Tuesday, May 28, 2024
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Q&A with Szabolcs I. Ferencz, Chairman of the Board & CEO at FGSZ Földgázszállító

  1. What are the biggest challenges that FGSZ has encountered in the past 12 months – and what challenges are expected in the next 12 months?

Some symptoms of the energy crisis, such as price volatility and dynamism, have been prevailing in gas markets, directly impacting trading activities and thus system usage of the natural gas infrastructure. So, we have remained constantly vigilant and flexible while ensuring the country’s security of supply.

FGSZ has experienced intensified system usage – Hungary’s six interconnectors served well in responding to the very often dynamically changing flow directions, and the Hungarian market has become increasingly attractive to traders. This is proved by increased capacity bookings on our Regional Booking Platform (RBP), the intensified transmission system usage and the expanding membership and turnover of CEEGEX. The dynamic nature of gas markets in 2023 was also apparent as total incoming volumes slightly decreased while outbound deliveries increased by ~10 per cent, in line with storage injection and withdrawal trading patterns.

The upcoming months will surely be exciting. With the exceptionally high storage levels, the number one issue towards the end of the year will likely be the future of existing Ukrainian gas transit after 2024, whether it will stop or remain to some extent or in a different framework – that is still unclear, but changes to the current set-up could have trading and pricing effects on regional gas markets. FGSZ will have various tasks as we continue our regional initiatives, internal infrastructure developments as well as technical preparation/upgrade of the existing system. Moreover, we are an indispensable player in the field of increasing domestic production, newly planned gas turbine power plants and the integration of renewable gases such as biomethane and hydrogen.

  1. Equally, what opportunities do you see ahead for European gas transmission operators and more generally natural gas, in the short, medium and long term? 

TSOs have regular market demand assessments on future interest in using the natural gas grid. Our most recent experience from the latest non-binding market tests proves that new system users continue to emerge at an accelerating pace even though capacities are practically sold-out at most interconnection points for this gas year, and a high-level of capacities is also booked for the coming years as well. So, on our side, we see continued market interest in natural gas transmission, and this is exactly why we have been striving to further develop and expand existing capacities enhancing diversification with more alternative supplies and a more integrated internal energy market in the region. Since 2022, thanks to the good cooperation and joint work with partner TSOs, we were able to further increase the capacity of the Romanian-Hungarian interconnector in October 2023 to 2.6 bcm, while also enabling smooth and expanded firm capacities with 50 per cent toward Slovakia since mid-February 2024, and establishing the test firm capacity in the Ukrainian-Hungarian border – these are all great achievements.

As for the future role of gas in general, I would add that the transformation of the gas industry has already started in the past 2-3 years, and gas will play a crucial role in the energy transition offering an efficient transition pathway. There is still room for switching the most polluting coal-fired generation to natural gas-fired generation, which brings quick and meaningful results for further emissions reduction. Natural gas is also an important complement to renewable energy as it makes up for the intermittency of power generated by renewables ensuring system reliability. This balancing need is inevitable for the proper functioning and resilience of electricity markets that is also supported by the current upswing for newly planned CCGT power plants across Europe – more than 23 GW in the closer region – that could generate natural gas demand on the mid-term again (1 GW production capacity has ~1 bcm gas demand).

  1. In February, FGSZ signed a new interconnection agreement with Eustream to increase the offered firm capacity at the Vel’ké Zlievce/Balassagyarmat Slovak-Hungarian border crossing point. How will the increase in cross-border capacity benefit Hungary’s energy security?

Reaching an agreement on the renewal of the Interconnection Agreement between FGSZ and Slovak Eustream a.s. for the Vel’ké Zlievce/Balassagyarmat Slovak-Hungarian border crossing point is the first success story of 2024 for us.

Under the agreement, based on the CAM NC-compliant market demand assessment ran in 2023, the offered firm technical capacity at the interconnection point (IP) was increased by 50 per cent (from 200,000 cm/h to 300,000 cm/h); which makes the current yearly capacity to 2.63 bcma in the direction of Hungary to Slovakia. And to underline, that this is a result of optimization without financial investments on either side of the border. The good news is that traders actively use the increased capacity since its availability even as a short-term/daily product, and it will be available as a yearly/long-term product  in the upcoming annual capacity auction in July for the first time.

The capacity increase, as part of the Vertical Corridor Initiative, enhances the region’s energy security as it provides a reliable transmission route for alternative sources of natural gas coming from the South-East further towards Central Europe.

  1. Following the recent expansion of the Vertical Gas Corridor initiative, what role is FGSZ set to play within it – looking both at the short-term (for example, closer cooperation with countries in the region) and long-term (for example, hydrogen transmission) perspective?

The Vertical Corridor Initiative has a special part in our hearts as its founding MoU was signed at the CESEC Ministerial meeting in Budapest in 2016. Since then, all involved TSOs have made important steps, especially in the past 2 years, in aligning their individual projects, which will hopefully end up in the harmonized binding market test this July. Our upcoming meetings in April in Budapest and Brussels at the next CESEC will aim to get one step closer to this goal. As for the Hungarian part, we have submitted our proposal to the Hungarian NRA for approval planning 3 alternatives for the further expansion of the RO-HU interconnection point: from the currently available 2,6 bcm level to 3,0 bcm; 4,4 bcm or 5,3 bcm annually.

What comes next and after July 2024? – FGSZ (and Transgaz, responsible for the developments in Romania) is making considerable efforts to ensure that incremental capacities are built in the most cost-effective way. However, we have to take into account that our joint work and binding market demand will not be enough to secure the project solely on a market basis – thus we hope that the Commission will realize the importance of the project and financially support it so that the region could benefit from increased liquidity and better opportunities on future solidarity measures, should they be required.

The potential of the Vertical Corridor was strengthened with Moldovan and Ukrainian TSOs joining the initiative this January. I believe that expanding the original scope to mid-to-long-term prospects with the use of the infrastructure for renewable gases will also be a valuable option. There are already good regional examples concerning hydrogen transmission: together with the TSOs of Desfa (GR), Bulgartransgaz (BG), Transgaz (RO), Eustream (SK), NET4GAS (CZ) and OGE (DE), FGSZ have recently signed an MoU on the South-East European Hydrogen Corridor (SeeHyC), which can become a vital part of the European Hydrogen Backbone. Given that the development of the H2 economy in CEE will be somewhat slower than in Western Europe, EU support and the PCI status would be necessary to be able to help scale up hydrogen projects in the region, which are clearly needed – shown by the submitted green hydrogen demand in our initial non-binding market test ran last summer.

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