Czech gas chessboard in Central Europe

The report has so far remained largely under the radar, yet we should take notice in Czechia too. Austrian energy group OMV is selling just under half of the Gas Connect Austria pipelines – more precisely, up to 49 percent. And available sources say potential bidders include both the Czech co-owners of Slovakia’s Eustream gas pipelines and the foreign owners of Czech gas pipeline operator Net4Gas.

In the first case, this is Energetický a průmyslový holding (EPH), led by businessman Daniel Křetínský, which holds 49 percent of Eustream and has management control. In the second, it is primarily financiers from the German insurer Allianz group. It cannot be ruled out that, as in the earlier acquisition of Czech company Net4Gas, Allianz could also bring in Canadian fund Borealis Infrastructure.

It is clear that Central European players are now puzzling over the future routes gas will take through our region. Fundamental changes from the current situation could occur if Russia’s Gazprom and its Western European partners do indeed build the Nord Stream 2 pipeline in the coming years, doubling the capacity of the existing subsea route directly to Germany. One thing is virtually certain, however: Austria, with its gas hub at Baumgarten, will remain an important transit country, whether gas reaches Central Europe from the east or the northwest. Czechs and Slovaks have a natural interest in connecting with Austria in one way or another. Sources in financial circles estimate the value of Gas Connect Austria’s pipelines, with a total length of around 900 kilometres, at €500–750 million.

The Austrian sale comes at a time when strong objections to Nord Stream 2 are being voiced from the eastern part of the European Union – Slovaks are also protesting (strongly), as are Czechs (sometimes more as a token gesture). The more or less serious concerns of a number of countries that the new gas routes will bypass them, depriving them of strategic and economic advantages, are logical. Nevertheless, all the countries concerned – including their governments, gas transmission operators and energy regulators – have no choice but to begin the relevant talks now (including with the Russians) to secure the best possible position should Nord Stream 2 be completed. That is quite likely, as the project appears to have the backing not only of giant energy corporations but also of the German government.

But back to Austria. With a 10 percent stake in Nord Stream 2, OMV is one of five European companies that have joined forces with Gazprom. This has a number of implications. In addition to addressing low oil prices by selling some of its assets (and the resulting deterioration in conditions for crude oil production), OMV must factor in the need for funds to build Nord Stream 2. But it must also factor in Russian gas subsequently flowing to Austria’s Baumgarten hub. Czechs and Slovaks may ask exactly which route it will take.

Moreover, OMV can raise a decent sum through the sale of a stake in the pipelines, and Austria’s tie-up with Gazprom only improves its prospects in this regard. Regulated assets in Central Europe are a fairly attractive proposition. This is also evidenced by the fact that, alongside EPH and the owners of Net4Gas, potential bidders are said to include Italy’s Snam, Belgium’s Fluxys and Australian financiers from First State Investments.

Acquiring a stake in Austrian gas pipelines may also be attractive for Czechs and Slovaks, although OMV appears set to retain a slim majority stake along with decision-making powers. But the real battle, which has the potential to pit the two parts of the former Czechoslovak federation against each other, is already under way. Last year, Slovaks were greatly alarmed by the possibility that Czech Net4Gas (with foreign owners) would build a major pipeline interconnection with Austria in Czechia, capable of carrying up to 50 billion cubic metres of gas a year from Nord Stream.

Slovaks obtained assurances from the Czech side that nothing so “grandiose” was planned and that the proposed Czech-Austrian interconnection should not exceed a capacity of 5-6 billion cubic metres a year. This would still leave plenty of room for onward transit via Slovakia – whether to nearby Baumgarten or further on to the Balkans, for example…

The question remains whether, in the event of a decent Slovak offer, Czechs would need to consider an interconnection with Austria at all. In their own interest, Slovaks could offer Czechs terms that would deliver a similar economic effect without the need to invest in new pipelines in Czechia. Such an option is likely to be on the table as well.

Lead photo source: Ray Bodden