The rapid infrastructural development and regulatory unification accelerated the integration of the earlier fragmented, isolated gas markets of Central and Southeastern Europe. The expansion of new connections and supply routes opened up new possibilities for the countries and companies to import gas from alternative sources but it also shuffled the cards of the regional gas market.
László Fritsch, CEO of MVM CEEnergy, the leading natural gas trader in Hungary spoke to CEENERGYNEWS about the transforming regional gas market reviewing the projects that shaped supply security and diversification considerations in the past years. He also shared the vision of MVM CEEnergy about its future role in the regional gas market and explained why natural gas has a key role in the transition to a climate-conscious, greener energy industry.
From the beginning of July, the former Hungarian Gas Trade (MFGK) changed its name to MVM CEEnergy, reflecting the company’s commitment to enhancing its regional involvement. Asked about the choice of the company’s new name, László Fritsch said that it catches the essence of the company’s transformation from the main Hungarian gas wholesaler to an expanding regional one.
“No market participant is able to survive by focusing only on its traditional domestic market. The best motto for any serious gas wholesaler in the region should be: think regional, act regional.”
The Hungarian gas trader took conscious steps in the past years, expanding its activities by establishing subsidiaries in Austria and Slovakia in 2014 and 2015 respectively and in Croatia and Czechia last year.
As Mr Fritsch points out despite the few still existent physical and non-physical barriers, the transformation of the regional gas market resulted in a higher level of interconnection, new market opportunities and of course, stronger competition.
Speaking about how they plan to strengthen the regional position of MVM CEEnergy, the company’s CEO says that as the markets are opening up and become more integrated, they are continuously assessing further business opportunities in the region.
“If we find that we can provide competitive solutions to potential new partners, we work out a mutually beneficial way to engage them,” he underlines.
The conditions are favourable to pursue regional expansion. Hungary has been in the epicentre of the changes of regional supply routes and in many cases, it was the initiator of changes in order to improve the security of supply in the Hungarian market.
“The bidirectional interconnectors with Romania, Slovakia and Croatia were all established in the past decade or so which means that Hungary has a physical connection with all of its neighbours except Slovenia,” says Mr Fritsch adding that Hungary also has a strategically unique position, being the neighbour of the region’s second-largest importer; the Ukrainian market, the region’s most liquid gas hub; VTP Austria and the region’s only market with realistic future net gas export potential; Romania.
This year marks transformative changes in the dynamics of the regional gas market. Mr Fritsch highlights the commissioning of the Krk LNG terminal in Croatia earlier this year which opened a new age in Hungary’s natural gas supply and the new Serbian-Hungarian entry point at Kiskundorozsma, which is expected to open in October, serving as the main entry point for Russian gas to Hungary.
“All these changes mean the reconfiguration of the market’s supply with the majority of liquidity coming from the Southern direction – instead of the direction of Ukraine and Austria – while maintaining the connection with the other neighbouring markets.”
The Krk LNG terminal is generally perceived as a game-changer project in terms of security of supply and diversification, providing a commercial connection with the global LNG market and direct access to natural gas sources and market players previously unavailable for the regional market.
In the previous decade, Hungary always supported proactively the idea of the implementation of the North-South gas corridor and its Southern endpoint, the Krk LNG Terminal. This commitment is evidenced by the fact that Hungarian companies are the main capacity holders for years to come in the terminal. MVM CEEnergy – through its subsidiary, MFGK Croatia – signed an agreement booking LNG regasification capacity of 6.75 billion cubic metres (bcm) from 2021 until 2027.
Speaking about the past months’ experience, Mr Fritsch says that for the time being they have not detected any fundamental changes in the operation of the regional markets, however, it is obvious that by the commissioning of the Krk terminal, the gas markets of Croatia and Hungary have also become significantly exposed to the dynamics of globalising LNG markets instead of the closer intraregional market processes.
“LNG has definitely contributed to the diversification of natural gas supply in both markets,” underlines Mr Fritsch noting that MVM CEEnergy already had LNG cargos delivered from the US and Qatar. “We can rely on multiple supply sources, our LNG suppliers are global companies with considerable, diversified supply portfolios.”
With the emergence of alternative routes and sources of supply, there is a growing availability of gas, including LNG for the region. According to the CEO of MVM CEEnergy, although LNG undoubtedly has legitimacy in the CEE region, it has to face significant competition with pipeline gas.
He mentions two major obstacles. Firstly, the decade-old traditional supply regime of the region has been in transformation with new infrastructure such as South Stream Lite, TAP, Nord Stream 2 entering into service. Secondly, it is necessary, but not sufficient to have a competitive LNG supply price.
“Even if you have a competitive new molecule approaching the region, due to the high tariffs, it is still difficult to make it competitive when crossing borders,” he says adding that despite the successful standardisation of the regulatory regimes by the EU in the previous decade, energy authorities still have to make efforts to establish a competitive tariff regime. “Competitiveness must be sought by both the respective energy bodies and the respective infrastructure operator,” underlines Mr Fritsch.
“The example above also shows that LNG has more local than regional effect here, and the destination of arriving LNG supply depends on multiple stakeholders in the whole supply chain.”
However, the future of gas cannot be separated from the bigger context of the ongoing energy transition and the European Union’s climate objectives which pose huge challenges for the natural gas industry. Many countries in the region see gas as a bridging fuel, but tightening emission reduction targets along with the withdrawal of EU funding for gas investments questions the profitability of new infrastructure in the region.
Asked about the future of gas, Mr Fritsch agrees that energy transition is indeed the new driving force behind energy, adding that project financing and investment into renewables and energy efficiency are the key targets.
He notes that the drying up of EU and even institutional funding for new natural gas projects in the region was already expected years ago, hence the past decade of the natural gas industry in the region was largely about the initiation and implementation of a plethora of interconnectors, strategic gas supply and route diversification projects. Those that proved feasible have been implemented and come online or will come online no later than the first half of this decade.
“In my opinion, the concentration of funding to green transition does not run directly against natural gas consumption in the region either,” he says underlining that the spread of renewables does not mean that there is no need for natural gas, quite the contrary.
“Natural gas has a key role in the transition to a climate conscious, greener energy industry since in the foreseeable future it cannot be ignored as a source for balancing the fluctuations of solar and wind power production.”
As Mr Fritsch explains, the spread of renewables raises the need for a flexible, secure source of supply that – given the foreseeable economic and technological environment – is natural gas. He also reminds, that there is no one solution that fits all and green transition does not imply the same thing in all parts of Europe.
“While in Northwest Europe, there is sufficient capital, purchase power and consciousness for allowing more cutting edge, costly and disruptive solutions, in the less capitalised, price-sensitive CEE-SEE region, green transition means a slower transition, the declaration of earlier non-existent deadlines for phasing out coal in power and heat generation and switching largely to natural gas, which by the way comes through the newly built infrastructure,” he says.
Now the world holds its breath waiting for the results of gas infrastructure R&D on new gases. Mr Fritsch says Hungary can tap into these new opportunities and seize a leading role in the region.
“All in all, natural gas will not leave the energy mix but stay with us for a long time because it is the key to a greener and secure energy supply mix,” he concludes.