No Pain Today, No Pain for Tommorow's Gas

Covering your financial shortfalls with a loan, or with your credit card, or to make you more popular is a trick that even households use. The government of Hungary in the fall of 2008 deferred raising the gas price to reflect the international rise in price. This resulted in E.ON striking an agreement with the government that the price difference would be paid back in the future on loan-like terms. Well the bill has come due, and the overall price has dropped. While I pointed out earlier Romania has dropped their gas prices by 33%, Hungary says it will drop gas prices but it will also be placing a special charge on gas to cover the repayment, as reported by IntelliNews - Hungary Today .

The government continued to plan a reduction of retail gas prices from the beginning of October, the state secretary of the energy ministry, Lajos Olah, announced. He pointed out that these plans should not be affected by the commitment to compensate gas utility E.On. The volume of the compensation amounted to HUF 60bn (EUR 215.2mn) and should be made till the end of 2010. Financing of the payment would come from a special item in the gas price but Olah reiterated that this special item would not put pressure on gas prices since it would be offset by an import price-correcting factor.

What can be learned from this? Sometimes you get lucky, if the price of gas had not fallen then consumers would have been stuck with an even higher bill, but in this case, a few million euros worth of a 'loan' forced on a company have paid off. If consumer's bills don't increase, they won't notice that -again- they are paying more than they should.

Go into Debt and Save on Your Gas Bill

In an era where credit cards are quickly going out of fashion we have the launch of a new 'money saving' credit card (in case you didn't know, debit cards are the new black -at least in America) . Budapest Bank and Fogaz have teamed up to co-brand a credit card that allows the average customer to save up to HUF 13,200 (EUR 47.12 USD 65.88) a year through a 6% discount on their gas utility bill by simply using it. The catch is that the card has an annual fee of HUF 5,900. Then let's not forget the interest rate, which, during these times, people may have trouble paying their gas bill on times.

So why not do what the Hungarian government does and delay your payment for gas, pay a high interest rate, and in the end pay more for your gas.

The dramatic crash that is Hungary

The fall in GDP in Hungary is staggering. To an extent the fall for other countries is dramatic, but the thing to consider is how many years it will take to rise back to the overall economic level that existed in 2007. If we have a significant drop in GDP this year and in 2010 (even if it stays flat), the ability for Hungarians to reach parity with Western Europeans is even that much further out. That is unless they fall further behind Hungary - which just maybe shouldn't be discounted.

Decreasing Gas Prices

Well, even the headline writer didn't believe it 'Bulgargaz Offers 33% Increase in Natural Gas Price' when actually the price will be declining by that much. The cited reasons for the decrease rests on the fall of the wholesale price of gas and the fall in alternative fuels and the exchange rate with the dollar. Now, let's wait and see if other countries also follow through with significant reductions in their gas prices. I wouldn't keep my fingers crossed.

Haggling in the Turkish Bazaar

For anyone that has enjoyed bargaining over a Turkish carpet in Turkey, or in my case a engagement ring, the experience is usually pleasant and filled with a lot of back and forth. Thus as the Jamestown Foundation reports via Reuter, negotations with Turkey and their bargaining position of 15% of off take from the Nabucco pipeline are still ongoing.

Yildiz was asked about the Nabucco Managing Director Reinhard Mitschek's earlier comments that Turkey's demand for "the 15 percent out-take is not on the table" (Reuters, May 29). In response, Yildiz insisted that Turkey's demand was still under consideration. After noting that lively bargaining was occurring, he maintained that the Europeans appreciated Turkish concerns. "They are not completely indifferent to 15 percent. The real problem is about its modality... It might be possible to exclude it from the intergovernmental agreement, and then regulate it under another agreement" (Cihan Haber Ajansi, June 3).

While the bazaar also offers alternative sellers of carpets to buy from, Turkey remains essential to the success of Nabucco. So let's not expect the Turks to go much lower.

Visions of the (Western) European Energy Future

So if Russia turned off all the gas taps to Europe, Europe would be fine, since other alternatives are possible - unless you are Bulgaria. Well, that was the viewpoint of one leading (Western European) academic of at the 6th European Energy Market Conference in Leuven, Belgium. I attended it last week (May 27-29, 2009).

To keep you in suspense and to keep you reading, I'll come back to the gas presentation, after I run through the contents of the conference and how actual alternative energy systems are very much part of the future, which also challenges the assumption of Europe, and let's not us forget Eastern Europe's ability to withstand a cutoff of Russian gas.

But I have to offer one disclaimer, in my notes I did not write the speakers name. I'll put this down having an awful cold during the conference, and even now I'm coughing up a lung. When the presentations are sent out hopefully they'll shed some more light.

One of the first speakers at the conference described the building of an intelligent network and distribution system which includes communication technologies relying on broadband internet and software forming it into a multilayered and interdependent system. He established the energy industry as the 21st century source of innovation infused with novelty and breakthroughs. On this point, all were in agreement, but thinking back on it, there were still limited examples of the actual application of these novel solutions. While we are only 9 years into the 21st century one can still hope that we will enter into it sooner rather than later. The fact, told at the conference, that much of Europe's energy infrastructure needs to be replaced, due to it's age, in the next 10 to 20 years offer this opportunity for re-engineering the transmission network. Maybe in it's replacement we see these smart concepts and a 21st century grid built.

The regulatory issues and Europe's third energy package were also discussed. Probably the best description of this debate is there is emerging a bidirectional flow of energy, information and money. And as we know the proper implementation of regulation can aid and foster this bidirectional flow.

The greater coordination of regulation and infrastructure building also offers opportunities to balance out reasonable prices, with security of supply concerns and the environment, as explained by one speaker from Electrabel. Importantly, as expressed by ETSO, the investments that occur today need to be informed by scenarios beyond 2020. Scenerios that include smart cars and smart grids. But as I will note below, does this include the cutting off of gas from Russia?

Regional markets and their importance and the importance of a regional regulator were espoused. I love it all and it is spot on. The solutions lie in regional cooperation with practical solutions such as 'social transmission charges' for communities not directly benefiting from transmission lines. I guess this could be labled as 'local blackmail' or 'political opportunitism', but from a geographical point of view, it can be called 'locational advantage'.

Cool word: fugitive emissions

Best useful factual thought: oil volitility depends on past volitility, natural gas volitility responds to unanticipated events such as supply interruptions or reduced stock.

Now we arrive to the Friday afternoon session on the European gas market. Or rather the geopolitics of gas. And yet another important quote speaks from my notes, "natural gas may become the fuel of consequence because of the delays in building enough renewable energy sources and implimentation of CCS technology." And despite predictions, gas demand won't drop until at least 2020, because of the failure to diversify now. Due to the low CO2 from gas and the ability to build gas generation quickly it can fill this technological gap.

Diversification was spoken of. Diversification from the Ukraine, through Nabucco and LNG. The consideration was there of mutual dependency of Russia and Europe on Russian gas supply. I think it needs to be examined, just like the concept of 'mutual destruction', was considered, how 'mutual gas dependency' influences the political and economic activiities of Europe, Russia and the US. Does this ursurp mutual destruction?

However, at the same time it is seen that cross-border flows, mainly within Europe's interconnectors, are key to the continents long term security of supply. But national protection needs to be avoided. Strategic gas storage is unsound and should be avoided - it is for the short term and does nothing for the long term security of supply.

So now we come back to the point about Russian gas. Easily for the next 10 to 20 years we have increasing demand for gas while the 21st energy system is being developed and deployed to a limited extent by 2030. To satisfy this increase in demand for gas, the solution will come from building more LNG facilities and gas pipelines from Russia and central Asia. However, even if planned LNG terminals are built in Poland and Croatia and interconnector capacity is increased, by design, there will still be a large dependency on Russian gas. As pointed out by a speaker, if the failure to build adequate renewable energy sources and a technological hurddle exists for CCS, then gas will become an increasing part of the electricity mix with new capacity meeting this new demand, thereby not displacing Russian gas. Thus reliance on Russian gas and all the geo-economic-politics that goes along with it should not be seen as diminishing in the foreseeable future, nor the effects of turning off the taps. Energy independence and security of supply are boosted when external threats to supply disruptions, with consideration of cost, are reduced to a small percentage. It remains to be seen whether Russia will be a reliable supplier to Europe once alternatives to Ukrainian transit are removed.

Wind Power and Agreement in America

Here is a well written and produced video story about the growth of wind power in Texas and its acceptance. While this story is well known, this is a good overview and touches on a number of topics I'll be writing on in the coming days. I attended an energy conference last week and came away with some strong impressions of the future make up of Europe's energy infrastructure.