The expected progressive phase-out of lignite-fired capacity and shift to gas-fired capacity in the South Eastern Europe region in the coming decade raises the issue of security of gas supplies and the need for a stable gas market structure to arise, according to a paper published by the Oxford Institute for Energy Studies.
In the paper Towards a Balkan gas hub, OIES' Aleksander Kovacevic called for the establishment of a flexible Black Sea & Balkans (BS&B) Gas Hub "through the improved use of existing infrastructure" which would facilitate “gas trade with the rest of Europe that promotes more efficient use of gas, market opening, industrial restructuring and increased renewable energy integration.”
Currently, “SEE energy supply is carbon intensive above the EU average” he argued, as “this system is supported by the availability of 'on demand' credit resources that contribute to the soft budget constraint and facilitate the operation of low efficiency district heating systems, emergency power generation and inefficient (fertilizer, etc.) industries.”
Countries such as Greece are among the world's top consumers of lignite for power generation, and “there is very little (if any) ambition to contribute to climate change mitigation based on the national submissions to the UNFCCC Paris conference” he said.
Ageing infrastructure, EU environmental regulations creating “perfect storm”
However, “the depletion of economic lignite resources, ageing plant and infrastructure, liberalisation of electricity markets and EU environmental regulations have created a ‘perfect storm’ that now threatens the lignite-to-power industry” Kovacevic stressed.
Taking into account that lignite provides about 2/3 of power to the region, the prospect of phasing out lignite within the next 8-10 years “creates a massive security of supply challenge” he argued. “This energy supply gap could be addressed by the increased supply of natural gas which has attracted the attention of various suppliers” he said, adding nevertheless that “the substantial security risks resulting from a massive shift from lignite to gas without the adequate change of governance patterns and gas market formation are hardly affordable within the current strategic framework.”
To address that, the paper suggested a roadmap for achieving more stable energy market conditions in the region. That includes the establishment of a flexible Black Sea & Balkans (BS&B) Gas Hub “envisaged as a private commercial undertaking in order to increase the liquidity” and “attract commercial supplies from the Black Sea basin.”
Moreover, it called for the phasing out of “gas consumption that does not yield positive economic returns” in favour of renewable energy and opening to international markets.
“This is sufficient to eradicate the immediate security of supply risks and establish a framework for the commercially sound use of gas.”