COMMISSION STAFF WORKING DOCUMENT Report on the findings of the Energy Community Focus Group Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the short term resilience of the European gas system Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015
Date: 2014-10-16
Institutions: European Commission
Subjects: Bosnia and Herzegovina, Moldova, North Macedonia, Serbia, Ukraine, electricity supply, energy cooperation, energy supply, energy transport, gas, security of supply













EUR-Lex - 52014SC0323 - EN











|



52014SC0323

COMMISSION STAFF WORKING DOCUMENT Report on the findings of the Energy Community Focus Group Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the short term resilience of the European gas system Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015 /* SWD/2014/0323 final */









1.      Work
of the Energy Community
The
European Commission invited the Energy Community Contracting Parties (Albania, Bosnia and Herzegovina, Kosovo*[1],
the former Yugoslav Republic of Macedonia, Moldova, Montenegro, Serbia and Ukraine) and the candidate country Georgia to participate in the stress test and conduct
the analysis on a national level. The Energy Community Secretariat assisted in
the preparations of these national analyses as well as in preparing a regional
analysis.  
The
Commission has organized several dedicated telephone conferences for the
Contracting Parties and Georgia, and invited them and also the Energy Community
Secretariat to conferences organized with the EU Member States. This
cooperation was very well perceived by the Contracting Parties and Georgia and
it has triggered a number of reactions in identifying the problems that remain
in ensuring a better level of preparedness in case of a supply disruption. For
example, Serbia and Bosnia and Herzegovina informed Hungary regarding their emergency
measures. Unfortunately, this did not develop into a regional approach in
preparing a common contingency plan neither between the Contracting Parties nor
in cooperation with the EU Member States. Consequently, having regard to the
latter, this analysis will focus on the respective national reports, pointing
to any coordination undertaken or lack thereof[2].
2.      Description
of the system 
The
Contracting Parties were requested to analyze the same scenarios as the EU
Member States. However the Contracting Parties are very heterogeneous in
respect of the development of the gas markets and infrastructure and therefore
the effects of potential gas disruptions vary among them and the scenarios have
been modified accordingly. One can divide them in four groups with different
results of the stress test: 

 Ukraine
     in a unique situation, 
 Bosnia
     and Herzegovina, the former Yugoslav Republic of Macedonia, Moldova, and
     Serbia as a group of countries consuming gas and being affected by a
     disruption in gas supplies,
 Montenegro,
     Kosovo* and Albania which do not have gas markets and do not have natural
     gas consumption,
 Georgia
     as candidate country, without direct infrastructure connections with other
     Contracting Parties.

Ukraine
is in a rather unique situation. Since 16 June 2014, Ukraine has been facing a total
interruption in the supply of gas from Russia. Therefore, Ukraine faces a different magnitude of challenges compared to other Energy Community
countries. As a result, Ukraine limited the stress reports to the immediate situation
it faces now, i.e. how to face the total disruption of direct gas supplies from
  Russia. The simulations are based on various assumptions on the level of gas
storages, the availability of gas from the EU suppliers and the winter
temperatures. Its highly interconnected system and well developed transmission
and storage capacities, and a high share of consumption in the industrial
sector, gives Ukraine tools to address challenges of supply disruption in a
more differentiated way. In this respect, the
Contracting Parties in the Balkans and Moldova need to rely to a greater extent
on cooperation with the neighbours. 
For
 Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,
 Moldova, and Serbia, supplies from Russia are the dominant
source of gas and the supply takes place solely through one transit route via Ukraine. National infrastructure capacities are very limited and prevent a flexible flow of
gas and diversification of sources. There is only one supply route for Bosnia and Herzegovin a and the former Yugoslav Republic of Macedonia, one entry and one exit point
without possibilities of reverse flows in Serbia, and a transit route
connection with only one country in Moldova[3].
These limited infrastructure options, lack of a regulatory and
non-discriminatory market framework that allow the use of the existing
infrastructure flexibly, as well as the lack of a developed gas market, results
in a situation where any disruption of gas from Russia and/or disruption of gas
through Ukraine has a very serious impact including on household consumers, in
particular those in Moldova.
In
view of the lack of gas in the energy balance of Montenegro, Kosovo*
and Albania, the impact of a gas supply disruption can be only
indirect – by an increase in the demand for electricity at a regional level.
Contrary to further concerns, in view of the floods in the Balkan states last
spring, it seems from the national reports that the electricity sector is
likely to fulfill even increased demand related to switching for heating
purposes. The power transmission grid is likely to be able to support increased
demand both for national consumption and for regional transit (downstream to
the southern part of the Balkan peninsula, to Kosovo*, Montenegro, the former Yugoslav Republic of Macedonia, Albania and Greece) provided that there is an
electricity surplus in the EU. It is less clear whether enough fuels can be
stored to replace gas.
Georgia
covers only 9% of its demand from Russia and can flexibly replace this by national measures. Georgia is not connected with
any of the Contracting Parties nor EU Member States, which makes its case not
directly dependent on the situation of supplies in the EU or the Contracting
Parties. 
A
common characteristic of all Contracting Parties is that, although they are not
always connected with each other, each of them is connected at least with one
of the EU Member States (with the exception of Georgia). All Contracting
Parties have their interconnections with Member States along the same supply
routes: one supply route is Ukraine-Slovakia-Hungary, the second one
Ukraine-Hungary-Serbia-Bosnia and Herzegovina, and the third one
Ukraine-Moldova-Romania-Bulgaria-the former Yugoslav Republic of Macedonia and
Bulgaria-Greece-Turkey.         
3.      Assessment
of the Reports 
3.1.   Ukraine
Ukraine
consumes about 50 bcm of gas per year of which production amounts to 21
bcm/year and storage working capacity to 31 bcm. Ukraine has a highly
interconnected system and a high share of gas consumption by the industrial sector
(ca 50%). In the past two years, Ukraine imported around 30 bcm of gas per year
from Russia. Since 16 June 2014, Ukraine has been facing a total interruption
in the supply of gas from Russia. The imports were to some extend replaced by
imports from the neighboring EU Member States up to 47 mcm per day on
interruptible basis. The opening of the new interconnection point between
Slovakia and Ukraine enables gas flow to up to 27 mcm/day whereas the entry
points from Poland and Hungary amount to a capacity of 4 and 15.9 mcm/day. This
technical capacity helps to close the gap between supply and demand, in
particular on peak days.    
In
order to satisfy the demand in the upcoming winter Ukraine plans to increase
domestic production and the use of gas from storages (in various scenarios up
to 50% - 70% of monthly demand), and through demand side
measures. Furthermore, Ukraine will rely on gas imports from EU Member States.
Currently, reverse flows from Slovakia and Poland significantly contribute to
the security of supply of Ukraine. Filling up of
gas storages is a vital measure to prepare for the winter heating season in Ukraine and for maintaining gas transit to the EU at the contractual levels, as the gas
from the storages can balance the lower pressure in the pipelines experienced
usually during the winter.  Ukraine managed to fill the storages at the level
just below 17 bcm at the beginning of the heating season – this is ca 1 bcm
less as in normal circumstances.  
Even
in the most optimistic scenario, Ukraine will need not only a minimum level of imports
but will also have to take measures on the demand side, in particular to lower peak
demand on cold days when
transit of gas to the EU could also be affected. Ukraine
has also recently announced that it will replace up to 3 bcm of gas by oil for district
heating purposes. A more detailed analysis of measures to achieve reduction in
consumption in the industrial sectors is ongoing. Ukraine has also established the
procedures and emergency plans in case of a need to reduce gas consumption to
all customers, including protected households. Important element of the demand
response is the possibility to switch district heating plants to fuel oil (this
can be done in 11 out of 14 regions), switching in production of electricity to
alternative fuels and switching to electricity for heating purposes. The
various switching has direct impacts on supply and demand of electricity.
Therefore it is necessary to monitor the stability of the grid, prepare ahead
for supply of alternative fuels stocks, such as for heating oil, coal,
anthracite and fuel for nuclear power plants, and to ensure back-up capacities
for operating of nuclear power plants.  
3.2.    Bosnia
 and Herzegovina, the former Yugoslav Republic of Macedonia, Moldova, and Serbia
Bosnia
 and Herzegovina, the former Yugoslav Republic of
 Macedonia, Moldova, and Serbia would be among the countries most affected in
case of supply disruptions of gas in Europe. This is a returning message of any
of the ENTSOG simulations. Within a few days (at most weeks), in all the
analyzed scenarios, the availability of gas would be reduced by between
80%-100%, in these countries, with the exception of Serbia. 
Domestic
production covers in Serbia 1/4 of demand. Another 1/4 of demand can be covered
from storage facilities. In Serbia, the gas storages reached a level of almost
500 million cubic meters already in August 2014 which, together with domestic
production, would allow for undisturbed supplies to households and some plants
producing heat from October until February when the storages start to be
depleted.   
Those
Contracting Parties which lack sufficient storage possibilities to cover the
shortfalls raised the issue of the difficulties to find gas storage capacities
within the EU and import gas from abroad in case of disruption scenarios. These
difficulties include a lack of clear Third Party Access rules (implemented in
terms of the 3rd Energy Package) on the interconnection points with
the EU Member States, lack of available quantities or discriminatory pricing
for the transport of gas from the storages or simply lack of clarity and trust
on whether they would be able to use the quantities stored in the storages of
the EU Member States and access them in case of a supply crisis. 
Since
gas storage and domestic production would provide none or only limited relief
in the event of supply disruptions, all Contracting Parties analyzed the
potential demand side measures to be taken in order to cover for the potential
shortages of gas. The biggest potential for such measures is in the former Yugoslav Republic of Macedonia and Bosnia and Herzegovina where households consume only relatively
small parts of gas (20%) and demand side measures can take place on the side of
the industry. However, a general conclusion can be drawn that the exact
potential of such demand side measures is not fully known to the Contracting
Parties and regulation of energy prices for industry prevents deployment of
market based demand side measures. 
An
important demand side measure is the possibility of fuel switching from gas to
fuel oil for district heating plants (up to 30% of winter daily demand in Serbia and Bosnia and Herzegovina and up to 2/3 in the former Yugoslav Republic of Macedonia) or
switching from gas to electricity. For example in Moldova gas is consumed
mainly in district heating and by households (76% of total gas consumption) and
its power generation is mainly gas fuelled (80% of electricity production). In
view of this situation, i.e. difficulty in reducing gas consumption due to low
level of consumption by the industry, Moldova will need to rely on switching to
fuel oil for heating and switching electricity production from gas to coal.
Nevertheless
fuel switching may not take place in industrial sectors where consumers are not
prepared for switching and lack the appropriate equipment. Moreover, as regards
fuel switching and switching to electricity, an important logistical problem
arises: namely the lack of significant oil stocks for heating purposes (in Serbia, Moldova and Bosnia and Herzegovina) and coal stocks (in Moldova) for electricity production.
Some of the Contracting Parties raised the issue of the lack of financial
resources to increase the stocks.
National
infrastructure capacities are very limited and prevent a flexible flow of gas
and diversification of sources. The new interconnector Iasi
– Ungheni between Romania and Moldova is not yet used (except only for the Ungheni district (1-3% of the total
consumption)) and the interconnector Serbia-Bulgaria did not enter yet in the
construction phase. These limited infrastructure options, a regulatory framework
that does not allow the use of the existing infrastructure flexibly, as well as
the lack of a developed gas market result in a situation where any disruption
of gas from Russia and/or disruption of gas through Ukraine has a very serious
impact including on household consumers in those Contracting Parties.
 
4.        Recommendations
While the
general recommendations made in the Communication are also to be applied for
the Contracting Parties in this region, the Commission considers, in the light
of the previously discussed results and assessments, the following specific
recommendations particularly relevant for the concerned Contracting Parties:
Common recommendations to all Contracting Parties
 
1.     
Full use of infrastructure on market
terms. Although in most of the Contracting
Parties the provisions of the second energy package apply, more detailed rules
of the 3rd Package will become applicable as of 1 January 2015. 
Full application of these rules will allow using the capacities of
infrastructure to the full extent and flexibly, allowing for diversification of
suppliers of gas and for the transport of gas for storages. An important
pre-condition to apply the Third Package regime to infrastructure is effective implementation
of unbundling. Therefore, the Contracting Parties needs to introduce unbundling
as soon as possible. 
2.     
Deregulation of gas and electricity
prices for industry. When it comes to
demand side measures targeting industry and power production, it is crucial to
allow that the cheapest alternatives are being deployed first and therefore
Contracting Parties need to allow for full market opening at national level for
electricity and gas markets for industrial customers.
3.      Examining in more detail the potential of the demand side measures. The
Commission recommends examining in more detail the potential for demand side
measures, both for district heating and for industry at the level of individual
companies. Such an examination should also include the potential of switching
industrial consumers from gas to oil – a topic which has not been explored
sufficiently at the company level. 
4.      Tackling the logistical
problems that may occur in case of fuel switching. All
Contracting Parties pointed to logistical problems that may occur in the event
of fuel switching for heat and electricity production. Building up stocks of
oil, anthracite and coal is a matter of time (and logistics) but not of a lack
of supply – oil, anthracite and coal are abundantly available on world markets.
The authorities should therefore urgently address this issue.
5.      Establish convergence
of the definition of protected
customers. In order to effectively apply
measures on the demand side and prevent free-riding, the Contracting Parties
need to define first the level of consumption of protected customers using
possibly converging definitions of protected customers. Since the Security of
Supply Regulation 994/2010 does not apply in the Energy Community, the
Contracting Parties could voluntarily make an attempt to converge these
definitions. This would be a building block to transpose the EU acquis
in the Contracting Parties in the next future.
6.      Application of internal
energy market rules on the flow of energy between the
EU Member States and the Energy Community Contracting Parties. Given
the limited options to cover potential gas supply disruptions and the lack of
mechanisms and developed gas markets allowing self-regulating responses to a
sudden drop in the supply of gas from single supply sources, the Contracting
Parties are bound to cooperate on a regional basis and negotiate at the level
of governments. 
Unfortunately,
such cooperation is rather weak, in particular in the Balkan region. This is,
to a great extent, a result of the missing dialogue with the EU Member States.
Closer cooperation of authorities and the consistent application of the EU's
internal market legislation on the borders between the Contracting Parties and
the EU Member States are elements that could improve the security of supply in
the Contracting Parties and the EU Member States. Positive examples include the
solutions found around the reverse flow from Slovakia to Ukraine. However, more can be done, in particular as regards the supply in the Balkan
region in particular as regards the use of pipelines between Hungary and Serbia and Romania and Moldova. 
In order to facilitate
such cooperation with a formal act, the Commission is issuing, in parallel with
this report, a Recommendation to the EU Member States to cooperate with the
Contracting Parties in the application of the Third Package and on questions of
security of supply. However this needs to be followed by the necessary
negotiations that need to take place between the EU Member States and the
Contracting Parties in the region on how to use the common infrastructure and
on which terms in case of a crisis. 
7.      Developing of new infrastructure. Improving
infrastructure and building interconnectors is a long term challenge. The Commission
regrets the lack of progress in finalizing projects such as the interconnector
between Bulgaria and Serbia and the construction of the Krk LNG terminal in Croatia that would allow for diversification options for the Western Balkan Region. The
Commission therefore urges the parties concerned to rapidly address the
outstanding hurdles to the realization of these projects.
8.      Increase
in the demand for electricity due to switching
for heating purposes, and decrease in electricity generation due to difficulties
in supply of coal and heating oil are a likely effect of the analyzed
disruption scenarios and lowering of supply of gas. The Commission recommends
monitoring of the situation of supply and demand of electricity at a regional
and national level closely and take precautionary measures to ensure stability
of grid and necessary back-up capacities in particular for nuclear power
production.
Bosnia and Herzegovina

1.     
Tackle major reforms of gas sector
on national level allowing third party access to all entities and unbundling of
operators leading to flexible use of infrastructure by January 2015.
2.     
Engage in cooperation with Serbia and
Hungary on drafting and implementation of technical
provisions to operate the third party access regime on existing pipelines in a
coordinated way. Start consultations in November 2014.
The former Yugoslav Republic of
  Macedonia
1.     
Gas consumption reduction plan.
Due to a limited number of industrial consumers it is feasible to prepare for
each individual industrial plant gas consumption reduction plans that could be
applied in terms of emergency.  
Moldova
1.     
Implement the full use of the Romanian-Moldovan
Iasi-Ungheni interconnector project that has been
already finalized, but is not yet fully utilized. In the event of a gas supply
crisis, the entire infrastructure needs to be fully utilized and therefore the
Commission calls upon the respective authorities to address the difficulties
preventing full use being made of this interconnector. In particular, they
should issue urgently all necessary permits and licenses needed to operate the
pipeline and apply non-discriminatory gas tariffs for imports from Romania. Complete these actions by November 2014.
2.     
Cooperate with Ukraine and Romania
on conditions on which Ukraine and Romania would be ready to supply Moldova from the main pipeline networks. Request Ukraine regarding conditions to access and
use the storage capacity at Bogorodchany in West-Ukraine. Start consultations
in November 2014
Serbia
1.     
Implement unbundling
and ensure effective third party access to unused capacities on the existing
pipelines and the gas storages in line with the detailed provisions of the Third
Package by January 2015. 
2.     
Coordinate with Hungary and Bosnia and
Herzegovina on drafting and implementation of
technical provisions to operate the third party access regime in a coordinated
way. Start consultations in November 2014. 
3.     
Take all necessary steps to start the construction
of the Bulgaria-Serbia interconnector to make
it operational in 2015.
Ukraine
1.     
Find a mutually satisfactory agreement
for the resumption of supply of Russian gas to Ukraine over the winter period
on the basis of the proposal for an "interim winter package" which
the Commission has made in the ongoing trilateral talks (October 2014).  
2.     
Urgently increase fuel stocks
(coal, anthracite, heating oil) in the country while exploring all possible
means to increase gas supplies from indigenous as well as imports (November
2014). 
3.     
While developing the National Energy
Contingency Plan, examine in more detail the full
potential for demand-side measures as well as fuel switching both for district
heating, in the different industrial sectors as well as by households and in
the public administration. All means for potential demand reduction should be
explored and quantified with the help of experts in the various sectors, at
national, local as well as company levels (October 2014).  
4.      
Review and update all emergency
procedures in the different energy sectors, taking
account of the specific threats for the upcoming winter, in line with the
recommendations of the National Energy Emergency Plan (October 2014). In
particular monitor electricity grid stability and ensure back-up generation in
particular necessary for the nuclear power generation. 
[1] This designation is without prejudice to positions on status, and
is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of
independence (hereafter marked "*" in the text of the document).
[2] It should also be noted that there is an on-going debate in the
Energy Community on how to better achieve the objectives of the Energy
Community. This was discussed in depth at the most recent Ministerial Council
meeting on 23rd September when the High Level Reflection Group Report prepared
under the chairmanship of Professor Jerzy Buzek MEP was presented. The
discussions will continue over the coming year.
[3] The
new interconnector with Romania is not yet used to the full extent