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The significance of Baltic Pipe: a new economic, environmental and security landscape

Today is set to mark the first day of operation for the latest gas interconnector in Europe: the Baltic Pipe. Once fully operational, the joint project developed by Denmark’s Energinet and Poland’s GAZ-SYSTEM will enable deliveries of natural gas between the South Baltic sea region and the North Sea region, with a capacity of 10 billion cubic metres (bcm) of gas annually for gas transfer from Denmark to Poland and 3 bcm from Poland to Denmark.

As previously reported, this new energy infrastructure represents a historic moment for Poland and the rest of the region. To paint a clearer picture of what this means for the overall landscape of Central and Eastern Europe, it is useful to look at the Baltic Pipe from a separate economic, environmental and security lens.

The economic aspect: unlocking competitiveness

Due to the lack of a North-South gas infrastructure corridor, most parts of the CEE region have historically been dependent on energy supplies from a main, singular source: Russia. This meant that competition in the energy market had been limited as natural gas was economically less attractive than other, cheaper fossil fuels like coal. By implementing a new North-South supply route, countries in the region are able to break this dependency, unlocking competitiveness and as a result, collectively strengthening their negotiation position in future gas supply deals, as argued by Dr James Henderson, Director at the Energy Transition Research Initiative and Chairman of the Gas Research Programme at the Oxford Institute for Energy Studies.

The new route provides supply diversification which will be economically useful when negotiating for new gas supply. It will create some competition and avoid having to rely too heavily on one source.

Dr James Henderson

The new interconnector will, therefore, aid the region in achieving price convergence between individual gas markets and opening the market to new economic opportunities. As Dr Henderson adds, the Baltic Pipe creates a new Northern gas route, establishing a direct link to Europe’s main source of pipeline gas supply from Norway to the CEE region. This will lead to a greater equilibrium in the European gas market and provide a balance between the imports of gas via pipelines and liquified natural gas (LNG).

However, Dr James Henderson highlights a potential challenge that may arise from a commercial perspective.

“The new pipeline creates competition for Norwegian gas, which is in high demand,” he tells CEENERGYNEWS. “As Norway is producing pretty much at capacity, gas will need to be diverted from other markets to fill the new pipe which could create competitive friction.”

Notwithstanding, it is important to note that Norway introduced new measures to ensure sustained gas exports to Europe earlier this year. In addition, Poland’s leading natural gas distributor, PGNiG recently said in a statement that it had secured gas supplies for the entire heating season 2022/23. Therefore, at this stage, no signs point to potential competitive friction. Nonetheless, this will be an important point to follow in the new area of Europe’s energy supply.

The environmental perspective: the Baltic Pipe’s contribution to Poland’s climate

As above-mentioned, Russian gas and coal had traditionally dominated the energy mix of many countries across the CEE region. This not only created a constrained competitive landscape but also posed significant challenges to the environment, as heavy reliance on coal is synonymous with significant levels of fine particle matter (PM2.5) and carbon dioxide emissions.

Baltic Pipe

Consequently, air pollution has become a major issue in the existing landscape, which is a leading cause of increased premature deaths in leading countries such as Poland (46,000 premature deaths, annually). Responding to these ongoing environmental challenges, the new gas route via the Baltic Pipe, in conjunction with the continued expansion of Poland’s LNG terminal in Świnoujście, is naturally positioned to promote and build confidence in the use of natural gas for energy and heat production in the region. From an environmental perspective, this could be a highly welcomed development as extended use of gas may replace the demand for more harmful fossil fuels, for example, coal.

A successful transformation from coal to gas may also accelerate the production and adoption of other low or zero-carbon energy alternatives, such as the use of biogas as a renewable energy source, creating a trickle-down effect in the context of strengthening environmental protection.

Looking at the project’s contribution to Poland’s climate in numbers, the Baltic Pipe could replace 76 per cent of coal generation, reduce emissions from buildings to zero, reduce carbon dioxide emissions by 70 million tonnes and lower fine particle (PM2.5) emissions by 54 per cent, which is estimated to prevent a significant number of premature deaths (around 25,000 people, annually).

Notwithstanding, Dr Henderson from the Oxford Institute of Energy Studies points to other environmental considerations in the coming years.

“From a longer-term, perspective, this new gas infrastructure may not sit well with the continent’s environmental goals, as it confirms the longer-term availability of hydrocarbons,” he says. However, he balances this point, adding that “having said that, the gas will be displacing coal, which is positive for emissions, so this may not be too much of an issue.”

Baltic Pipe: a much-needed tool for the region’s diversification

Securing and diversifying gas supplies from reliable partners has been a top priority for many Foreign Affairs Departments across the CEE region since the collapse of the Berlin Wall. Not least because of the economic incentive, but also largely due to the security perspective. As seen since 24 February 2022, many investors continue to remain hesitant about the CEE region as they consider the security risks associated with the region being historically dependent on Russia, predominantly in the area of energy infrastructure.

In the face of this security challenge, the Baltic Pipe offers the much-needed tools for the diversification – and thus securitisation – of gas supply sources in Denmark, Poland as well as the broader CEE region. The joint Polish-Danish project, alongside the completed or ongoing construction of LNG terminals in countries including Poland and Croatia, fundamentally reconfigures the existing energy infrastructure and provides an energy-secure landscape. In parallel, significant political steps have been taken on the EU level including the REPowerEU strategy and via regional platforms such as the Three Seas Initiative to intensify and institutionalise the establishment of secure energy infrastructure in Central and Eastern Europe.

In terms of the EU’s role in aiding the region in implementing the North-South infrastructure gas corridor, it is key to highlight the EU’s Europe Facility Energy programme which co-sponsored the construction of Baltic Pipe, as well as other necessary projects for the new North-South gas infrastructure corridor, including the gas interconnector between Slovakia and Poland, which was inaugurated last month.

The new infrastructure, for the first time in history, provides countries in the EU’s Eastern region with the capacity to accelerate regional energy trade – strengthening resilience, flexibility and integration. As the Polish Ministry for Climate and the Environment highlights, Baltic Pipe has the capacity for “bi-directional transmission”, which will enable gas delivery from Poland to its fellow EU Member State Denmark, further strengthening the EU’s energy solidarity capabilities.

This long-awaited paradigm shift, therefore, ensures that a majority of countries in the CEE region are – or will – no longer be dependent on Russian gas imports, which positions the region to become strategically immune from any potential energy blackmail or supply distractions in the future.

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