2nd UPDATE: RWE Executive:Gas Supply Disruptions Could Be Repeated
February 05 2009 - 7:59AM
Dow Jones News
RWE AG (RWE.XE) Thursday said the agreement between Russia and
the Ukraine following their recent row on natural gas prices is
unlikely to be the end of supply disruptions to Europe.
Despite the ten year supply and transit agreement between Russia
and the Ukraine, supply bottlenecks could hit Europe again, Stefan
Judisch, chief commercial officer supply at RWE Supply &
Trading, told reporters in Essen.
Judisch added that the poor state of the Ukraine's transit grid
could be a possible cause for supply problems.
"We should be aware that the Ukraine transit grid is in a
relatively bad technical condition and if there won't be
appropriate investment (into the grid) this could prompt supply
disruptions."
His comments come after Russia and the Ukraine recently settled
an escalating dispute over supply and transit prices for Russian
gas that severely disrupted deliveries to European countries,
particularly in the southeast of the continent.
Judisch said the spat also caused noticeable bottlenecks of
RWE's supply, but he declined to quantify the financial damages
caused.
He insisted that RWE was capable of supplying its customers,
despite the disruptions, as well as being able to provide backup
supplies to Slovakia.
Judisch also said the dispute was a confirmation that RWE is on
the right path by pursuing its strategy to diversify its supply
sources.
RWE plans to invest around EUR2 billion in its up and midstream
gas business aiming at tripling its production of natural gas by
2013 to around 55 million barrels of oil equivalent.
The projects the company is pursuing to reach this goal include
the participating in the consortium that will build the Nabucco
pipeline and an expansion of its operations in liquefied natural
gas, or LNG.
RWE is part of the consortium that plans to build the 3,300
kilometer-long Nabucco pipeline which aims to ship natural gas to
Europe from Central Asia via Turkey and Austria.
The Russia-Ukraine dispute was a "wake-up call" for Europe which
realized it needs to support projects like Nabucco to diversify its
supply routes, Judisch said.
"The Nabucco conference in Budapest (last month) demonstrated
that politicians are determined to support the project," he
said.
Judisch added he expects that all the transit countries involved
in the project will set the political framework conditions for
Nabucco by signing the necessary intergovernmental agreements
within the first half of 2009.
The Nabucco consortium consists of RWE, OMV AG (OMV.VI) of
Austria, MOL Nyrt (MOL.BU) of Hungary, Transgaz of Romania,
Bulgargaz of Bulgaria and Botas of Turkey. Each of the shareholders
own a 16.67% stake in the consortium.
The pipeline is considered crucial to secure Europe's growing
demand for natural gas as domestic supply is steadily falling. The
pipeline, with a planned capacity of up to 31 billion cubic meters
of gas per year, would further diversify Europe's supply sources,
bypassing traditional pipeline routes for Russian gas.
The estimated costs for the Nabucco project have recently been
raised to EUR7.9 billion, up from the EUR4.4 billion original
projection.
Jeremy Ellis, RWE Supply & Trading head of business
development, said the current investment estimate is "high", adding
it could be revised downward again to reflect a sharp drop in steel
prices. Steel prices account for around two-thirds of the
pipeline's overall construction costs.
Ellis also denied it could prove problematic to secure enough
natural gas to fill Nabucco.
"There's no supply issue," he said. "All the Caspian Sea
countries, in our, view want to open their gas reserves to
Europe."
Critics of the pipeline have repeatedly expressed doubt that
enough gas can be secured to fill it.
The Nabucco consortium is in talks with Caspian Sea countries
including Turkmenistan, Azerbaijan and Kazakhstan to fill
Nabucco.
RWE said, however, these countries are unlikely to commit gas to
Nabucco before the transit countries and the pipeline operators
haven't reached a final decision to build the pipeline.
RWE's Ellis said that Iran is also a potential source of gas for
Nabucco, but added that this possibility is currently constrained
due to political uncertainties.
Other potential suppliers could include Egypt, Iraq, Saudi
Arabia and even Russia, Ellis said.
Company Web site: www.rwe.com
-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503;
jan.hromadko@dowjones.com