Perspectives of the North-South Gas Corridor
Connecting the Baltic and Adriatic Seas by a natural gas corridor creates an opportunity of improving significance of East Central Europe’s countries which part of is the Visegrad Group. The article gives an account of the project – its political, economic importance and the role it plays in the V4 countries’ common foreign policy goals. It also adressess the subject of problems on achieving implementation of the endavour, inter alia obstacles of competitive, currently negotiated infrastructures in EU, which puts into question achieving all of the stated objectives. What more, several ways to enhance the cooperation between the countries working on building integral common market were considered.
The beginnings of cooperation
15 February, 1991 the representatives of three countries: Poland, Hungary and Czechoslovakia gathered in Hungarian town Visegrád. Polish and Czechoslovak presidents -Lech Walesa and Václav Havel respectively - together with Hungarian Prime Minister Józef Antall signed The Visegrad Declaration which has initiated an ongoing cooperation between the countries.  The similarity of history, situation that has evolved over the past decades and the geographical proximity have determined common aims in terms of policy, industry, education and security. Developing democratic system and a full participation in European economic system – in particular the energy industry - were one of the most crucial set targets.
Nowadays – in times of an active participation of the V4 on the European Union Market and, most importantly, when the energy has become a bargaining chip in political negotiations - above mentioned partnership is even stronger. Thus the pressure on meeting the EU energy policy objectives, namely:
- providing security of energy sources supplies
- high energy efficiency
- sustainable environment development
The countries combined in the V4 group have come up with the idea of seizing the advantage in Central Europe’s strategic regional importance. Only by joining forces energy security can come true and stop being just a slogan.
Referring to the point which raises the issue of sustainable environment development, mentioning the demand on ecological energy sources cannot be disregarded. In the era of CO2 limits and fighting against global warming effect, the prospective alternative for coal can be undoubtedly natural gas. Low greenhouse emission, easy storage and transport and cleaner process of burning makes it one of the most desirable source.
Nevertheless considering the natural gas as a future solution brings back another EU energy policy issue – security of energy supplies. The scale of the problem which is driven frequently on the international area, is undeniably visible when looking at the annual energy data. The BP’s Statistical Review of World Energy 2015 shows that a big majority of natural gas supplies in the V4 group comes from Russian Federation. 
The dependency on the supplies from the biggest country in the world, resemblance of problems they deal with, geographical proximity and another economic, political and geographic factors led to the idea of building the North South Gas Corridor –one of the promising solutions to enhance or, what is fair to say, create the Eastern Europe’s energy security. As an initiative of the Member States on February 24, 2010 in capital city of Hungary there was organized the V4+ Summit.  One of the main assignments was connecting North and South by the Corridor. Finally on November 17, 2010 the European Commission presented its energy infrastructure priorities. In the gas section one of three identified priority corridors was the North-South Gas Corridor. 
The project is in fact a link of a number of projects that are to enable continuous gas transmission in the region of the Baltic, Adriatic and Black Seas, even in the situation when Russian supplies absences occur.
The North South Gas Corridor will connect LNG Terminal in Świnoujście with still-planned Adria LNG terminal in Krk – the island of Croatia. It will lead through Central Poland, the Czech Republic, Slovakia, Hungary - all of the countries which build the Visegrad Group. In this infrastructure the role of gas trading centre will fulfil the Austrian gas hub – Baumgarten. 
What is a good point of the project, the corridor includes many gas connections that have already been built, still, there are many parts that are essential and on various levels of construction process. For a project of this scale, problem of synchronization possesses a risk of too long evaluation process.
Nevertheless, the need for real integration of EU members, at level of common market foremost, and for becoming independent from one source of natural gas supplies, make prompt completion of the venture one of the flagship goals of the Visegrad Group. It has such a considerable meaning that a great amount of interconnections and construction elements acquired the status of “Project of Common Interest”.
The projects labeled as PCI are considered by the European Commission to be the most relevant energy infrastructure plans. Energy infrastructure is defined here as gas and electricity transmission, oil and LNG infrastructures and smart grids as well. A meaningful impact on at least two EU Members, resulting both in improvement of market integration and an increase of its competitiveness and enhancement of the supplies safety are among the prerequisites for the status. The benefits are unquestionable. The most obvious but also needed – financial support. The eligible investments can have access to €5,85 billion budget of Connecting Europe Facility programme approved for the period 2014-2020. Attractiveness and visibility grow while the licensing procedures are accelerated. 
One of the most important investments included in the Corridor is LNG Terminal Świnoujście, which process of building was supervised by polish gas transmission system operator GAZ-SYSTEM S.A. It is a very strategic point considering the whole endeavor. It lets deliver liquefied natural gas by sea transport practically from every direction in the world. After being delivered, created infrastructure enables the process of regasification with declared capacity of 5 bcm. The first official information was released in February, 2006 in resolution about activities leading to diversification of energy carriers supplies. The idea has its base in conflict between Russia and Ukraine. On January 3, 2006 Gazprom began to lower pressure in pipeline what finally led to suspension of gas supplies. The situation though influenced not only Ukraine but also, among others, the V4 countries, where the supplies where from 14 to 40% lower. 
Even though the idea arose in 2006, no legislative work was taken until 2009. Only then – on April 24, 2009 – the Act on investments in terms of liquefied natural gas regasification terminal in Świnoujście was signed up by polish president – Lech Kaczyński. The simple road of giving the legal basis that makes the physical realization of the project real took 3 years. The initial completion date agreed with the general contractor was June 2014 when The Polish Oil and Gas Company was to receive LNG gas supply from Qatargas - the largest LNG producer in the world. That’s the second thing that didn’t go with plan.
As visible, talking about the period of building the terminal, it’s hard not to mention the enormity of the problems faced. Despite the fact that, as abovementioned, the first information about the project appeared in 2006, the first commercial cargo arrival took place on June 17, 2016. The Q-flex type ship “Al-Nauman” delivered 210 000 m3 of liquefied gas, what gives 128 100 000 m3 of natural gas (the amount used during about 3 days). Such a delay resulted in investigation the investment by Supreme Chamber of Control of the Republic of Poland, which pointed out many failings and negatively assessed the way of leading the project. 
The already built terminal in Świnoujście is the first design this type in the whole Middle East Europe and the region of Baltic Sea. It consists of the plant used for off-taking and regasification of liquefied natural gas (what is defined as heating it to transform it back to gas), breakwater on the Baltic Sea, the port infrastructure and the connecting gas pipeline. According to the data published by GAZ-SYSTEM S.A. the total cost of the terminal construction amounts 3,04 bln PLN. The sum involves following:
- 1,62 bln PLN from GAZ-SYSTEM S.A. (within recapitalization of POLSKIE LNG S.A. including European Investment Bank and European Bank for Reconstruction and Development support)
- 1,06 bln PLN – the EU funds (including Operational Programme Infrastructure and Environment 2007-2013 and European Programme for Recovery)
- 0,36 bln PLN – other sources (European Investment Bank and European Bank for Reconstruction and Development funds) 
The very expected start of the terminal is an undeniable success, but looking into the past, one can easily notice activities which not necessarily gave the impression of fully proper. The following example is a good way to see it. Saipem – the leader of consortium which was in charge of building the terminal – in March, 2014 gained €2 billion contract for building the first line of the South Stream Offshore Pipeline from Russia to Bulgaria across the Black Sea.  What is interesting – 50% of South Stream Transport B.V.’s shares belong to Gazprom. This information created suspicions, that the delay in the construction may be connected with Russia which finds the terminal competitive to natural gas which Poland imports from its eastern neighbour. What is more – the delay placed PGNiG in a difficult situation. The company was to negotiate lowering the price (one of the highest in Europe) of the imported gas under the terms of contract for 2010-2022. The ability of LNG deliveries was to strengthen its position in deliberations. 
The potential of LNG
So far as a result of Open Season Procedure 370 000 normal cubic meters per hour (of 570 000 available) were allocated. This 65% of the terminal’s power has been reserved by Polskie Górnictwo Naftowe i Gazownictwo S.A. Under a 20-year contract signed with Qatargas, the amount of 1,3 bcm of liquefied natural gas will be imported from Qatar each year. The second delivery was the amount of 140 000 cm (84 mln of natural gas) from the Norwegian Statoil on June 25, 2016. It was delivered from port Melkøya by “Arctic Princess”.
According to the data published by International Monetary Fund in May, 2016 the price of 1000 cm of LNG at the Dutch Stock Exchange Title Transfer Facility (TTF) was estimated for $113, while at the end of April 1000 cm of the Russian natural gas cost $105. When comparing it to money that Poland had to pay for the same volume in the first quarter of 2016, namely $212 – it is easy to notice the potential of LNG, which hopefully will be harnessed. 
Croatia, as Hungary’s neighbour, joins the flagship project of the V4 group – creating the Corridor. It is clear to Zagreb as well as to other countries from the region of the Visegrad Group, that making a common energy market and so developing the infrastructure system is essential to strengthen their position on international area. In November, 2011 Croatia and other neighbouring countries signed “Memorandum of Understanding on North-South Interconnections in Central-Eastern Europe”.  This impulse initiated further cooperation, what resulted in signing a declaration in 2012 by GAZ-SYSTEM S.A. and Croatian gas transmission system operator Plinacro d.o.o. in order to develop the LNG market, underground gas storages and interconnections.  It generally comes down to connect Polish LNG Terminal in Świnoujście with planned Croatian Adria LNG Terminal. It is a strategic place at the axis north-south. Its valuable role is emphasized by the fact of being regarded as one of the Projects of Common Interest. The company that is responsible for completing the plan is LNG Hrvatska d.o.o.
It will be located in Omišalj on the island of Krk in Croatia. The future idea is to build an onshore LNG terminal (4-6 bcm/year) but so far the first phase, which hopefully will soon be finished, has been scheduled. Its aim is to create LNG regasification vessel with a send-out capacity of 1-2 bcm/year. The investment includes pipelines with Slovenia, Italy and Hungary, which are very important from the V4 group’s point of view. Due to existing gas pipeline Városföld (Hungary) –Slobodnica (Croatia) with capacity of 6,5 bcm/year the further connection with the V4 group countries is possible.  It is now barely used, but once the Adria Terminal is finished, its importance may significantly grow. Croatia may also rely on the USA’s support. The country expressed its interest in the investment as one of possible LNG delivers (apart from Qatar and Australia).
An undeniable advantage of the floating unit is low cost of maintaining and accomplishing the project as well as crucial in this case - short time of its completion. As the planned date of running the terminal’s work is estimated to be 2018 (while the time of finalization of onshore project may last about 5 years – after 2020), what is a positive factor of accelerating stronger cooperation leading to integral energy market.
What else do we need?
The abovementioned terminals are not the only needed investments. There are also other crucial elements of the North-South Gas Corridor. The crucial elements in this case mean interconnectors with the Czech Republic and Slovakia.
Poland - the Czech Republic
GAZ-SYSTEM S.A and NET4GAS s.r.o. the Polish and Czech transmission system operators, are the ones who are responsible for creating the connection between Polish and Czech gas systems. The project named “STORK II” consists of upgrading the interconnection and related pipelines in Western Poland. In practice it is related to building the following route: Libhošť (in the Czech Republic)- Hať (Czech-Polish border) – Kędzierzyn (in Poland). This bidirectional interconnector which will integrate the systems consists of:
- 52 kilometer long pipeline (with diameter of 1000 mm) from Libhošť to Hať
- 55 kilometer long pipeline (the same diameter) from Hať to the compressor station in Kędzierzyn
- reinforcement of the following parts of the gas transmission system:
-Strachocina-Pogórska Wola 
The project "Preparatory studies for the Poland-Czech Republic interconnection between Libhošť (CZ)- Hať (CZ-PL) – Kędzierzyn (PL)" was granted financial support of European Union – €1,5 million from the CEF (Connecting Europe Facility) fund.  Its cost amounts approximately €3 million. The cost of the investment according to the Polish Ministry of the State Treasury is estimated for 482 mln PLN what gives about €180 mln.  So far the construction works were granted €62,6 mln under the CEF fund.  The completion date is forecasted to be 2018.
Poland – Slovakia
The second relevant project is to connect Polish and Slovak gas systems. It is still at the level before investment. The entities responsible for constructing are the Polish and Slovak transmission system operators - GAZ-SYSTEM S.A. and eustream, a.s. The investment possesses considerable aspects. It will, inter alia, give Poland access to supplies from the South Corridor to South-East Poland which has storage facility and developed transmission system. It is also important while taking into account the fact that the ability to import gas from Ukraine is getting lower.
The route includes connection: Velké Kapušany (in Slovakia) –Polish/Slovak Border – Strachocina (in Poland) and the extension of the internal transmission network in Poland. The project consists of the following:
- 58 kilometer long pipeline on the Polish side
- 106 kilometer long pipeline on the Slovak side
- reinforcement of the following parts of the gas transmission system:
In May, 2015 it was granted financial support from the EU - €4,6 mln under the CEF fund for preparatory studies and engineering works.  According to the Polish Ministry of the State Treasury the value of the investment amounts approximately 387 mln PLN what gives about €96,7 mln. It is planned to be finished in 2019/2020. 
Slovakia – Hungary
The gas connection between Slovakia and Hungary, namely from Veľké Zlievce (in Slovakia) across Balassagyarmat border (Slovakia/Hungary) to Vecsés (in Hungary) is another investment with PCI status. It is on the level when responsible companies were chosen: the Hungarian Magyar Gáz Tranzit ZRt. and the Slovakian eustream a.s. . The interconnector provides a bidirectional transmission opportunity according to EU standards. The European Energy Programme for Recovery (EERP) supported the project with €30 million. The total cost is more than €170 million (€21 million on the Slovak). 
Poland – the Czech Republic
- 55 km from Kędzierzyn (PL) to Hať (CZ-PL)
- 52 km from Hať (CZ-PL) to Libhošť (CZ)
-To the Czech Republic 5 bcm/year
-To Poland 6,5 bcm/year
-construction of the gas pipeline Kędzierzyn-Koźle – Hat
-metering station on the Polish/Czech Republic Border
-gas node and compression station in Kędzierzyn-Koźle,
-construction of gas pipeline Libhost – Hat,
-construction of gas pipeline Tvrdonice – Libhost,
- upgrade of compressor
Poland - Slovakia
- 58 km from Strachocina (PL) to Polish/Slovak border
- 106 km from Polish/Slovak border to Velké Kapušany (SK)
-To the Slovak Republic – 4.7 bcm/year
-To Poland – 5.7 bcm/year
-construction of the gas pipeline Strachocina - Polish/Slovak
Border with the gas node, -construction of compressor
station in Strachocina
-gas pipeline Polish/Slovak Border-Velké Kapušany,
-construction of metering station at the border and modification of the compressor station
at Veľké Kapušany
Slovakia - Hungary
- 94km from Vecsés (HU) to Balassagyarmat (HU/SK)
- 19 km from Balassagyarmat to Veľké Zlievce (SK)
-To Hungary 4,5 bcm/year
-To Slovakia 1,8 bcm/year
Commercial operation lunched on 1st July 2016
The cooperation on the north-south axis facing the eastern plans
A highly needed infrastructure connection between the Baltic and Adriatic Sea has to face number of challenges before finally benefiting from the planned common gas market. Apart from administrative/procedural constraints to timely deliver the projects, there is also an issue of competitive projects. One of them potentially threatening main assumption of the North-South Corridor seems to be planned Nord Stream 2 – parallel pipeline doubling the capacity of Nord Stream from 55 bcm to 110 bcm. It will connect Vyborg in Russia with Greifswald in Germany by the pipeline on the bed of the Baltic Sea, though, omitting natural transit countries such as Poland and the Baltic states. It is the longest subsea pipeline in the world and undoubtedly one of the most controversial. This infrastructural solution provide an opportunity of usage natural gas supplies as an instrument of political or economic pressure. It is thus well thought out action as avoiding transition through before mentioned countries – leading the pipeline across the sea lowers the costs of the whole investment. Lowering costs means that gas transit fees may be lost by Poland and other naturally transit countries. Nord Stream II - a twin project to Nord Stream will give the Russian Federation even bigger possibility to either resign from using Ukraine as transiting country or significantly limit the amount of exported gas in 2019 when the current contract loses its validity
Furthermore, given the fact, that the idea of the project’s investors and designers is to lead great amount of the blue fuel from Nord Stream 2 to East and South Europe, the proposed infrastructure may occur competitive to the North-South Corridor. It is determined by the fact of the same assumption – providing East and South Europe with Northern gas. However, to alternate supplies and become independent from one supplier, the source of the gas flowing through the Corridor should reasonably be either from the Norwegian shelf or the LNG market. Supplies from the Baltic subsea pipeline means the same Russian gas the EU wants to reveal from.
Another trial of Russian Federation to export greater amount of gas to Europe is planned for 2019 EUGAL – NORD STREAM’s branch pipeline which is to run along yet existing OPAL line - from Germany to the Czech Republic. In case of OPAL Gazprom was in 2013 excluded from the antitrust TPA rule what enabled usage of 50% of pipeline’s capacity. EUGAL might make circumvent the EU law possible. Through this infrastructure committing bigger volume of gas, even without full OPAL’s capacity access, does not pose any problem. What is more, if demand on the EUGAL gas in Poland appears – using Jamal reverse or interconnectors with Slovakia and the Czech Republic - seemingly the number of alternatives to Gazprom offer will rise, but in practice Nord Stream gas will be likely to flood the East-South market. 
Nonetheless, if complying all the projects included in North South succeeds, the market will be secured from saturation with Russian gas. Countries which areas are covered by the Corridor’s plan may take steps in order to create regional gas hub, what, taking into account economic aspects, seems to be a big chance for the region to decouple from the Eastern gas and become a significant player on the international stage. The Visegrad Group as one entity can do a great deal more than four separate members.
Undertaking common steps
Each presidency of four countries brings back the necessity of making future plans, what should accelerate the process of creating the infrastructure. One of steps taken to aim this goal was establishing the V4 Forum for Gas Market in June, 2013. Due to the assumptions, it should improve cooperation among ministries, national regulatory authorities and transmission system operators in terms of politics. It also deals with defining timetables of the processes – specifying timescales of each part of a big project opens the door to assess realistic potential of created infrastructure. 
Apart from creating legal instruments supporting progression of the endeavour, key objectives are being set. Development of existing and forming new infrastructure is mainly emphasised course. It is an inevitable element of building a common energy market and generating real cooperation interconnections between the V4 group and East Central Europe countries. To attain this, the governing parties should point their assistance on energy policy in domestic regulations and, what is important, maintain continuous political strategy, approved not only by the ruling elite, but also by the opposition. Applying fixed, determinate “no regret” approach may engender lasting changes. Therefore staying open to possible future offers sometimes contrary to the other doesn’t foster the common interest and indicates the desire of individual benefits.
Only simultaneous work of all the V4 members with balanced involvement triggers the integration resulting in creation of infrastructure such as North-South Gas Corridor. It is priority investment not only constituting improved alternatives to the Russian supplies but also opening the market to north and south directions. However the actions are not focused on complete phasing out economic negotiations with the Eastern neighbour. The North-South Corridor streamlines the position while bargaining on prices of the imported gas and presents its real competition as it expresses common interests of a bloc of countries. The project has indisputable potential to give rise to geopolitical breakthrough.
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