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The prominent role of LNG for MET Group’s strategy – interview with György Vargha

2021 began with long-awaited news for the Liquified Natural Gas (LNG) industry. After years of high expectations, the first LNG carrier – Tristar Ruby – arrived at the Krk terminal in Croatia which will increase the security of supply for the countries of Central and Southeastern Europe.

All the free terminal capacity was already booked last June for the next three gas years. Among other major players, there is MET Croatia Energy Trade, a 100 per cent subsidiary of Switzerland-based MET Group.

CEENERGYNEWS spoke with György Vargha, Chief Executive Officer of MET International, about the importance of this milestone for Croatia, the region and the companies involved, as well as the role of LNG for MET Group’s strategy.

“The region has been dealing with different sources previously: domestic production, mainly in Romania, in Croatia and also in Hungary, then Russian imports from the East and access to Western markets through Austria,” Mr Vargha notices.

LNG carrier Tristar Ruby.

With the situation evolving, with prices getting more volatile and competitiveness increasing, the word diversification assumes different meanings.

“For Croatia, diversification doesn’t primarily mean getting extra imports for the region but for the country itself,” Mr Vargha says. “However, the LNG FSRU is able to meet more than the country’s import needs on an annual basis.”

Practically, to him, it is more of a question related to volatility. Especially with the new supply coming in from the South (TAP, TurkStream, Croatian LNG), Mr Vargha identifies three different zones relevant for the CEE region: the North-West European liquid markets (TTF/NBP/NCG/GASPOOL); the Central European semi-liquid markets (VTP Austria/PSV); and national rather illiquid markets like Hungary, Croatia, Romania and the Balkans.

“In the past 3-5 years, there was a lighter line between liquid markets and semi-liquid markets and a stronger one between the semi-liquid and illiquid markets. The volatility between all these markets has become much higher now,” MET International’s CEO points out. “With the fact that we see new supply from the South and that the Russian supply is becoming more baseload rather than flexible as it was in the past, the differentials between the markets are much more volatile.”

“Russia is the main gas supplier in Europe,” he adds. “We are living in a time when domestic production within Europe is decreasing: the Dutch are planning to exit Groningen, German and Italian domestic production is falling rapidly.”

“So Russia is still the most important supplier, also because coincidentally it has the lowest marginal cost and highest additional capacity to supply Europe when needed. And in the event of a rapid coal/lignite exit, we will definitely need more natural gas.”

More gas or can it be something else? Hydrogen is on the forefront to be a game-changer in the energy industry, together with biogas, biomethane and other alternative fuels. Nevertheless, Mr Vargha does not believe these projects to be available on a mass scale in the next 5-10 years.

“Power grids are struggling with renewables because of the volatility of renewable production during day and night,” he says. “Even coal-based production minimised last year is needed to provide flexibility to the power grids. If LNG is not coming even for one winter, Europe will need more gas. However, whether LNG is coming or not is not a European question but an Asian question, because Europe is the last-resort buyer of LNG and if Asia is buying more LNG, less comes to Europe.”

György Vargha considers the Mediterranean, including Croatia, Greece, Italy and Spain as a premium buyer compared to North-Eastern Europe, which gives the region flexibility.

“Via LNG, this region as a fundamental buyer is getting involved into the bloodline of global gas trading,” he says.

“It is a difficult region, it has low liquidity, low number of fundamental players. But if this region is getting access to the global LNG market and there are ways to monetise that, ultimately to make gas delivery less volatile or cheaper for end customers, we will support it.”

Indeed, it is the core strategy of MET Group to operate in illiquid countries in an integrated way – managing sales positions, import positions, power assets in an integrated regional basis with strict risk management principles to solve the difficulties arising primarily from liquidity and manage the risks properly.

As part of this strategy, MET is trying to grow its portfolio in the renewable market as well. Last October, its solar power plant in the Hungarian town of Kaba started commercial operation, providing green electricity to more than 23,000 households. Recently, the Group also completed the acquisition of a 100 per cent stake in Enel Green Power Bulgaria, which owns a 42-megawatt (MW) wind park in Bulgaria. Still, LNG represents an important aspect.

“RES is the flagship of the growth of MET Group, but in my perspective LNG is equally important,” Mr Vargha says. “One of the most important price inputs to the gas market and through gas-fired generation to the power market is LNG. If LNG is coming, prices are different compared to if LNG is not coming.”

And an important aspect he underlines is the big quantity in which LNG comes.

“One ship is 100 million cubic metres (mcm), 10 ships are one bcm and 80 ships are equal to Hungary’s annual gas consumption, while 15 ships equal Croatia’s annual import requirements, so we are talking about big sizes,” he notes. “LNG traders are trading in the gas market in a different way than power traders are trading in the same market and as such it makes the market even more unpredictable.”

That’s why it is so important for MET to be an integrated company, to understand all the aspects of the process. However, despite the fast regasification capacity booking, there are no plans to expand the terminal and Mr Vargha does not see much sense for it either.

“The terminal can import 2.5 bcm of LNG to Croatia and if it is filled, it is already on export mode,” he emphasises. “Also, Hungary is well supplied as consumption has decreased from a peak of 14 bcm per year to something around 8-9 bcm.”

“Considering that Hungary has also domestic production and imports from Austria and Romania, and access to Russian gas through Ukraine, Romania and Slovakia, I don’t think there is any sense to expand the terminal.”

Anyway, MET’s presence at the Krk terminal is very important for the Group as the top priority is to link the company’s portfolio in Spain, Turkey and the Mediterranean area to the global LNG market. Then the future belongs to innovation: whether it is green LNG or renewables, MET is ready to focus on it.

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