Thursday, May 21, 2009

Types of Gas Networks - boring but interesting

The below discussion is a little out of context, and season, but nonetheless, I thought it was good to put in context the different business models. I'm drawing on something that I'm working on right now, so excuse the out of context nature of the text, but it should still be informative.

Gas networks are not national in scope. The discussion of the impact of the Russia-Ukraine gas dispute is many times broken down by country with some emphasis of the regional impact. However, it is the very nature of all networks that they are not isolated. In general, constrained networks, particularly in energy, have limited flexibility and contain limited redundancies. These security of supply elements are at their starkest in times of crisis, whether it is electricity blackouts or gas supply disruptions, in cases where there is greater systemic flexibility, disruptions will occur less or last for a shorter period of time. Therefore it is important to consider the current and future design of the CEE and SEE gas network and the accompanying business models. It is at this point that the economics, geopolitics and social impacts of the 2009 gas disruption and how to mitigate a repeat of it are most visible.

If we look at the different characteristics of the security [of supply] question, it arises that networks are at the core of the problem, and today this assumption is subject of a consensus. We may consider two types of possible network development in order to secure supply.

1. Transit pattern: build more pipelines between suppliers and consumers and thus increase the capacity of existing infrastructure in order to get more gas in the market.

2. Network pattern: reinforce the communicability of the internal system by creating links between consumers; strengthen the interconnections between member countries. (Pirovska 2004:7)

The first option of network development, explained by Pirovska, is chosen by Gazprom which seeks to increase capacity through multiple transit pipelines and corridors in order to directly connect with national TSOs. By supplying countries through this method, there is little economic incentive for national suppliers to build interlinking gas systems – as long as the gas continuously arrives.

However, if the development of an efficient and competitive market is chosen as a viable goal in gas network development, which also stresses the need for contingencies for security of supply, than strengthening local and regional networks should be a high priority. The example that can be used here is the development of the New European Transmission System (NETS) project promoted by MOL. This seeks to integrate the national gas networks of the SEE and some CEE countries into a grouping of companies with a highly integrated gas network with multiple inputs points. However, so far, there has been limited interest in developing this concept from potential participating countries.

These two methods of network development are both supported by the EU, but the first option is certainly the most prevalent in the SEE and parts of the CEE region. The halting of gas deliveries in January 2009 from Russia underscores, from a security of supply point of view, the vulnerability in the first system and the long term viability in the second of network pattern development.


Pirovska, Margarita. “Interconnection of East European
Natural Gas markets: towards a
cooperation between players?.” working paper, 2004.