Preface by Howard Rogers - The OIES Natural Gas Programme has published four previous papers on South Eastern European gas, two of which were by Aleksandar Kovacevic. This paper addresses the potential for the region to evolve to a situation where a more diverse set of gas supply options established a degree of competition through gas on gas pricing and an emergent trading activity.
The paper by necessity is context-rich. Gas sector participants, observers and academics will be aware of the challenges facing gas market and infrastructure development in South Eastern Europe due to market size, lower per capita GDP compared with North West Europe and the small average size of national gas markets (and hence pipeline infrastructure lacking economies of scale). The author’s description of the energy mix (including lignite to a significant degree) and the complex interaction between gas-fired district heating, wood burnt as domestic fuel and hydro in a region where temperature and rainfall are both volatile and unpredictable raises additional challenges. In addition, the continued dominance of state owned suppliers and system operators and poor levels of governance create further barriers to transparency and commercial investment in the energy sector.
Against this perhaps inauspicious backdrop, the author details possible routes by which competing supply could achieve an initial level of market opening. In addition to pipeline supply, small scale LNG penetration into the Black Sea and its major navigable rivers create possible options.
Although gas demand growth is unlikely to be significant in the region, it is the unsustainable nature of the existing energy mix which will begin to catalyse change, followed by the penetration of supply seeking a competitive but cost reflective margin over European traded market prices.