VIP Bereg is essential to raise market interest in this route – discussions are underway with the Ukrainian TSO to make firm capacity a reality as soon as possible.”

Currently, the biggest obstacle for further development of Hungary’s gas market and infrastructure is the regulation which is not unique to Hungary, MrFerencz explains.

“A well-functioning market is based on liquidity,” he points out. “The gas transmission business serves the actors who have the commodity and those who want it. To develop the above-mentioned conditions from a TSO’s perspective, you need to access funds for large-scale investment projects and that is the main bottleneck at the moment.”

“As it stands, after the next edition of the EU list of Projects of Common Interest – the PCI list – natural gas projects may not apply for PCI status and consequently, for funds from the Connecting Europe Facility. It is also unclear yet, how natural gas projects will be categorized in the EU Taxonomy regulation, the EU-wide classification system for sustainable financial activities. The same goes for financial institutions, as the European Investment Bank will also stop financing fossil projects after this year”.

Then there is increasing expenses for infrastructure operations as a result of growing gas, carbon and even construction material prices that make infrastructure operators “think twice before going forward with any projects aimed at expansion of the gas system”, says MrFerencz. He adds that “a successful transition to net zero emissions by 2050 is the goal of the European infrastructure operators as well, but there are major differences in the paths that lead there – the energy transition needs to be cost-efficient and secure at the same time and I believe that a well-functioning gas system is the bedrock of this goal.”

Placing the focus on the reduction of emissions in the neighbourhood, around 35.5 million tonnes (Mt) of CO2 can be avoided in the EU Member States of the CEE region annually, by switching from coal to gas, according to MrFerencz. These figures do not include Energy Community countries like Serbia, however.

When it comes to methane emissions, he stresses the importance of considering the natural gas value chains, “upstream is the most polluting part, but due to Europe’s high import dependency, that pollution arises at the producing countries”, he explains.

As a transmission company, from 2021 FGSZ has placed a stronger emphasis on decreasing GHG emissions, including methane. It now measures emissions across the entire grid, from pipelines to compressor stations.

“FGSZ is also working with multiple partners on the best practices for handling leakages, and this includes purchasing different measuring and detecting devices. We also joined the Oil & Gas Methane Partnership this year – as a member, we are committed to detecting and measuring every such leakage and we will also submit an implementation plan with detailed steps on handling our leakages.”

“Since 2019, we have been utilizing a software called SZELLŐ, which decreased the volume of natural gas needed to safely refill a pipeline, thus decreasing our emissions. This software, developed with the University of Miskolc, is under constant development”, says Mr v.

With the advancement of the hydrogen economy, Hungary’s well-connected natural gas network could become a great asset.

“The Hungarian gas grid is one of the densest in Europe, both at the transmission and distribution levels, with a high percentage of consumers connected to the grid. With the commissioning of the new Serbian-Hungarian interconnector, we have six potential entry routes for hydrogen imported into the country and five exit points for distributing hydrogen in the region. Of course, these routes will only become relevant if the existing grid is repurposed for the transportation of hydrogen, or hydrogen – natural gas blends”, MrFerencz underlines.

Being located at the crossroads of countries with a high potential for hydrogen production is another advantage for Hungary. Ukraine is among them from the Eastern Neighborhood.

Furthermore, “if the Hungary-Slovenia-Italy pipeline is implemented – hopefully, with European Union funding – Hungary may also have access to hydrogen produced in the Southern Neighborhood countries. When this route is present, Hungary’s system would be able to supply the Balkan region with clean energy sources from both directions. It is FGSZ’s long-term goal to become the main distributor of hydrogen produced in the CEE region”, adds MrFerencz.

Hungary’s gas transmission infrastructure has started to accommodate liquified natural gas streams from Croatia’s Krk LNG terminal which raises the question about the preparedness of Hungary’s existing infrastructure for the additional fuel capacities in the form of LNG.

“Not only is the Hungarian infrastructure ready for the inflow of LNG, but we are also eager to start receiving LNG from different routes and different terminals. When the Greece-Bulgaria pipeline, the Polish-Slovakian and Polish-Lithuanian pipeline projects will be in place, Hungary can be reached by different streams of LNG”, says the CEO ofFGSZ.

“These figures do not include Energy Community countries like Serbia, for instance,” he concludes. “To a degree, this is the culmination of FGSZ’s strategy of the last decade, and the long-held goal of European gas system operators. By diversifying supply routes, we may see competition not only between piped gas and LNG but between different LNG terminals as well”.

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