Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Markets: estimates and projections / Articles
The accident at the hub Baumgarten: what it portends for Europe and "Gazprom"
Material posted: Publication date: 13-12-2017
An explosion at a major Austrian gas hub has stopped the transit of Russian gas to several European countries. RBC figured out what it means for Gazprom, its partners and the Russian gas projects.

1. What happened in Austria

At 10:45 am GMT on December 12 in Austria, the city of Baumgarten an der March, an explosion occurred at the gas distribution station (GDS). In the result, one person died and another 21 were injured, reported German media on Tuesday, December 12. The death of one person was confirmed the operator of the gas transportation hub Baumgarten, which includes GDS, company Gas Connect Austria (51% share owned by the Austrian OMV oil and gas Group). The fire was extinguished closer to 17:00 GMT.

The explosion at GDS has nothing to do with terrorism, said RBC representative of Gas Connect Austria Armin Teichert. "Currently, the cause of the explosion is being investigated. The investigation will take several days. We know that this is not an attack. We assume that this happened during construction work on the station," he said. The exact date of restoration of work stations the company representative could not name, noting that the explosion caused serious damage to appreciate it yet, but it definitely will negatively affect gas transit in the coming days. Bloomberg referring to the representative of the OMV said that the recovery operation — not hours and days.

According to the source RBC, Gazprom, the explosion on the GDS were damaged by the pressure reducer, or site of reduction gas, is a device which equalises pressure when pumping gas from underground storage facilities in the pipeline. "With high probability, reducer completely burned, and it will have to change. The repairs depends on whether the operator of the pipeline replacement gear or have to buy and try new. In the first case, to change the equipment you can for eight to ten hours, the second may take up to several weeks", — said the interlocutor of RBC.

2. The significance of the hub in Baumgarten to export gas to Europe

Baumgarten is one of the largest distribution hubs in Europe, he began work in 1959. Hub adopts mainly natural gas from Russia, and from Norway. Through the gas in Austria and in other European countries by transit. According to OMV, the annual volume of gas transportation through this hub in 2015 amounted to 40 billion cubic meters plus of 7.9 billion cubic metres for Austrian needs.

From Baumgarten are several pipelines: the TRANS-Austrian (TAG) passes through the southern part of Austria the direction to Italy, Slovenia and Croatia; West Austrian (WAG), located in the North of the country, provides Germany and France and backloading Eastern Europe (reverse delivery); Hungarian-Austrian (HAG) is in the South-Eastern part of Austria and delivers gas to Hungary and Slovakia.

Because Baumgarten is a major hub and destination point for supplies from Russia, there is formed the price of gas. In particular, many contracts, "Gazprom" is tied to the price of delivery to Baumgarten.

3. Whether Europe will be able to dispense gas from Baumgarten

Via the gas hub in Baumgarten Russian gas is provided by southern Germany, Northern Italy, Austria, Croatia, Slovenia and Slovakia (the reverse through Austria). After the explosion, the price of gas on the spot market with reference to Baumgarten with the delivery on day-ahead jumped from $292 per 1 thousand cubic meters to $413, down to 17:50 MSK to $388, according to another Austrian gas hub CEGH.

The representative of "Gazprom export", "daughter" of "Gazprom" responsible for the export of gas, said RBC that the company is working on a redistribution of gas flows and makes every effort to ensure continuity of gas supply to its customers in this transport direction.

The Ministry of economic development of Italy, which depends on oil and gas imports by almost 80%, and more than one third of its imports from Russia, from-for explosion on Baumgarten has declared a state of emergency. However, the operator of the Italian pipeline system of SNAM said on its website that deliveries of Russian gas to the country may resume during the day, if not damaged local infrastructure. Meanwhile, Italy cover their needs in gas for the reserves. Commenting on the situation, the Minister of economic development of Italy Carlo Kalenda pointed to the need for diversification of the gas supply system. "If we had the TRANS-Adriatic pipeline, would not have to declare a state of emergency", — quotes it Reuters.

Inventories of natural gas storage facilities now provide their needs in Gaza and the other tied to the Austrian hub partners "Gazprom", including Austria, Germany and Croatia. According to sources, Croatian national television, Croatia gas supplies now coming via the Interconnector Croatia — Hungary, reports TASS. Gas control Austria E-Control stated that stores enough gas to supply the country, but transit, including Russian gas towards Italy, Slovenia and Hungary suspended.

After the accident, the transit of Russian gas to Europe through Ukraine could fall by a third. As reported by the Slovak gas transmission operator Eustream, he lowered assessment of gas transit through Uzhgorod corridor on Tuesday to 91 million cubic meters, compared with 139 million on Monday. The declared volume of gas flow on December 12, as indicated by "RIA Novosti", citing data from Eurostream, was to be 142 million cubic metres of Eustream also said that the accident will not affect the Russian gas supplies to Slovakia (passed TASS).

Ukraine expects a temporary reduction of gas transit through his country on the Slovak direction, said Tuesday the press service of PJSC "Ukrtransgaz". "The company actively cooperates with European operators, "Gazprom" and ENTSOG for the expeditious resolution of emergencies and the stabilization of the transport of gas to European consumers", — said in the release. According to the Ukrainian gas company, imports gas from Slovakia to Ukraine is progressing according to plan and amounts to 22 million cubic meters per day, and deliveries from Hungary slightly reduced. All the shortfall in volumes of gas Ukraine plans to replace reserves from underground storage facilities.

4. As "Gazprom" will fulfill its obligations to European partners

Throughput of a gas pipeline from Slovakia to Austria, which goes through the Baumgarten hub, is about 164 million cubic meters per day, indicates analyst, Vygon Consulting Maria Belova. "If in the case of Italy by this route provided about 40% of demand for gas, for other countries it is virtually the only option for gas imports. To redirect a portion of their volumes, "Gazprom" can, utilizing the pipeline system of Germany, the pipeline Griespass (Germany — Switzerland) used for delivery of Norwegian gas to Italy and loaded in 2016, 31%, and Oberkappel (Germany and Austria) with an average download of last year's 26%. This will allow to replace about 82 million cubic meters of gas a day, or half of the decreased capacity of Baumgarten" — predicts it.

In "Gazprom" refused to comment on exactly how and to what extent the group would be to redirect the gas to consumers. The source of RBC in its trading "a daughter" says that there are several options: redistribution through alternative gas pipelines from Switzerland towards Italy, Austria and Germany. He also points out that "Gazprom" is not the guilty party in this case, but also fines from the Austrian company, most likely, will not be required, as the situation of force majeure. According to the interlocutor of RBC, the situation of rising prices on the spot market with reference to the supply through the Baumgarten plays into the hands of the Russian monopoly, as a number of its long-term contracts are partially linked to them, including in the direction of the largest consumer in Europe — Germany. However, the interlocutor of RBC said the increase in prices will be short-term. From the increase in gas price won the European traders on the spot market, said an employee of RWE.

The partner of company Rusenergy Michael Krutikhin believes that in order to supply Croatia and Italy, you can redirect the flow of Russian gas from the South of Ukraine to Hungary along the route, which usually Ukraine uses a reverse scheme to obtain the gas to your address. In a situation of force majeure, "Gazprom" can agree with the Hungarian companies about the use of this route with the delivery of Russian gas from Hungary to Croatia and Italy. Ukraine in this period will get a reduction of reverse supply, and will be able to receive gas from its underground storage with subsequent recovery volumes. But it can pump only a fraction of the gas that went through Baumgarten, he points out.

5. What long-term implications of the accident in Baumgarten

According to the Deputy Director-General, Institute of problems of natural monopolies Alexander Grigoriev, the accident in Baumgarten adds to the arguments of the supporters of the diversification of gas supplies to Europe. "If there was implemented the project "South stream", then the accident could not have a significant effect on gas supply to Italy," he points out. This is also the opinion of Mikhail Krutikhin of Rusenergy. He believes that this accident will be the reason for Gazprom and its partners to convince the Europeans to advocate the construction of alternative routes, such as the "Nord stream-2", for the diversification of Russian gas supplies to Europe.

Deputy Director of the national energy security Fund Alexei Grivach believes that the Europeans will strengthen the lobbying for the construction of an LNG hubs, to be less dependent on Russian gas, but noted that as short-term alternatives to replace Russian gas, LNG is not suitable: it's to long to deliver, and it is more expensive. Italy, in case if the repair of the transit gas pipeline from Austria will take a few weeks, will be able to receive gas from Africa, including Algeria, and through the already built LNG terminals.

Lyudmila Podobedova, Vasily Marinin


RELATED MATERIALS: Economy and Finance