From shifting supply routes and cross-border bottlenecks to LNG, regional integration and the evolving role of the Trans-Balkan Pipeline, the conversation explores how Europe is reshaping its gas infrastructure to strengthen flexibility and security of supply.
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Guests
GuestPredrag Grujicic
Head of Gas Unit
Energy Community Secretariat
Transcript
Elizabeth Corner: 00:01
Hello, and welcome to the World Pipelines Podcast. Joining me for this episode is Predrag Grujicic, head of gas at Energy Community. Predrag has been leading the gas unit at the Energy Community Secretariat in Vienna for more than fifteen years, where he and his team work on building functioning gas markets across Southeast Europe, Ukraine, Moldova, and Georgia. And today, we're going to talk about how Europe's gas supply map is changing, the infrastructure that we need to move gas across borders, and the increasingly important role of pipelines such as the Trans Vulcan route.
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Elizabeth Corner: 01:14
So hello, Predrag. Welcome to the Podcast.
Predrag Grujicic: 01:17
Hello, Elizabeth, and thanks a lot for having me today.
Elizabeth Corner: 01:21
Let's start by talking about the role of the energy community. I wonder if you can tell me what the organization does and where it sits in between governments and opera... Operators and so on.
Predrag Grujicic: 01:32
Yes. Thanks a lot. We exist more than twenty years, and the organization itself is actually a very formal one. It's institutionally based in Vienna, but it comprises the EU and the countries that you already mentioned, the Western Balkan countries and these three countries that you mentioned, Ukraine, Moldova, and Georgia. It is based on a formal treaty, and it is not only part of the pre accession process for these countries, but it's also...
Predrag Grujicic: 01:58
Its its aim is to establish functioning national markets and to connect them with the markets of the EU energy markets. So electricity, gas, but also oil, and then increasingly renewables, and we are also following the climate agenda. So there is a lot of work which has been done and enormous things that yet needs to be done. So it is not only in the context of the EU accession. It is.
Predrag Grujicic: 02:22
It is, of course. But it is also in the context of making people's lives more safe, more affordable, better. So we take care about not only... We are not only communicating with the governments, as you said, but also with the regulators, with infrastructure operators, with citizens, NGOs, academia, and also very importantly, with suppliers and traders, international and domestic ones. We are here not only arbiters in in the matter that result about compliance or noncompliance of certain issues, but we try to set the agenda.
Predrag Grujicic: 02:56
We try to to to help these institutions to create better framework for for their citizens and industry to remain competitive and to remain safe in this... Especially in these crisis times.
Elizabeth Corner: 03:07
So very broad scope there. You must be very busy.
Predrag Grujicic: 03:10
Yeah. From time to time, especially in this kind of... Yeah. We are very busy. It is with daily bread and butter is...
Predrag Grujicic: 03:18
As I told you, it sounds very maybe general, but it comes to very small details helping the governments adopt proper regulations or the regulators. Or sometimes we need to step in certain disputes and and and help the... Them resolve. And, of course, there are these bigger pictures that we must follow, of course, of constantly updating our regulatory framework because in the EU, this is such ex... It's such enormously accelerating rate that that you just cannot keep up with that.
Predrag Grujicic: 03:52
And, okay, we are growing a little bit people wise. We are growing also experience wise, but it's really still a big challenge. And energy sector is one of the is one of the basic economic sectors. We know that you don't have any growth. You don't have anything.
Elizabeth Corner: 04:07
And as listeners of the podcast will know, the European gas market has changed enormously in recent years, in only a few years. From your perspective, what does the gas map of Europe look like today when we're comparing it to before 2022?
Predrag Grujicic: 04:24
A lot of things happened, and they started even before the Russian aggression on Ukraine. The the winds of change started during given the COVID times. And first, what is really striking is how much the gas flows completely changed in Europe, completely changed. And all this infrastructure that was built in two thousand tens, for example, or earlier is now having a completely new paradigm. Some infrastructure projects are abandoned.
Predrag Grujicic: 04:53
New had to be actually introduced even in two thousand twenties, even when people are talking about lots of investment in cleaner energy. So infrastructure flows, infrastructure suppliers, everything has changed. Many countries did this and used this as crisis times or changing times. You name it as opportunity to also redefine their own markets, to redefine their energy policies, think twice about security of supply, to think twice about the savings they can make and the the... Where they want to go.
Predrag Grujicic: 05:29
And, of course, very striking is the very strong reduction and even eliminations on... Of the Russian gas and the Russian supplies that our region especially was pretty much dependent on. We see a lot of progress also that... Because when things are changing, the governments need to act, and they need to change the status quo, and status quo was not always good. So we see a lot of progress in the recent years in many countries.
Predrag Grujicic: 05:56
Unfortunately, Ukraine, of course, this is a a country in war. Some other processes are are going on there, but we are still very much influential there as well.
Elizabeth Corner: 06:06
So European countries rethinking their energy sources by necessity. And in turning away from Russian gas, have the European countries been able to replace that with a new dominant source?
Predrag Grujicic: 06:19
When you say dominant, it doesn't always sound very positive, but it doesn't have to sound positive or negative. I don't have any problem with somebody being dominant. You do have dominant suppliers. You would probably always have them. And, of course, by Russia going down, traditional pipeline suppliers marginal incrementally may be increasing their shares, but this few percentage points led to to to dominance of the LNG supplies.
Predrag Grujicic: 06:51
The recent months showed us that, again, there are some uncertainties about certain traditional LNG supplies as well. And The United States became one of the most prominent suppliers, and you cannot blame Americans for trying to... Having sources and trying to sell them. After all, there is nothing wrong in having dominant supplies. You only always to rethink what if.
Predrag Grujicic: 07:25
Security comes at cost, but not having security comes at, you know, higher costs. You need to be very prudent. And, of course, you know that European Union, especially the new energy policies insist on also electrification, on decarbonization of the gas systems, and so on and so forth. We think in the energy community that, of course, this is worth discussing and that the... Every country, every region will have it their own path of going into cleaner future.
Predrag Grujicic: 07:58
So everything, all of the above is my personal and proud. The energy community's attitude that all of the above should be on the table, all possible energy sources, all possible routes, and so on to the ex... Of course, the limitation would be the expenses that you need to bear.
Elizabeth Corner: 08:18
Yes. Of course. Yeah. So I have a map of Europe in my mind. Talk to me about the direction in which gas needs to move now.
Elizabeth Corner: 08:26
I wonder if there are pipelines that were designed for one particular pattern of supply that are now becoming important in a different way?
Predrag Grujicic: 08:35
Yeah. You're right. So it was usually east to west in in my region and north to south, for example. But now it is west to east and even south to north. And, of course, I don't know if you're engineer myself, but this is not my primary job to to really go into this kind of flows.
Predrag Grujicic: 08:54
But, of course, once something is designed to go from one certain direction to the other, out of necessity of physics, it is a little bit more difficult to reverse it just like that. So you need some investments. You need lots of regulatory talks and change of the patterns in how this infrastructure was operating. So we succeeded in reversing flows in some of this infrastructure. Some infrastructure, especially the big pipes in Ukraine, might have to be decommissioned.
Predrag Grujicic: 09:21
Transit is no longer there. It was a country with... You would be surprised. I think it... They had 40,000 kilometers of only transmission pipelines.
Predrag Grujicic: 09:31
It's amazing they did not need all that. Some will be repurposed for other... For maybe other future gases. And sometimes you need to build new ones, new infrastructure. We see this especially from Greece to Poland, Serbia, all of that.
Predrag Grujicic: 09:47
They are interconnecting in new ways. Romania also. The... For example, Romania will become one of the net exporter of gas next year. Very important for region.
Predrag Grujicic: 09:58
It is in European terms, it's not much. But but in this region, for these countries, every single molecule of... Especially non Russian gas matter.
Elizabeth Corner: 10:10
So we're we're diversifying and we're thinking about maximizing to get as much as possible about... Out of every every angle.
Predrag Grujicic: 10:20
Yes. And don't forget that also the pattern of how gas is used is changing. It's not the infrastructure necessarily built or gas related infrastructure. It's not necessarily built for full base flow. It might be built only for peak flows, for flows when you don't have electricity, for example, when you don't have renewables online, which are as unpredictable, unreliable source energy.
Predrag Grujicic: 10:47
And and then, yeah, the infrastructure might come at lower utilization, but still but still very much needed to support this expected, electrification of of energy systems, which will unroll, but it will take a long long time, I think, to get there. And don't forget electricity still... Electricity in final production is... In final energy consumption is, what, 20%. It's...
Predrag Grujicic: 11:17
It's you have to decarbonize electricity, then you have to decarbonize transport and decarbonize so many things. Things will never be able to be decarbonized. So we have to be ready also for for the other technologies and to let technologies compete among themselves. And gas is there as a very reliable source to stay for some
Elizabeth Corner: 11:40
And thinking about the the parts of Southeast And Eastern Europe that you focus on, in your opinion, what are the biggest physical bottlenecks there? What are our... What are the hurdles there?
Predrag Grujicic: 11:50
In the Southeast region, because the region was so many countries were or are landlocked. And even if you have a sea, like, sometimes the sea is by by itself not necessarily very much open sea like Black Sea is. Or for example, Azerbaijan is a landlocked country no matter that they have Caspian Sea because it's not connected with with other seas. The region's destiny was to be more or less supplied by pipelines. And now this changed a lot.
Predrag Grujicic: 12:27
As you know very well, LNG is becoming we are not at 50%, maybe yet, but LNG is becoming the primary source of supply to Europe. It is the leading role. And then you need to bring these LNGs from very few points in Europe, in the region, this is Greece, Croatia, and maybe Poland, towards Central And Eastern Part of Europe, Austria, Slovakia, Hungary, Serbia, North Macedonia, all these countries without any... Of course, they cannot build any LNG terminals because they are landlocked. Which means that you need to adapt the existing infrastructure to invest a lot and to eliminate these bottlenecks which are then produced by the very new pattern of gas flows that we are talking about.
Predrag Grujicic: 13:18
Building new infrastructure doesn't resolve everything. You need them to build another and another thing. Like Greeks did, they invested a lot to export tomorrow all this LNG supplies towards north. And then the the northern countries from Greece, North Macedonia, Bulgaria, so they need a lot of adequate infrastructure, and then you need to improve and upgrade your internal system and so on. It's...
Predrag Grujicic: 13:43
Bottlenecks are all over the place, and they're being resolved. But even with Ukraine, which had enormous export capacity, now when it has to become input capacity, you need to build here and there some incremental capacity. So in my working with contracting parties, there was not a single contracting party with the gas market which did not report on set bottlenecks here or there or region them... Itself. It is...
Predrag Grujicic: 14:10
Of of course, the transmission system operators, they always tend to a little bit over... Overestimate. The regulators are there to keep the check and balances. But, basically, they were right. Congestions did exist.
Predrag Grujicic: 14:21
Many of them in the last ten years were eliminated. And I think in the next couple of years, we will be there. It will be there that we have more or less everything in place. It... Everything will be settled, Kate.
Elizabeth Corner: 14:34
That brings me on to my next question. So bearing in mind that the work that you do is advocating for further gas market integration between the EU and the energy community markets. Is there an ideal scenario for what it looks like? Is there a a blueprint that you have in mind for this integration and how it would look?
Predrag Grujicic: 14:53
Look. This is all... Already happening in in in its own right in the electricity sector. So it's... Okay.
Predrag Grujicic: 14:59
Electric sector is really different. It's... Electrons are different. Synchronization of the grid is very important. Every...
Predrag Grujicic: 15:05
Everybody's in one big pool. Electrons are different than than molecules. Regional integration with EU markets is relatively twofold. So it happens border by border. There is no big junk of a regional in integrating thing.
Predrag Grujicic: 15:20
So you have to do it piece by piece. There's always everything in life step by step. So first, you need to have this proper infrastructure and to have the same rules on on on this infrastructure from both sides, and then to have completely cross border free and seamless cross border flow of gas. And then a next step is to have also national laws more or less symmetrical. So you let people...
Predrag Grujicic: 15:46
You let business trade seamlessly. This is some kind of blueprint. It doesn't mean you will bring liquidity everywhere. It does think you will bring lots of different suppliers. But our job is at least to make precondition that this can happen.
Elizabeth Corner: 16:01
Now I mentioned at the top of the episode about the Transbalkan pipeline. That historically associated with Russian gas coming south. Talk to me a bit about what role that plays at the moment.
Predrag Grujicic: 16:12
Trans Balkan pipeline is a very big thing. It's really... I don't know how many hundreds and hundreds of kilometers. Now many countries are involved there, and there are lots of we we made... We we...
Predrag Grujicic: 16:27
Together with the commission and with with the countries along the pipe, we did a lot of progress to make it more or less operational from the reverse flow from south to the north, meaning typically from Greek LNG ports, maybe from Turkey also towards Ukrainian storages, let's say. But this is not necessarily the destination market. It can go then further to to Slovakia and Hungary. The problem was, as I told you earlier, it's not only regulatory. There there were investment infrastructure bottlenecks.
Predrag Grujicic: 17:00
There there are some compressor needed to be... Because it was like... It's like a pipe that that is going... It is becoming smaller and smaller from the north to the south, and now you want it that this smaller part is actually pushing us towards north. So you needed to do a lot of small or bigger investment preparations.
Predrag Grujicic: 17:21
You needed to harmonize the quality parameters, and then you needed to adjust the regulatory framework. And again, the main problem is usually the cost, the tariffs, how much it would cost you. And the point is that it would always cost you a lot more if you don't do anything with it than if you find some way to make it mark... You know, attract it to supplies and to earn money. And then this was our message.
Predrag Grujicic: 17:50
And the tariffs were reduced. The market... What is market showing in the last couple of weeks because now the the auctions are going on, yearly capacity is not booked. The suppliers and traders are still very cautious. We still don't have that many quantities.
Predrag Grujicic: 18:05
Ukrainian storages are relatively full for this wartime and then the winter period, but it's not this peak that we used to have five years ago. So some certainty also you need to have for the traders. So it is booked on... It will be booked on monthly basis. Ukrainians will probably use it for their own needs.
Predrag Grujicic: 18:23
But you should all... Also understand, Although we always think about infrastructure as monopoly, it is not really monopoly. You... Routes towards certain destinations market usually have competition. So some routes might be sometimes cheaper.
Predrag Grujicic: 18:39
The opportunity for this route is that it is not booked. There's a lot of things that you can... There's a lot of capacity that you can still book. You don't have to use it. You just book it just in case as as people say.
Predrag Grujicic: 18:53
But, yeah, some other infrastructure is maybe cheaper, but maybe 100% booked. What do you do then? So this is an... So let's say that there is a pipe that can always be there for you. You might need it.
Predrag Grujicic: 19:06
This year might not be the case. Maybe in two years, maybe it will be a lot more bold than we... Than today. So, yeah, I wouldn't be desperate about that. So it's...
Predrag Grujicic: 19:16
For Ukraine, this is... Also there is this security of supply, let's say, sold because you country, you can say you need at least two roads. But why wouldn't you want to have five roads? You never know what the future brings.
Elizabeth Corner: 19:28
Yeah. Quite. So you're building in somewhat of a cushioning there. You've talked about how Europe has become considerably more reliant on LNG. Are there risks in that pivot?
Elizabeth Corner: 19:38
This is a Pipelines Podcast. Are there risks for putting our eggs in the LNG basket?
Predrag Grujicic: 19:44
It's not one basket. Right? There are so many LNG producers around the world. It's first to think of Qatar, which is okay. Not the best case today.
Predrag Grujicic: 19:55
Then you have African producers, but, of course, you have North American producers by by... At large by far. They are the most attractive. They're producing like... There's a lot of LNG capacities being built around the world with production that that would back up and justify the very infrastructure.
Predrag Grujicic: 20:18
So what do you want me to tell you is we need of course to build knowledge and experience because traders told me LNG business is a lot different than pipeline business. You have to think about things that you'd never had to think about. After all, you have ships. You have different things that are there. Different...
Predrag Grujicic: 20:39
Are also different suppliers. Americans are all all different than supplies in Norwegians. Yeah. Look, you don't have lots of options to be very honest. You have pipelines from Norway and a little bit from North Africa.
Predrag Grujicic: 20:54
You have Azeris which are also limited with its own production and with the spread if you wish. And if you don't, in the EU endorse a set policies that would produce natural gas, and you don't, unfortunately, I must say because I think that... Why not having that? Eastern countries are not not not against this. Like, as I said, Romania, Greece and Bulgaria would like to have more exploration works on this.
Predrag Grujicic: 21:26
And Ukraine is our contracting party. After the war, it would be, again, probably an export country in this regard. So, if the EU cannot produce gas, it it has to import it from somewhere, and that somewhere is LNG. I mean, I I don't see any other option.
Elizabeth Corner: 21:46
And so to finish our conversation today, I've got a two parter question for you. The first is how secure would you say that Europe's gas supply is today? And the second is how confident are you in the security of supply going forwards?
Predrag Grujicic: 22:00
Yeah. If... Let's say that we are secure for business as usual scenarios, of course. Now there there might be some cold spells and... Or god forbid, if there is a a a second big supplier of it happens, like something happens, hurricane or tornado in North America or big strike in Australia.
Predrag Grujicic: 22:24
It can reach up a little bit this as... So I don't think that we will ever enter 2022 enormous price hikes. We we are a lot more resilient infrastructure wise, regulatory wise. A lot more things had happened. We are prepared.
Predrag Grujicic: 22:40
Europe is a lot more prepared. I'm not talking only about LNG ports and that, but cooperation is there. Solidarity measures might kick in. Storage storage levels are not particularly high. That's true.
Predrag Grujicic: 22:53
That's one of small concerns around the EU, but you cannot rule out, especially from the point of price affordability, which is not... It doesn't mean you will not have gas, but you will have consequences of all of this expensive gas. So for me, the security of gas will more and more go into affordability issues and this kind of stuff.
Elizabeth Corner: 23:16
Thank you so much. It's been lovely to talk to you, Predrag.
Predrag Grujicic: 23:19
Yeah. It was been lovely to talk to you,
Elizabeth Corner: 23:24
That was Predrag Grujicic, head of gas at the energy community. A really interesting discussion on how Europe is having to rethink its gas system from where the gas comes from and how it flows to the capacity, the infrastructure, and the flexibility needed to move it across borders. And particularly for Southeast And Eastern Europe, the conversation highlighted the importance of having more options, stronger interconnections, greater regional cooperation, and the ability to move gas, as Predrag says, seamlessly when supply patterns change. Predrag also offered a realistic assessment of Europe's remaining gas challenges. Thanks for listening to the World Pipelines Podcast.
Elizabeth Corner: 24:04
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World Pipelines helps oil and gas pipeline professionals stay informed about the midstream oil and gas sector, offering technical articles, regional briefings, project and contract news, and think pieces on pipelines all over the world. Register to receive a print or digital copy at worldpipelines.com and search World Pipelines on LinkedIn to join our community.