Short and long-term indicators and early warning tool for energy security. L. Vanhoorn *, H. Faas

Transcription

1 Short and long-term indicators and early warning tool for energy security L. Vanhoorn *, H. Faas European Commission; JRC - Institute for Energy; Energy Security Unit P.O. Box 2, 1755 ZG Petten, the Netherlands * Corresponding author: Lenhard Vanhoorn; lenhard.vanhoorn@ec.europa.eu Abstract: In this study we aim to develop security of gas supply indicators. We then apply these a) to quantitatively assess the recent Russia-Ukraine gas supply dispute, b) to quantitatively assess the particular crisis situations of the affected Member States and the available supply- and demand-side instruments which assisted to cope with the gas disruption. Keywords: security of gas supply, gas crisis instruments, gas flow model, storage withdrawal, interconnection capacity, diversification, gas import dependency, Russia-Ukraine gas dispute

2 Introduction On January , EU imports of Russian gas supplies through the Ukraine, some 264 million cubic metres per day (mcm/day), were shut down. This had dramatic effects in particular for those EU member states that depend exclusively on this supply route, such as Bulgaria and the Slovak Republic, leaving homes without gas for heating and forcing production stops in some industries. Gas supplies restarted only on 20 January 2009 and were fully restored on 21 January This disruption was the most serious of its kind in Europe in recent history. For an unprecedented period of two weeks, Europe was cut from 30% of its total gas imports, an equivalent of 20% of its gas supplies. An earlier disruption, in January 2006, of some 80 mcm/day only lasted for one day and could be easily resolved with available storage capacity. Thus, the cut of a major supply route is now a realistic scenario. In order to be better prepared and to be able to react appropriately to future disruptions, policy makers need adequate metrics to identify critical situations, detect infrastructure bottlenecks, but also for long term investment planning like in the framework of the European Recovery Plan 1. Several energy security indicators have been developed (for an overview, see for example Kruyt et al, 2009) with different levels of abstraction and aggregation. However, for efficient policy support, indicators need to be applicable, i.e. transparent and comprehensive, but also allow the assessment of model scenarios suitable for early warning. In the work presented in this paper we will first describe the overall project and then focus on the gas crisis indicators, one of the nine developed indicator groups (for a brief description of the other groups see annex 1; for results from a gas flow model see annex 2). We assess the performance of the affected EU-member states during the January gas crisis, and give a systematic overview of the possible crisis mitigation measures available to them, both supply as well as demand side measures. Although the approach is readily extended to other energy carriers, we focus on gas supply due to its importance in Europe's energy consumption (24% of primary energy consumption) and the high import percentage (60% 2 ), which is expected to rise further to 71-77% in 2020, depending on scenarios 3. While dependence on gas varies among Member States, all rely on it to a degree. Moreover, gas markets are particularly vulnerable to disruptions due to the inflexibility of gas pipeline routes, the predominantly regional character of gas supply and the limited number of gas suppliers and long term contracts. Russia dominates European gas supply, accounting for 42% of European gas supplied. About 80% of EU imports of gas from Russia pass via the Ukraine. Moreover, some EU member states are entirely dependent on Russian gas supplies. 1 European Union, Regulation of the European Parliament and of the Council establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy, PE-CONS 3659/09, pp Eurostat, 2007 data 3 Annex 1, 2 nd Strategic Energy Review, COM(2008) 744 2

3 Overall approach The proposed approach consists of three components: energy security indicators, a flow model of energy carriers and a geographical information system 4 (GIS) based output. First, we developed 9 indicator groups building on 7 input parameter groups, as illustrated in Table 1. The input parameters are chosen from energy balances (supply, demand, transformation), economic (prices, investment levels, etc.) and geopolitical categories (country risks), the resulting indicators are structured in 9 groups. 7 categories variables 1. Macro-economic variables: GDP, energy prices, 2. Supply-side variables: Production, imports, reserves, energy suppliers, daily supply, Demand-side variables: TFC, demand per sector, peak demand, daily demand, exports, 4. Transformation variables: Refinery data, power generation data 5. Crisis response variables: Substitution, DRM, surge production, stockdraw, 6. Infrastructure variables: Gas, oil, electricity infrastructure data 7. Geo-political variables: transport risk 9 indicator groups for gas A. Macro-economic indicators B. Energy balance indicators C. Reserves indicators D. Sectoral indicators E. Diversification indicators F. Import risk indicators G. Infrastructure indicators H. Gas crisis indicators I. Gas flow model indicators Table 1: Overview variable categories and indicator groups Indicators will be used to (a) quantitatively assess and compare countries performances in security of supply, (b) detect bottlenecks, (c) assess the historical and projected future evolution of countries performance, (d) to assess standards such as N-1 criterion, Community Emergency, Early warning level, Alert level, Emergency level, etc, which are already used by decision-makers, (e) to gauge the effectiveness of short term supply and demand responses to gas disruptions, (f) to assess spill-over effects of a gas disruption on the power generation sector, (g) to assess crisis scenarios (gas disruptions of any kind, outage LNG terminal, ) and (h) to assess the impact of long term infrastructure projects such as critical gas interconnectors foreseen in the European Energy Recovery Plan. The second component of the proposed approach, though not treated in this paper, is a gas flow model, MC-GENERCIS (Monforti et al, in preparation) which estimates the main cross-border pipeline flows, storage and Liquid Natural Gas (LNG) supplies for the EU countries and their main suppliers. A Monte Carlo approach is used to generate different supply scenarios, to simulate to which extent operators or governments allow gas supplies to flow further to countries downstream in the supply chain. The model can be used for short and long term scenarios in both normal and crisis situations (see also annex 2). The third component regards GIS-based output. 4 Arcgis, ESRI Benelux 3

4 Gas crisis indicators In this work, focus will be on one particular indicator group, the crisis indicators (for a brief description of the other eight groups see annex 1). First, shortfall indicators are developed to assess the disruption of the MS and to compare the severity of the disruption among MS. Then crisis indicators are constructed to measure the effectiveness and flexibility of measures that can be taken in the event of a gas disruption. We structure possible measures (or instruments or actions) in two main categories, namely supply and demand side measures. On the supply side, three types of measures, immediate, second phase and third phase are considered. On the demand side, switching capacities and interruptible contracts are included in the analysis. Table 2 provides an overview. Assessment disruption "Consumption lost" indicators "Imports lost" indicators "Supply lost" indicators Possible responses MS SUPPLY SIDE measures 1. First phase measures 1.1. Increase storage withdrawal 1.2. Increase LNG send-out capacity 1.3. Increase production 2. Second phase measures 2.1. Route flexibility 2.2. Alternative import flexibility 2.3. LNG import flexibility 3. Third phase measures DEMAND SIDE measures 1. Fuel switching 2. Interruptible demand Table 2: Schematic overview crisis indicators 4

5 Assessment of disruption The amount of disrupted gas is defined as the difference between the relatively normal supplies on January 1 and the situation on January 8, when total transit through Ukraine was blocked. The largest absolute disruption quantities were for Germany, Italy and France (see figure 1). The total disrupted gas in these three western European countries accounted for more than 50% of the total EU-27 disruption. Disruptions can be expressed in different ways. A first possibility is to express the disruption in terms of gas consumption. Figure 1 illustrates the disruptions for the twelve affected EU Member states (Hungary, Czech Republic, Slovak Republic, Bulgaria, Italy, Romania, Greece, Slovenia, Germany, Austria, Poland and France). The blue line in figure 1 shows the % of actual consumption levels that was disrupted in the affected countries. In the case of the western EUcountries, with the highest absolute missing gas, disruptions were relatively limited compared to their high consumption levels. In Italy, only 19% of the actual gas consumption was affected, in Germany 10%. Other countries, with smaller absolute disrupted quantities, were in relative terms much harder hit. On January 7, 72% of the actual gas consumption levels in the Slovak Republic, 83% in Bulgaria and 85 % in Greece were disrupted. Also Hungary, a major gas consumer, both in final consumption as in power generation, faced a disruption equivalent to more than 50% of its consumption levels. The Hungarian disruption accounted for 14% of the EU-27 disruption. mcm/day % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Greece Bulgaria Slovakia Hungary Czech Republic Poland Austria Slovenia Italy France Romania Germany Gas disrupted (mcm/day) % of actual consumption Figure 1: Shortfall indicators (in terms of actual consumption) Table 3 gives an overview of the various disruption indicators, in terms of imports, consumption and supply levels, for three different disruption scenario s in Hungary. Seasonal data (average, actual and peak) are also considered. These indicators give a clearer idea about the severity of a gas disruption, taking into account the individual context of a country in terms of imports, consumption,. 5

6 Shortfall of x bcm in terms of: 20 mcm/day 35 mcm/day (Jan 2009) 40 mcm/day (= N-1) IMPORTS in terms of actual imports 42 mcm/day 48% 83% 95% in terms of maximum imports 50 mcm/day 40% 70% 80% CONSUMPTION in terms of average consumption 45 mcm/day 44% 77% 89% in terms of actual consumption 68 mcm/day 29% 51% 59% in terms of maximum demand 90 mcm/day 22% 39% 44% SUPPLY in terms of supply day before 79 mcm/day 25% 44% 51% in terms of maximum supply 112 mcm/day 18% 31% 36% Table 3: Shortfall indicators in terms of imports, consumption and supply for Hungary The current gas security of supply directive defines a major supply disruption as the loss of 20% of gas imports from third countries to the EU for at least 8 weeks 5. The January 2009 disruption equaled 28% of EU gas imports. However according to above definition, the recent January disruption was no major supply disruption since it lasted only 14 days. However, there has been a realization that this threshold is very high. 5 EC, Assessment report of directive 2004/67/EC on security of gas supply, SEC (2009) 978 6

7 Supply side measures and indicators Supply side responses varied highly among EU member states, with some strategies more efficient than others. This reflects the very different situations of Member States in terms of reliance on gas, availability of indigenous production, geographic position, geological potential for storage facilities, varying levels of existing interconnections etc 6. In the category supply-side measures we identify three types of measures, immediate (domestic) actions, second phase and third phase actions. The first group deals with measures which can be carried out immediately after the disruption took place, the second phase measures needing some implementation time (1-3 days 7 ). The third phase measures only take place if the other measures are not sufficient to offset the disruption. Table 4 gives a structured overview of the discussed crisis measures and a short description of the crisis indicators that are involved per measure. First phase measures Action 1.1. Increase storage withdrawal Working gas capacity indicator Stock level indicator Stock duration indicator Days of consumption left in storage indicator Withdrawal capacity indicator % of max withdrawal capacity Withdrawal flexibility indicator Withdrawal effectiveness indicator Action 1.2. Increase send-out capacity LNG storage capacity indicator LNG stock level indicator LNG stock duration indicator Days of consumption left in storage indicator Send-out capacity indicator % of max send-out capacity LNG send-out flexibility indicator LNG send-out effectiveness indicator Indicates the maximum working gas volume, which could be withdrawn from the gas storage to the gas system (in terms of annual demand). Indicates the stock levels before and after the crisis and detect the stock changes over time. Indicates how long stocks would last (at maximum withdrawal rate and without any injection). Indicates how many days of consumption are left in storage. Describes the rate at which gas could be taken out from gas storage for a certain period of time. Indicates how much of the maximum withdrawal capacity is used by the country. Indicates variations of the operated withdrawal capacity during the crisis period and how much additional gas could be brought to the market. Indicates to what extent the increase of storage withdrawal could help to offset the disruption. Indicates the available LNG storage capacity in the country and the maximum LNG volume (in terms of annual demand). Indicates the LNG stock levels before and after the crisis and detect the stock changes over time. Indicates how long LNG stocks would last (at maximum send-out rate and without any injection). Indicates how many days of consumption are left in storage. Describes the rate at which gas could be send-out for a certain period of time. Indicates how much of the maximum send-out capacity is used by the country. Indicates variations of the send-out capacity during the crisis period and how much additional gas could be brought to the market. Indicates to what extent the increase of LNG send-out capacity could help to offset the disruption. 6 EC, Assessment report of directive 2004/67/EC on security of gas supply, SEC (2009) EC, The January 2009 gas supply disruption to the EU: an assessment, SEC (2009) 977 7

8 Action 1.3. Increase production Production capacity indicator Production flexibility indicator Production effectiveness indicator Indicates the importance of indigenous production (in terns of consumption). Indicates the variations of production levels during the crisis and how much additional gas could be brought to the market. Indicates to what extent the increase of the production levels could offset the disruption. Action 2.1 Route flexibility Route flexibility indicator Effectiveness indicator Action 2.2. Alternative import flexibility Import flexibility indicator Effectiveness indicator Action 2.3. LNG flexibility Second phase measures Indicates what share of lost gas from the disrupted suppliers could be transported via other routes. Indicates to what extent this route flexibility could help to offset the disruption. Indicates the variations of alternative imports from other suppliers. Indicates to what extent this imports flexibility could help to offset the disruption. LNG flexibility indicator Effectiveness indicator Indicates the flexibility of additional LNG cargoes. Indicates to what extent this could offset the disruption. (Eventual) third phase measures Table 4: Overview and a short description of the crisis indicators (& 3 phases) 1. First phase (immediate) supply side measures Action 1.1: Increase storage withdrawal In general, the two basic indicators in gas storage are the working gas capacity related indicators and the withdrawal capacity related indicators. Working gas capacity indicators describe the maximum gas volume, which could be withdrawn from the gas storage to the gas system. Withdrawal capacity indicators describe the rate at which gas could be taken out from gas storage for a certain period of time. This represents the deliverability of gas storage, or the volume a gas, which could be injected into the gas system from the storage over a certain time period. A) Working gas capacity indicators 19 EU Member States have together around 100 bcm of working gas storage capacity, which represents 14% of EU annual gas consumption; with respect to the nominal storage capacities, 8

9 France, Germany and Italy have by far the largest nominal capacity. However, taking into account the annual demand of these countries, their capacities are lower compared to other (transit) countries such as Slovak Republic, Bulgaria and Hungary. This working gas capacity indicator is illustrated in figure 2b. The total working capacity is expressed in terms of annual demand. We find that Latvia disposes of the largest storage capacity in terms of annual demand, accounting for almost 150% of their annual demand. bcm Italy Romania Germany France Denmark Hungary Bulgaria Czech Republic Slovakia Austria Latvia 160% 140% 120% 100% 80% 60% 40% 20% 0% in % annual dem and Storage (bcm) storage in % of annual demand Fig 2a: Working gas capacity in EU Fig 2b: Working gas capacity indicator The European average is a working gas capacity of approximately 15% of annual demand. Figure 2b. shows that in general - the Eastern Europe countries score relatively well with regard to storage capacity. Some countries have a surprisingly low working gas capacity indicator compared to others. Belgium for example belongs to the first case. Main reason is that Belgium is less exposed to certain gas supply risks and has consequently different gas supply security requirements. This can also be true for producing countries. In general, countries with a diversified gas import, high share of own production or good level of interconnections with neighbours may be less exposed to risks and may develop less expensive measures than stocks to deal efficiently with supply shortages. Some other countries don t have any storage capacity on their territory at all, such as Slovenia, Estonia, Finland, Sweden, and Luxembourg. Slovenia and Estonia are storing gas in neighbouring countries for their own security of supply purposes. This also explains for example the high working gas capacity in Latvia. During the winter period, gas is supplied from the Latvian underground gas storage site Incukalns to cover the gas demand of for example Lithuania as well. The working gas capacity gives an idea about the maximum quantity of gas that could be stored in a country. Equally or even more important is, in the event of a crisis, to have a quantified indication to what extent storage is filled and how many days of consumption these stocks represent. According to published data of Gas Storage Europe (GSE), the storage levels of European MS were on average for 80% full in the end of December 2008, while on 20 January, this was only around 60%. Individual stock level indicators indicate the stock levels before and after the crisis and detect the stock changes over time. In Greece, stock levels were the lowest, namely only 20% full. This is not a real surprise since storage in Greece is only used for balancing supply-demand in the form of LNG above-ground stocks. In all other countries, stocks were more than half full. In Romania this was exactly 50%. In Germany, stock levels dropped below 59%. This indicates that German stored gas was used to assist countries in need such as for 9

10 example Hungary and Croatia. Also in Slovak Republic, stock levels were quite high at the beginning of the crisis (82%), but fell to around 60% after the crisis. Stock changes can indicate to what extent countries have used there storage. The highest stock change was noted in Austria, namely 33,6%. In the Austrian case, only a small share of these stocks was used for the domestic market. A substantial part was used to help out neighbouring gas markets such as for example Hungary. Stocks levels can also be expressed in days of consumption left. This gives a clear idea of how many days of consumption are left in storage. For example in Hungary in January, capacity was about 78% full. This equaled 46 days of consumption at that time. If they would have been 100% full, this would represent 59 days of actual Hungarian consumption. This indicator changes of course in function of daily consumption rates. B) Withdrawal capacity indicators In most countries, the withdrawal rate was only at 50% of its maximum withdrawal capacity before the beginning of the crisis. During the crisis, withdrawal rates soared and reached levels which were higher than normal, even for a cold winter. The withdrawal rate increased even to maximum levels in certain countries, such as Hungary, Slovak Republic and Bulgaria. This indicated that these countries needed the stored gas very urgently and wanted to bring this gas to the market as quickly as possible. Storage withdrawal at maximum capacity is only possible for a limited time period though. The maximum amount that can be withdrawn decreases over time in function of the available pressure. This was not really an issue for the January crisis (lasted only 14 days), though problems could have arisen if the crisis would have lasted longer or if a second very cold winter period would have came up after January 8. Another indicator in this regard is the withdrawal flexibility indicator and indicates the variations of the operated withdrawal capacity during the crisis period and how much additional gas could be brought to the market thanks to this increase. Results show that in Hungary, withdrawal capacity could be increased from 25 mcm/day to 52 mcm/day, the maximum withdrawal capacity of Hungary. This additional supply to the market is equivalent to 47% of the actual Hungarian consumption levels in January. A withdrawal effectiveness indicator for this measure in Hungary is 86% (% of disruption) and indicates how much of the disruption could be offset, just by applying this measure. Slovak Republic and Bulgaria however could only withdraw respectively 27,8% and 14,7% of the disrupted quantity. The withdrawal flexibility only represented respectively 20% and 12% of their actual consumption levels. Consequently, these countries were less able to use the storage tool to offset the disrupted gas and had to look for complementary measures (infra). The withdrawal capacity can be seen as the bottleneck of storage. Some countries have large working gas capacity but low withdrawal capacity. This can be explained by the available storage infrastructure types in the country (see also annex 1, group 7a.). Countries which only have aquifers and/or depleted gas fields at their disposal most probably will have large working gas volume for summer-winter balancing, but will lack withdrawal capacity in times of crisis events. This was the case in the Slovak Republic and Bulgaria. In the case of other member states the withdrawal tool was sufficient to cope with the gas disruption. Austria could withdraw more than three times its disrupted quantity. For Czech Republic this was more than 130% of the disruption. The excess of gas out of storage could be supplied to other countries in need. 8 IEA assessment Russia-Ukraine dispute, January

11 One of the main lessons learnt from the January gas crisis is the importance of gas storage capacity. The dependency on storage and its flexibility was clearly demonstrated in January 2009, where most MS doubled the gas supply from their storages in comparison to January Storage withdrawal was for a lot of affected EU countries the most effective immediate action they could take. Though for some others this was clearly not the case. Action 1.2: Increase LNG send out capacity Send-out capacity involves the use of LNG as an instrument for security of supply. Basically it is an indication of the rate in which liquefied gas can be regasified and transported via the pipeline system to the market. Of course, not all countries have access to LNG (see also annex 1, group 7b.). In the event of a disruption, the deliverability (i.e. LNG send-out capacity) can be maximized and additional gas brought to the market, though during the crisis, this option was only open to Greece, where average send-out capacity could be increased from 7 mcm/day to a maximum of 12 mcm/day. Similar to the previous chapter, various LNG storage indicators can be calculated such as indicators with regard to LNG capacity, stock level, stock duration, send-out capacity flexibility and effectiveness. Action 1.3: Increase production A third immediate measure is the increase of the indigenous production levels to the maximum capacity. The increased production by the major EU producers played an important role for a number of EU-member states. In Europe only a few countries (Norway, UK and the Netherlands) have substantial gas production and were able to some extent to supply additional gas to the affected region. Production of Norway, EU s second most important source of gas imports, was at an all-time high (342 mcm/d). This helped to mitigate supply concerns in parts of the EU, although that the additional supplies could not always reach the most affected, mainly due to the lack of interconnections. But also some of the affected countries, such as Hungary, Poland and Romania, were able to increase their own production rates to offset the disrupted gas. In the case of Hungary, normal production levels equaled 6 à 7 mcm/day. Immediately after the disruption, production levels went up to a maximum production capacity up to 10 mcm/day. Consequently, an additional 4 mcm/day could be brought to the market. This production flexibility indicator was equivalent to 5% of actual consumption. In Romania and Poland this was respectively equivalent to 3,8% and 1,7% of actual consumption levels. The production effectiveness indicator shows how much of the disruption could be offset by maximizing production rates 10. In Romania this was highly effective, more than 25% of the disrupted gas could be replaced by the additional produced gas. In Hungary, 10% could be offset while in Poland this was 5%. Some affected countries could not (or only marginally) use this instrument during the January crisis. Estonia, Finland, Latvia and Lithuania have no, Bulgaria, Ireland and Slovakia only marginal domestic gas production. 9 EC, Assessment report of directive 2004/67/EC on security of gas supply, SEC (2009) 978, pp Similar to maximizing withdrawal rates, production can only operate at maximum levels for a limited period of time. 11

12 2. Second phase supply side measures Contrary to the immediate supply side measures, second phase supply side measures need more time (1-3 days) in order to be operational. We consider three types of second phase measures (see also table 4). Action 2.1: Route flexibility Route flexibility focuses on the alternative routes, which could be used to bring gas to the market. During the January gas crisis, Russian gas supplies were transported via alternative pipelines through Belarus, bypassing the blocked transit country Ukraine. Some countries could make use of these alternative routes. Route flexibility can only be a successful instrument if sufficient alternative interconnections are available. Interconnection infrastructure is briefly discussed in annex 1, group 7. In this section we first present three interconnection infrastructure indicators, and consequently apply the route flexibility concept to the January gas crisis. A) Interconnection indicators We distinguish two simple interconnection indicators. The first compares in-going and outgoing pipeline capacity. In the case of Austria, this indicator is less then one (i.e. more outgoing than incoming capacity), reflecting Austria s role as a gas hub, which is also the case for Belgium, Germany, the Netherlands and the UK. The second indicator shows the interconnection capacity in terms of consumption, similar to the storage indicator. In terms of nominal interconnection capacity, Slovakia, Belgium and Germany score best. If we take the consumption levels into account, Slovakia is the best interconnected, given its important transit function. However, one should also take into account the number of incoming pipelines. In fact, the Slovak Republic has only one main incoming pipeline, transporting Russian gas via Ukraine to Europe. In the event of the failure (blocking) of this pipeline, all incoming pipeline capacity is lost at once. This is exactly what happened in January Other affected countries, which can be considered poorly interconnected to the network are Romania, Bulgaria and Hungary. B) Route flexibility during January crisis Under normal conditions, 80% of the Russian supplies pass through the Ukraine. However this transit option was completely blocked from the 7 th of January. Russia took some steps to increase supplies via alternative routes 11. The first alternative was an increased use of the Bluestream pipeline under the Black Sea. More importantly for some affected European countries, supplies from the Yamal fields were increased. This could bypass Ukrainian transit with transport through Belarus. However, not all countries could benefit from this route flexibility due to a lack of interconnections. For most affected EU-countries (Hungary, Slovak Republic, Bulgaria, Romania, Greece, Slovenia and Austria) there was no possibility to receive any Russian supplies between 7 and 20 January via other routes. Countries to which Russian gas could be transported via Belarus were for example Poland, Germany and Czech Republic. Poland only lost 17,4% of the actual Russian imports, the Czech Republic could still receive 45% of their Russian gas imports (% of normal supplies via other route). Consequently, route flexibility through Belarus could substantially mitigate the initial gas disruption for Poland and Czech Republic. Other affected countries couldn t make use of this instrument due to a lack of alternative infrastructure to bypass Ukraine and transport Russian gas to their domestic markets. 11 EC, The January 2009 gas supply disruption to the EU: an assessment, SEC (2009) 977, pp

13 Action 2.2: Alternative imports flexibility The majority of affected countries was not able to access Russian gas through alternative routes (i.e. route flexibility) and had to look for imports from alternative suppliers. The countries that receive regular gas supplies from other gas suppliers (than Russia) could in most cases receive additional gas supplies from their alternative suppliers. Investment in alternative gas supplies paid off for those Member States who had already pursued a policy of supply diversification in recent years 12. Slovenia for example was able to compensate for Russian supplies by gas imports via Algeria. Czech Republic, Austria and Hungary were also able to compensate with Norwegian gas imports via Germany. There were also additional supplies from Libya which for example helped Italy. For some other affected countries that only relied on one supplier in normal times, the situation was more complex, because there were no existing import contracts. Moreover, gas infrastructure was not always easily adjustable to this crisis situation. Similar to the route flexibility option, this alternative imports option was constrained by the interconnection capacity (see also annex 1, group 7). Alternative gas was available, but could not be transported to the market due to infrastructure constraints (capacities, unusual routes, insufficient interconnections, reverse flow capabilities). For example, increased production from the Netherlands and additional supplies from the UK could simply not reach needy customers in Bulgaria and Slovak Republic 13. In the end, reverse flow capacities turned out to be a very important tool to find alternative imports for the most affected countries. This option took a long time due to technical constraints. For the Slovak Republic and Bulgaria this measure only came into effect during the last days of the crisis. On January 18, the main East-West pipeline was reversed from Czech Republic to Slovak Republic. On January 19 (one day before the end of the crisis), Greece reversed gas pipeline flows to Bulgaria. Action 2.3: LNG flexibility Next to storage, production and pipeline imports, some European countries have the ability to acquire additional LNG shipments through their existing LNG-terminals. During the recent crisis Turkey and Greece made use of this third second phase measure. In the case of Greece, access to rescheduled LNG cargoes was extremely important. The situation in Greece was serious the first days after the disruption. 80% of its natural gas imports via Bulgaria were cut off. Also Azeri gas supplies via Turkey were decreased by 2 mcm/day. On January 9, gas stocks fell almost below the daily gas consumption 14. Thanks to their LNG terminal in Revithoussa, additional LNG supplies (spot LNG cargoes) could be brought just in time to the Greek market. In the second half of the crisis, Greece was even able to offer 2.5 mcm/day to Bulgaria from its LNG supplies. Therefore the pipeline interconnection between Bulgaria and Greece was reversed. An additional LNG cargo can be expressed in days of actual consumption. For example in the case of Greece, every additional spot cargo of approximately 40 mcm could bring an additional 3,6 days of actual Greece consumption. One LNG cargo per three days was needed to completely offset the Greece disruption. 12 EC, The January 2009 gas supply disruption to the EU: an assessment, SEC (2009) Pirani, S., EC, The January 2009 gas supply disruption to the EU: an assessment, SEC (2009)

14 Application to affected EU member states Twelve EU-countries were affected from the January 2009 gas crisis, namely Hungary, Czech Republic, Slovak Republic, Bulgaria, Italy, Romania, Greece, Slovenia, Germany, Austria, Poland and France (see also figure 1). Through the use of flexibility and effectiveness indicators of the various measures (as described above), we can assess to what extent the individual measures helped to offset the disruption. In this respect, we identified three different groups of affected countries. For a first group of countries, the combination of the first phase measures, such as storage and production, would have been sufficient to offset the gas disruption they faced. Germany, Austria, Italy, Poland, Czech Republic, Slovenia and France are in this group and were the least affected EU-countries of the group of 12 affected countries 15. A second group (Greece, Romania, Hungary) could only manage the situation with a combination of first and second phase measures. Alternative gas or LNG imports from other suppliers were necessary. Though these alternative imports could be organized in a relative short time period. The third group (Slovak Republic, Bulgaria) had more difficulties to offset their disrupted gas quantities. The first and second phase measures were not sufficient to replace the disrupted gas. They needed unusual measures which needed more time to be implemented. Table 5 gives an overview of the three country groups and illustrates how affected EU-countries made use (or no use) of the various measures (i.e. six actions) GROUP 1 Germany X X X X Austria X X X Italy X X X X Poland X X X X Czech Republic X X X Slovenia X X France X X X X X GROUP 2 Greece X X Romania X X X Hungary X X X X GROUP 3 Bulgaria X X* X** Slovak Republic X X* X** * limited quantities ** only in later stage Table 5: Overview of the three country groups and used measures 15 Though, a lot of these countries also used second phase measures, in combination with first phase measures. These first phase measures were then not deployed at maximum levels (no maximum withdrawal or production levels). 14

15 In the next paragraph, we compare six affected EU-countries, namely Czech Republic (group I), Hungary (group II), Romania (group II), Greece (group II), Slovak Republic (group III) and Bulgaria (group III). Table 6 gives an overview of the effectiveness indicators of the various actions. These indicators show how much of the disruption could be offset by making use of the individual actions. In % of disruption Czech Slovak Hungary Romania Greece Republic Republic Bulgaria Group Group I Group II Group II Group II Group III Group III Action % 86% 62% 0% 28% 15% Action 1.2 0% 0% 0% 62% 0% 0% Action 1.3 0% 10% 26% 0% 1% 1% TOTAL 1st phase 132% 96% 88% 62% 29% 16% Action % 0% 0% 0% 0% 0% Action % 13% 13% 0% 0% 0% Action 2.3 0% 0% 0% 169% 0% 0% TOTAL 1st + 2nd 176% 109% 101% 231% 29% 16% Table 6: Comparison of measures between countries (in % of disruption) 1) Czech Republic The increased use of its storage facilities was sufficient to offset the disruption (action 1.1). In a second phase, Russian supplies (from Yamal) could be transported to Czech Republic using an alternative route via Belarus (action 2.1). There were also some additional Norwegian supplies (action 2.3). 2) Hungary Storage flexibility was by far the most effective instrument to cope with the disruption. 86% of the daily disruption could be offset by using this measure (action 1.1). Also the production levels were increased. 10% of lost gas could be replaced by increased production (action 1.3). Though, immediate measures were not sufficient to cope with their disruption of approximately 35 mcm/day. In a second phase some imports from other suppliers (Norway, Austrian storage) could be increased (action 2.2). We can conclude that in the case of Hungary, short term measures were the most effective. Second phase measures would have become increasingly important if the disruption had lasted longer. 3) Romania Storage flexibility was an effective tool in the case of Romania. 62% of the disruption could be replaced with gas out of storage (action 1.1). The increased production was an important tool for Romania, 26% of the disruption could be replaced through increased production levels (action 1.3). Immediate measures were (just) not sufficient to cope with their disruption of approximately 9 mcm/day. In a second phase only limited alternative imports from other suppliers could be increased (action 2.2) since the two incoming pipelines in Romania both come from Ukraine. 4) Greece LNG played a very important role during the January gas disruption since Greece has no underground storage and no production. In a first phase, average send-out capacity could be increased by 5 additional mcm/day (action 1.2). However, this first phase measure was far from sufficient as stock levels decreased. At a given time, the situation was quite serious. On the 9th of 15

16 January, gas stocks fell almost below the daily gas consumption 16. Thanks to their LNG terminal in Revithoussa, additional LNG supplies could be brought just in time to the Greek market (action 2.3). This could completely offset the daily disruption. 5) Slovak Republic Storage flexibility was limited and could only offset 28% of the daily disruption (action 1.1). Also the increased production was near to 0, only 0,5% of the disruption (action 1.3). Immediate measures were far from sufficient to cope with the disruption of approximately 20 mcm/day. No Russian supplies could be transported to the Slovakian market, by making use of alternative routes. In a second phase initially, no alternative imports from other suppliers could be increased. Additional measures were necessary (infra). 6) Bulgaria Storage flexibility could only offset 15% of the daily disruption (action 1.1). Increased production was near to 0, only 0,9% of the disruption (action 1.3). Immediate measures were far from sufficient to replace the missing gas. In a second phase, it was initially not possible to bring alternative imports to the Bulgarian market. Additional measures were necessary (infra). Conclusions: third phase supply side measures Supply side measures were structured in three groups. For most affected countries, there were several supply-side options to offset the disrupted gas. A combination of first and second phase measures was in most cases sufficient to entirely replace the disrupted gas, by for instance increasing storage withdrawal, increasing production rates or rise alternative imports. However, for some countries, first and second phase measures were not sufficient, namely for Bulgaria and Slovak Republic. For these countries, third phase supply side measures were necessary. It took more than some days for these measures to be operational. As for Slovak Republic, only on 18 January the main East-West pipeline was reversed from Czech Republic to Slovak Republic. This was an unusual route and took a lot of time to become operational. Regarding Bulgaria, only on 19 January (one day before the end of the crisis), the pipeline between Bulgaria and Greece was reversed. Consequently, gas from rescheduled LNG cargoes could be supplied to the Bulgarian market (2,5 mcm/day). Until now, we have considered demand as constant. This is not the case in reality. In Hungary for example, consumption equaled 68 mcm/day at the beginning of the crisis. By January 22, consumption had dropped to only 49 mcm/day mainly due to an increase in temperature (from freezing to +5 degrees Celsius) though other measures also contributed to demand reduction. We will discuss the demand-side instruments in the next chapter. 16 EC, The January 2009 gas supply disruption to the EU: an assessment, SEC (2009)

17 Demand side measures One assumption so far was a constant consumption level during the crisis. In reality, this was not the case. Demand evolved during the crisis, primarily in function of the temperature. Also demand side management played an important role in the decrease of demand. In this chapter we briefly discuss the two main demand side measures, namely switching capabilities and interruptible contracts and introduce some related demand-side indicators. Switching capabilities A first demand-side instrument is switching to alternative energy sources (mainly fuel oil and coal). In the short term, mainly industrial users, power stations and district heating can switch to alternative fuels, though this is not an option available to all, due to technical constraints and the availability of alternative back-up fuels. The first constraint is the available capacity that can be switched to other fuels 17. According to a survey of DG TREN 18, Finland has a 90% possibility to switch from gas to another fuel, Sweden 30-40%, six Member States (Belgium, Denmark, France, Germany, Ireland, Italy, Lithuania, Slovenia) between 6-18%, while Austria, Poland, Slovakia have no fuel switching possibility at all. An indicator is used to describe the switching capacity as a share of gas consumption. Another indicator in this respect is the effectiveness indicator of the switching capabilities and indicates the share of the disrupted gas that could be replaced by applying switching capabilities. In the case of Hungary, 32% of total gas is consumed by the power generation sector. As a consequence, we assume that the same proportion of the gas fired power generation was disrupted, namely 32% of the total gas disruption of 35 mcm/day, equivalent to 11 mcm/day or 73 Gwh/day. In Hungary, the sum of the gas to fuel oil and the gas to coal switching capabilities is around 2893 MW or approximately 69 Gwh/day. So assuming that all switching capacity could be used during the crisis, 95% of the disruption could be offset by using all switching capabilities 19. A second important issue is the availability of sufficient back-up fuels to run the switched infrastructure. As for gas, the most used alternative fuel is light fuel oil. Hungary issued on 7 January a government emergency decree requiring all gas-fired power stations capable of switching to fuel oil to do so. All of those power plants had sufficient liquid fuel stocks as required by law 20. In Moldova for example this was not the case and an official request to the EU was sent on 16 January to get additional fuel oil, as Moldova was unable to buy it on the market in time. In Hungary, ton of fuel oil per day would be needed in order to use 100% of the switching capabilities. Other useful indicators can indicate the number of days of available backup fuels. One could even go further in detail and include fuel oil stock level indicators, fuel oil refinery indicators and fuel oil import and export indicators. This could also be done in a similar way for coal. 17 Official data about fuel switching are scarce. 18 EC, Assessment report of directive 2004/67/EC on security of gas supply, SEC (2009) Not realistic, several scenarios can be assessed. 20 Kovacevic,

18 Interruptible contracts Interruptible contracts enable to cut-off gas customers under specific circumstances (e.g. gas supply disruption), but in the same time, they should not have any negative impact on customers. These contracts are used in industry and power generation, where gas is not the main/important fuel of industrial production, or where the industry can switch to alternative fuels. In the case of Hungary 10,2 mcm of total gas is consumed by the industry. At a given time, we have information that 9 mcm/day was interrupted. Assuming that all interrupted demand came from the industry sector, 88% of the industry demand could be interrupted (interruptible demand indicator). Regarding power plants, all gas-fired power plants in Hungary above 50 MW in capacity are interruptible consumers. 21 Next to the interruptible demand indicator, it can also be useful to have a quantitative assessment of uninterruptible demand. Some consumers and industry are protected because they are considered as a priority for the economy and society, and because in most cases they cannot switch to alternative fuels. Services to household consumers are generally given priority throughout the crisis. District heating is also considered as uninterruptible demand during winter. In Hungary, this share of uninterruptible demand is likely to be higher than in Greece. Hungarian households consume 30% of total final consumption whereas in Greece this share is only 5%. Several scenarios can be assessed by using interruptible demand indicators. In the case of Slovak Republic and Bulgaria, it turned out that applying the first and second phase supply side measures (storage, production, LNG, route flexibility, alternative imports) and the demand side tools (switching capabilities and interruptible demand) were not sufficient to replace the disrupted gas entirely. Third phase supply measures (unusual reversal of the East-West connection and the reversal of the Bulgaria-Greece interconnection) were still necessary. 21 Kovacevic, A.,

19 Conclusions The January 2009 gas disruptions resulted in the most serious gas supply crisis to hit the EU in its history, depriving EU Member States of 20% of their gas supplies. Coinciding with a cold spell in many parts of Europe, it demonstrated the vulnerability of the EU and some of its Member States to gas disruptions 22. This paper tried to identify and quantify some of these main vulnerabilities for individual EU-countries through the use of crisis indicators. We aimed to identify which crisis instruments were useful for individual countries. Preference is given to the use of simple, easily applicable indicators as opposed to aggregate composite indicators for applicability and transparency reasons. The crisis indicators were applied to the January gas dispute. The EU countries coped with the disruption through a variety of mechanisms, some of which could be used immediately, while others took some time to be organized. We found that the use of immediate supply side measures, in particular increase of storage withdrawal, send-out capacity or production rates was for many EU countries sufficient to cope with their gas disruption (for example for Austria, Germany, France, Czech Republic, Poland). For some other countries though, second phase measures were necessary. Greece for example required rescheduling of LNG cargoes. Hungary needed alternative imports from Norway and received some gas from Austrian storage facilities. Also for Romania, increased storage and production rates were not sufficient in a first stage. Alternative imports were needed. For a third group of countries, the combination of immediate and initial second phase measures were not sufficient to cope with the gas disruption they faced. This was the case for Bulgaria and Slovak Republic. More unusual measures were needed in this case as for example the reversal of the East-West connection and the reversal of the Bulgaria-Greece connection. In addition to these unusual supply-side measures, also strong demand-side management was needed such as switching to alternative fuels and interrupting gas deliveries to certain industries. Undoubtedly, this caused financial losses to industries and consequently damaged the countries economies. Some non-eu countries were hit even harder, such as Serbia, Bosnia and Moldova, but were not in the scope of this work. For the most affected countries it became clear that increased investments in additional infrastructure is highly necessary. Some important conclusions are: A need for more storage at higher withdrawal capacity in Slovak Republic and Bulgaria. Improve physical interconnections between EU countries (inter alia build gas interconnection lines between Bulgaria and Greece, Turkey and Romania, Romania and Hungary, ). Make quick reversal possible from western Europe to eastern European countries One or more large cross border projects as for example the Nabucco project could be of huge importance for some highly affected countries and bring more diversification, in terms of routes and suppliers. Alternative suppliers (using existing or new infrastructure) for those dependent on only one supplier, such as for example Bulgaria and Slovak Republic (= reduce supply risk). Alternative routes for those dependent on only one main supply route, such as for example Bulgaria and Slovak Republic (= reduce transit risk). Access to LNG (= diversification of sources), also for landlocked countries through interconnections and commercial agreements. 22 Regional centre for energy policy research, Budapest 19

20 Importance of LNG terminals in Adriatic region, for example Croatia. Invest in renewable energy sources, in order to decrease the dependence on gas in the energy mix. Build sufficient storage capacity for back-up fuels (fuel oil and/or coal). The projects in the European Economic Recovery Plan 23 are important in meeting reasonable security of supply standards. In the current economic and financial climate, incentives for investment are of fundamental importance. Since some projects are delayed due to uncertainty about future demand, proper planning of gas demand scenarios is necessary, as the construction of new pipelines and LNG terminals takes 2-5 years. Investment decisions not taken now could lead to future energy supply and transport constraints. 23 EC Recovery plan,