COMPANY PROFILE
2014
NET4GAS
Strengthening Czech gas supplies Editorial: Joe Forshaw
Š Photo NET4GAS (Ronald Hilmar,sn.)
As the exclusive operator of gas transmission pipelines in the Czech Republic, NET4GAS is committed to conducting business with a view to ensuring the independent, reliable, and safe operation of the Czech transmission system. Being an independent transmission system operator, NET4GAS provides gas transmission services to both national and international partners. NET4GAS operates over 3,800 kilometres of high-pressure pipelines, predominantly for the purposes of international transit. CEO, Andreas Rau tells Total World Energy more about development of this important European energy player‌ Q: After the Gazelle Project was completed at the end of 2012, what impact has the pipeline had on the transmission network in the country? Gazelle is an important part of the new northern supply route for the export of Russian gas into the EU
PAGE 82
via the Baltic Sea (Nord Stream) and
for the Czech Republic, but also for
Germany (OPAL). It establishes a major new supply point in the north of the Czech Republic and connects to the German gas transit system at the south eastern border of the Czech Republic. Therefore, Gazelle significantly strengthens energy security not only
other European countries. Its annual transmission capacity is approximately 30 bcm/a and thus three to four times higher than the annual consumption of the Czech Republic. In terms of gas flow patterns, Gazelle has led to a situation where the traditional East/
NET4GAS West flow in the Czech Republic is being more and more replaced by North/South and West/East flows.
E.g. the STORK II Project, the BACI project, and the Connection to Oberkappel Project.
Q: Is the Gazelle Project one of the biggest investments that the company has made in recent times?
In line with the political and regulatory targets for diversifying supply routes and sources, as well as establishing an internal, i.e. integrated EU gas market, NET4GAS has been working on additional cross-border pipeline projects for quite a while already. The overall goal is to establish the missing North/South gas corridor in Central and Eastern Europe. The main projects are comprised of the PL-CR Interconnector II (Stork II), the bi-directional AustrianCzech Interconnector (BACI) and the Oberkappel-NET4GAS Interconnector (ONI). All these projects are part of the national, regional and EU-wide 10-Year Network Development Plans and are on the EU list of Projects of Common Interest (PCI) as well. The PL-CR Interconnector II was recently qualified by the European Commission as a priority project in their European Energy Supply Strategy 2014. The total investment need for all these projects exceeds CZK 10 billion.
Yes, indeed. With a total expenditure of nearly CZK 10 billion, this investment is the biggest NET4GAS has made over the last few decades, and it is one of the largest energy investments in the Czech Republic. But it is not the only investment that our company has made in the last couple of years. We need to mention the Czech-Polish Interconnector (STORK I) built in 2011 or the upgrade of our transmission system in terms of physical reverse flow capacities. The importance of these investments for the security of supply is significant - especially with a view to potential gas transit restrictions via Ukraine in the upcoming winter season.
Q: What plans are being made for the construction of more new pipelines in the country?
Q: Tell us more about other successful projects that have been completed recently and the impact that they will have on the company and the industry? E.g. Reverse Flow in the WestEast Direction, the Czech-Polish Interconnector (STORK I) and the Connection to the UGS Tvrdonice Storage Facility. As a result of the Gazelle project and the connection to Nord Stream/ OPAL, shippers have also been offered the possibility of transporting gas volumes across the Czech Republic from northwest to southeast. NET4GAS has step-by-step removed the technical constraints for this reverse flow. We are now offering considerable physical reverse flow capacities, which are to a large extent already booked by shippers, both on long-term and short-term bases. Due to high market demand, we recently decided to enhance reverse flow capacities at the Czech/Slovak border by another five mcm/d. This project is currently being completed. Another project, which is more for the benefit
PAGE 83
of domestic supplies, is the increase of interconnection capacity to the Tvrdonice gas storage facility owned by RWE Gas Storage. The respective increase in injection and withdrawal capacity has a major positive impact on the security of energy supply in the Czech Republic. This project was finalised in March 2013.
Q: Does the company hope to make more arrangements with German gas transmission organisations in the future in order to secure additional output and input of natural gas? Yes. We are in intensive discussions with the German TSOs in order to enhance (physical) entry capacities to the Czech Republic at Waidhaus in the southwest of the Czech Republic and at Brandov in the northwest of the Czech Republic.
Q: Does the company see the future involving more crossborder business, especially with neighbouring nations such as Poland, Austria and Slovakia? NET4GAS has cross-border interconnections with six neighbouring gas transmission system operators, i.e. four from Germany, one from Slovakia and one from Poland. All interconnections are used for the import of gas to the Czech Republic (with the exception of the Polish pipeline, which is currently only used for exit purposes) as well as transit across the Czech Republic. So what is missing is a large scale bi-directional interconnector with Poland and an interconnector with Austria. We are currently working on both projects. But such projects cannot be implemented without political support, and, for the respective investment decision, we also need sufficient regulatory stability and visibility.
Q: Considering the sensitive political situation in Ukraine,
PAGE 84
what steps has NET4GAS taken to ensure steady supplies in the Czech Republic and the rest of the CEE region? In the event of any interruption of natural gas supplies to the Czech Republic through Ukraine, NET4GAS is prepared to offer transmission capacities from other entry points in the Czech Republic to all gas suppliers. We can do this, since we are able to physically reverse flows at short notice and also have the necessary spare transmission capacities available. As mentioned before, we are also currently further enhancing capacities at the Lanžhot border transfer station for the reverse flow of natural gas in a West-East direction. In addition, NET4GAS has started discussions with the adjacent gas transmission system operators in Germany in order to analyse the short-term possibilities for enhancing physical entry capacities into the Czech Republic. All these measures are intended to mitigate the potential limitations of gas transit through Ukraine in the upcoming winter season. This is part of our commitment towards reinforcing the energy security not only of the Czech Republic but also of the CEE region as a whole.
Q: Following the company’s announcement of a new financial structure, do end consumers and stakeholders need to worry about rises in prices? How will the new systems impact the business as a whole? The implementation of the new capital structure aims at replacing the short-term, inflexible, and rather expensive acquisition debt resulting from the change in ownership of NET4GAS by a more efficient and long-term capital structure which comprises an optimum mix of bond and bank financing. This goal has been fully achieved, fortunately at a
time when interest rates have been at a historical low. There will not be any negative impact on end consumers in the Czech Republic. On the contrary, the new capital structure has been designed in a way that we can flexibly react to operational and investment needs. And, of course, the big investment projects like Stork II have also been fully taken into account when setting up the new capital structure. In general, we have worked with very conservative business assumptions when deciding on the capital structure. This includes the assumption that we would practically only rely on those revenues which we have already contractually secured up to the present.
Q: Will the maintenance and upkeep of the new financial structure be down to new CFO Václav Hrach? Definitely, this is one of the key tasks of the Finance Department headed by our CFO, Václav Hrach. His team has taken a proactive role in developing and implementing the new capital structure. Now, the main goal is to retain the trust which more than 100 international and Czech investors have put in NET4GAS when they decided to buy our bonds or lend us money in the form of bank loans. For this purpose, we are currently setting up a process for managing investor relations. In addition, Václav Hrach and his team will focus on efficiently and effectively managing all funds to flexibly react to any operating and investment needs.
Q: Has the company seen significant changes in dayto-day operations since its acquisition by the consortium of Allianz Capital Partners and Borealis Infrastructure in 2013?
NET4GAS Since August 2013, NET4GAS has been owned by a consortium of Allianz Capital Partners and Borealis Infrastructure, two strong and very well-reputed financial investors. Their main business is long-term oriented (life insurance and pension schemes), just as the business of NET4GAS is also long-term oriented. Therefore, we consider this the perfect match. Under our new shareholders, we will continue our market-oriented strategy, i.e. the expansion of cross-border transmission capacities and market integration at the European level. In terms of dayto-day operations, there have not been major changes, but of course reporting requirements are slightly different from the traditional business of vertically-integrated energy companies.
Q: Since taking up your new position in 2013, what progress has been made in the design and implementation of a Central European gas market? Since I started my mission at NET4GAS at the beginning of December 2013, we have intensified discussions with all adjacent network operators. The main achievement in this regard is that we received a positive decision from the Polish and Czech regulators on our investment request for the Polish/Czech Interconnector Stork II at the end of June. Here we just have to clarify some open issues related to the regulatory framework and the underlying EU regulation governing such kinds of cross-border projects. In general, we have to keep in mind that the design and implementation of a Central European gas market is a complex and highly political matter
which cannot be achieved within a short period of time. This is a long-term issue where all relevant stakeholders, including regulators, politicians and TSOs, have to closely cooperate.
Q: What is the company’s view that gas may play less of a part in the country’s energy mix in the future because of the ongoing global focus on renewable energies? In general, the trend towards more renewable energies is positive - as long as it does not lead to inappropriate market distortions and excessive cross-subsidies. We think that gas could be the ideal complementary fuel for renewables, because it can help balance the highly volatile power production from renewables. And, after all, gas is still by far the cleanest fossil fuel
Š Photo NET4GAS (Ronald Hilmar,sn.)
PAGE 85
+44 (0) 1603 411569 info@totalworldenergy.com East Coast Promotions Ltd, 2 Ardney Rise Norwich, Norfolk NR3 3QH
www.totalworldenergy.com