Slovakia Oil and Gas Report Q3 2012
Report Summary

BMI View: As a net importer of energy, Slovakia faces the challenge of securing long-term gas supplies without becoming too dependent on Russia. Linking its gas network to others in the region is therefore a priority, as it will allow for more flexibility when negotiating gas purchases. Reduced nuclear power usage points to a greater reliance on gas, until sufficient renewables capacity can be established. The key trends and developments in Slovakia’s oil and gas sector are: 􀂃 Slovakia has been negotiating a major new long-term gas supply deal with Russia’s Gazprom, which should bring to an end the uncertainty over energy security. In the meantime, national gas company SPP has agreed a 20% price reduction with Gazprom. 􀂃 Natural gas demand may rise at a more rapid rate if the power industry builds new gas-fired plants to offset nuclear reactor closures, although the residential gas market is close to saturation. Under our forecast Slovakia will consume 8.1bcm of gas by 2016, virtually all of which will be imported. We anticipate that this will rise to 9.9bcm by the end of our forecast period in 2021. 􀂃 Slovakia and Hungary have signed a memorandum of understanding (MoU) to launch an EUsupported gas interconnector pipeline between the two countries. Eustream has come to an understanding with its Hungarian counterpart, Orszagos Villamostavvezetek and will commit to the 71-mile pipeline. It is hoped work on the project will begin in 2013, with commissioning due in January 2015. 􀂃 The operators of Poland and Slovakia's gas networks have selected a contractor to study a planned gas link that would be part of a corridor joining liquefied natural gas (LNG) terminals in Poland and Croatia. Poland's Gaz-System and Eustream aim to boost energy security in Central and South East Europe by creating a regional gas market and diversifying away from Russian supplies. If everything goes to plan, the connection could be operational in 2017. 􀂃 Slovak oil consumption is forecast to rise steadily, keeping pace with underlying GDP growth over the near term and accelerating as the number of cars on the road increases. We believe that oil consumption will reach almost 116,000b/d by 2021; this volume will be imported, largely from Russia. Domestic crude and liquids production is predicted to be as low as 4,000b/d by the end of the forecast period in 2021, reflecting the decline of mature fields and the slow progress in locating and developing new reservoirs. 􀂃 In 2012, oil imports are expected to cost around US.19bn. By 2016, the cost will be around US.22bn, rising to US.71bn by 2021. The BMI OPEC basket oil price assumptions are US1.47 per barrel (bbl) for 2012, US.00/bbl in 2016 and US.00/bbl in 2021. Gas imports in 2016 add an estimated US.93bn to the import bill, which we expect to rise to US.72bn by 2021. Combined oil and gas export costs in 2016 are therefore estimated at US.14bn and US.43bn in 2021.