Thursday, October 30, 2014

2030 Energy Security | Brussels | Dec 10th
Drew EGC Report

Hungarian Gas Storage: You Can Count On It

Huge chunks of ice rush their way down the River Danube, under the “Chain Bridge”. 

That’s what Axel Wietfeld sees from the window of his office in the Hungarian capital, Budapest.

Despite the frigid, lower-than-average winter temperatures in Hungary over the past couple of weeks, Mr. Wietfeld, Member of the Board at E.ON Földgáz Storage Zrt., is confident Hungarians will have enough natural gas to “keep the home fires burning”, and hopefully keep their toes warm.

“It’s a pretty cold winter, but we could deliver even more natural gas out of our storage sites if we had to,” he said of E.ON Földgáz Storage, which is the largest natural gas storage provider in Hungary.

He characterized how the low winter temperatures in Hungary had increased natural gas demand.

“The customers – traders in Hungary – and households are asking for more gas, so daily natural gas consumption in Hungary has increased significantly and was at a level between 70-80 MCM/day, which is high compared to the recent period. So there is increased demand for natural gas in Hungary and of course we increased the withdrawal out of our storage sites as well, because the customers need the additional gas and we are able to do so.

“In terms of E.ON Földgáz Storage, via underground gas storage we contributed roughly 30 MCM/day, which means 35-40% of the daily gas consumption in Hungary,” said Wietfeld. “We have been able to fulfill all customer requirements – all the nominations our traders had – and we could do even more. If there were an even higher requirement for the gas in the storage sites, we could even increase the withdrawal capacity of these 30 MCM.”

According to Mr. Wietfeld, E.ON Földgáz Storage is in a favorable position in Hungary because it has four storage sites comprising total storage capacity of 4.2 BCM. 

He explained, “This adds to the security of supply and mitigates risks, because four sites comprise a well-balanced portfolio and which is obviously a safer option than having all the capacity in one storage site – for technical reasons and for the benefit of security of supply.”

He said Hungary was fortunate to have the geological conditions to be able to accommodate gas storage. “There are other countries where it’s just not possible to conduct underground storage sites, because you require either salt caverns or porous rock formations that absorb the gas. Here in Hungary, we make the best of the geological conditions and E.ON Földgáz Storage makes the best out of it to deliver it to the customers.”

As reported in the media in recent days, natural gas supplies had been affected by the reduced supply coming from Russia’s Gazprom, even in Hungary.

“There were less deliveries to Hungary,” Wietfeld confirmed, “but meanwhile, these days the deliveries to Hungary via Ukraine are again at the normal level. There are still slight reductions into Western Europe, for Germany for example, where E.ON also operates plenty of storage sites and is able to balance the present reductions from the gas deliveries by providing additional volumes from storage facilities. Overall we can meet the customers’ requirements for gas demand.”

Incidentally, E.ON Földgáz Storage is a subsidiary of E.ON Gas Storage in Essen, Germany whose underground storage capacities in Germany, Austria, Hungary and the UK total some 13 BCM.  Furthermore, E.ON Földgáz Storage is an unbundled company, meaning E.ON has separate asset/infrastructure and trading divisions in Hungary.

“All traders who are actively trading on the Hungarian gas market use the capacities of E.ON Földgáz Storage, and nearly half of the capacities are used by 3rd party customers. Hungary is a regulated market, and we offer our products in a transparent way. We publish what kinds of products we offer on our website, the pricing works on a non discriminatory basis - all our clients who are wholesalers can book capacity." 

Mr. Wietfeld said that one of the rationales for underground gas storage was security of supply, when pipeline gas supplies or LNG supplies are disrupted, as in recent times.

“For example, three years ago when there was the Ukrainian crisis, E.ON supplied 90% of the Hungarian gas demand with its storage sites. By these efforts of E.ON Földgáz Storage neighboring countries could also replace the missing Russian gas molecules from the Hungarian storages. And these days as well when it’s extremely cold and we had lower supplies from Russia, we increased the withdrawal capacity of our storage sites, and that’s what we call security of supply, which is crucial for us.”

Speaking of security of supply, the completion of the South Stream or Nabucco pipeline projects, opined Mr. Wietfeld, would increase storage activities in Hungary. 

“If you look at the pipeline routes, it will be pretty close to our storage sites, which we operate and optimize in a commercial way – as opposed to our competitor MMBF who operates the ‘strategic’ storage in Hungary. There will be even more demand for underground storage in Hungary, due to the increasing gas flow from the exporting nations. It will serve for the purpose of Hungary being a hub in that sense.” 

He reported that E.ON Földgáz Storage had just completed a major investment. “In the summer of 2008 E.ON Földgáz Storage commenced further expansion of the Zsana storage site within the framework of a project amounting to a total of HUF 32 billion (some EUR 115 million). The extension was completed on time by the autumn of 2009. 

“We delivered this project to offer our customers even better products (e.g. higher peak load at winter times) and to enhance the security of supply.” He added that E.ON Földgáz Storage has also engaged in regular equipment upgrades at its other gas storage sites.

An industrial engineer by training with a PhD in economics, Mr. Wietfeld began his position as Member of the Board of E.ON Földgáz Storage in June 2011. He had previously worked for two management consultancies and later joined E.ON Ruhrgas

“At that time I was mainly in the gas supply business and in business development – in particular LNG – I was the member of the initial team to set up the LNG business for E.ON Ruhrgas, developed the strategy and was responsible for LNG regasification, so negotiated the capacity subscription agreements we have for the regasification terminals Isle of Grain in the UK and Gate in the Netherlands.”

Then, he recalled, four years ago he and his family moved on and had an international assignment in the United Arab Emirates, working for E.ON in Dubai, steering group energy projects in the Middle East region, inter alia Qatar, Abu Dhabi and Turkey. “So that included negotiations for LNG supplies, developing and articulating the outside of Europe strategy that E.ON follows in Turkey.”

Closer to home, Mr. Wietfeld has a very positive sentiment on the future of natural gas in Europe. “Natural gas as a low-carbon energy source will play a key role in the transformation process we are heading in the energy industry. Consequently, global gas demand will grow by 2% annually and hence nearly twice as fast as total global energy demand (1.2% annually). Demand for gas-to-power will also increase following the decision to phase out nuclear power (e.g. in Germany, Italy).”

Mr. Wietfeld reiterated E.ON Földgáz Storage’s commitment to maintaining a secure supply of natural gas for Hungary in the remaining cold days of the winter. “We could deliver even more – and on this high level we could deliver several weeks, so for the customer there is no reason to be concerned in any way. However, it’s unlikely it will stay this cold.”

(Photograph courtesy of photographer János Gehring whose work can be viewed here.)

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