Infrastructure Projects

With respect to the developing perception of Czech energy security, the construction of a third pipeline which would enhance its diversifi cation of oil sources has been considered, with two potential options in play.

The fi rst option is to interconnect the refi nery in Litvinov and German Spergau in the vicinity of Leipzig. TOTAL Raffi nerie Mitteldeutschland GmbH Spergau (in the literature also called Leuna) is con-nected to the Druzhba pipeline. This project is pursued by MERO CR, which also initiated it and which would provide the necessary funds. The plan has been endorsed by the Czech government. Russian oil companies have also shown interest in this project. Its aim is to increase the oil security of the Czech Republic in terms of supply routes not only by closing the gap between the two branches of the Druzhba pipeline but also by providing Czech refi neries with access to oil terminals on the Baltic coast: Rostock (Germany) and Gdansk (Poland). In connection with the Litvinov-Spergau pipeline, the Czech Republic could become a transit country for oil. According to current information however the owner of the German refi nery, the French company TOTAL, shows no interest in this project as connecting the pipeline leading from Rostock would need further necessary investment to increase its capacity and connection to the port of Gdansk is constrained by the limited capacity in the Plock-Schwedt Druzhba pipeline section. The Litvinov-Spergau link would secure supplies of oil to the Czech Republic should transports from one of the Druzhba branches be limited and the second one be used as normal. This project however raises some concerns on the Polish side, as the East German refi neries are currently supplied mainly via the northern branch of Druzhba and the Gdansk oil terminal. The owner of the Polish section of the Druzhba pipeline, the state-owned company PERN which collects the transit fees, will have a serious competitor, once the Litvinov-Spergau link has been completed.

The extent to which Czech oil security would improve is also questionable as Russian Lukoil and, un-til recently, also OAO Gazprom Neft have (among others) shown interest in the German refi nery Spergau – these companies want the products produced there to be sold on the Polish market (see Sušanka, 2010;

Žižka, 2010; “Czech Republic: Oil pipeline”, 2010; Čarek, 2009).

The second option is a pipeline connection from Klobouky u Brna to the Austrian OMV refi nery Raffi nerie Schwechat near Vienna. This project was also designed by MERO CR. The oil fl ows there from the Italian port of Trieste at present (similar to IKL). This proposal is also linked to developments in Slovakia. Within the scope of the diversifi cation of activities in Slovakia the BSP pipeline (Bratislava – Schwechat Pipeline), with a length of 62 km (50 km in Austria and 12 in Slovakia) and a total capacity of 2.5 to 5 million metric tonnes of oil annually, has been discussed frequently since 2003. This project was proposed by the Slovak state-owned company Transpetrol with a potential effect on the Czech Republic as well, which could diversify the oil sector in terms of pipeline routes (through Austrian Schwechat, wheth-er it is the Druzhba or TAL pipeline), but not in twheth-erms of resources. Howevwheth-er, the project also meets the limited capacity of the TAL pipeline. The BSP pipeline is planned as a link between the Slovnaft refi nery in Bratislava and the Austrian OMV Raffi nerie Schwechat near Vienna. The purpose of this project is to expand the existing Russian pipeline network to Austria, which would allow for the fi rst time delivery of cheap Russian oil directly to Austria. For Austria it is an important diversifi cation project, since Austria is currently supplied only by TAL (Transalpine Pipeline) and AWP (Adria-Wien Pipeline).

The Slovaks perceive this pipeline as an essential project aiming to enhance the country’s energy security. The new connection is in the fi rst place intended to motivate Russian companies to send more oil via the southern branch of Druzhba (because there would be also other countries at its end, in addition to the Czech and Slovak Republics). Secondly, the planned capacity of the pipeline route would be able to cover a possible complete loss of oil supplies via the Druzhba pipeline (the domestic sector consumes about 2.7 Mt of oil annually) in the event of loss of supplies from the East, however, only if there would be spare capacity in the TAL-AWP section. Also the Schwechat refi nery consumption would have to decrease to compensate for oil intended for Slovakia in this case.

The owner of the Bratislava refi nery, Slovnaft, owned by the Hungarian company MOL, is promoting an alternative project. MOL, which is a rival of the Austrian owner of the Schwechat refi nery (OMV), is championing the idea of modernizing the Adria oil pipeline which could carry oil from the coast of Croatia to the Czech Republic and Slovakia. This plan is not particularly interesting for Slovakia because of the high transport tariff (24 €/tonne/whole line) and limited capacity. The Adria pipeline is currently used only occasionally, for transport in the direction and in the section of Sahy-Szazhalombatta.

The chances of implementation of the BSP project have increased after the Robert Fico-led govern-ment came to power in Slovakia. The venture involves Austria’s OMV and Slovak Transpetrol (The sole owner of Transpetrol is Slovakia). The Austrian Federal Minister for Economic Affairs Reinhold Mitter-lehner and his Slovak counterpart Lubomir Jahnatek signed a Memorandum of Understanding on 19th Oc-tober 2009 to enhance cooperation between Austria and Slovakia in the area of trade in oil and natural gas, based on which pipeline construction should start in 2012. A joint venture Bratislava-Schwechat Pipeline GmbH will be established to realize this project; it will consist of Transpetrol Bratislava (74 %) and OMV Refi ning & Marketing GmbH, Vienna (26 %) (see “Memorandum of Understanding”, 2009).

There are no obstacles on the Austrian side of the project. One of the key issues on the Slovak side is the proposed pipeline route, as the one previously proposed via Bratislava Zitny ostrov is very problemat-ic in terms of environmental hazards (risk of contamination of an aquifer) (see “Jahnátek: Spojiť”, 2009,

“Na vytyčení novej trasy,” 2008; “pipeline Bratislava – Schwechat”, 2009, “OMV prosazuje,” 2009). The campaign against the pipeline by the Slovak public has been relatively successful, and that is why nine other routes are still under consideration alongside the most economic route via Bratislava Zitny ostrov.

Therefore, the overall length of the pipeline may be 81 to 152 km according to the selected route and cost

€70 to €112 million.

Tab. 4.9: The Central European Oil Sector

Source: Oil Transport and Storage. (N.d.).

In addition to the mentioned projects Czech entities are further involved in existing pipelines. One of the projects proposed by MERO CR is the reverse operation of the IKL pipeline with the aim of delivering Russian oil through the Druzhba and IKL pipelines to German refi neries, and by doing that to increase the interest of the Russian Federation in exports via the southern branch of the Druzhba pipeline, and to increase its own profi ts from the transport of oil. However, the project faces a diffi cult swing operation. In the case of the possible supply of crude oil from Russia to Germany, a volume of approximately 110,000 metric tonnes (that is the pipeline capacity between stations in Vohburg and Kralupy nad Vltavou) would need to be pushed from the pipeline. Since the pipeline cannot be empty, oil would have to be pushed by oil from the Druzhba pipeline. This is, nonetheless, technically implausible and even if it were possible, pushing oil back to Vohburg would occupy more than 50 % of MERO’s storage capacity, which is by itself problematic. Technological issues for refi neries should be carefully considered as they are set to process a certain kind of oil blend and to process a different one presents extra costs from altering technology or a signifi cant decrease in product yield.

The Czech state is trying to secure a secondary oil supply in the event of disruption of the Druzh-ba pipeline. The IKL pipeline is a rational choice; it follows the Italian-Austrian-German TAL pipeline (Transalpine Ölleitung). Utilization of the IKL pipeline reaches 20-40 %, so it would seem that there is

enough space to increase supply. However, the pipeline is linked to the TAL pipeline, which is used to almost 100 % capacity and the possibility of increasing the supply to the Czech Republic is thus minimal.

One solution is to have ownership in the TAL pipeline, which would automatically secure a permanent ca-pacity share for the country. TAL is owned by a group of nine companies: OMV AG (25 %), Royal Dutch Shell p.l.c. (24 %), Petroplus Holdings AG (10 %), Exxon Mobil Corporation (6 %), Ruhr Oel GmbH (11 %), Eni SpA (10 %), BP p.l.c. (9 %), ConocoPhillips Company (3 %) and Total (2 %). The Czech Republic is trying to negotiate the purchase of a two percent stake in the pipeline through MERO CR (see Hovet, 2008; Stopp, Voltz, & Lother, 2005, p. 24; The Transalpine Pipeline, “Oil Transit Company,” 2010;

Graham, 2008; Jones, 2010). This was achieved on September 25, 2012, when the companies MERO CR, a. s. and Shell Deutschland Oil GmbH signed the Stock Purchase Agreement on whose bases MERO Group acquired a 5 % share in the companies owning and operating the TAL pipeline.

The Druzhba pipeline can be used only at up to 12-months nomination of capacity in advance with a fl exibility of +/- 10 %. The IKL pipeline can be used only with 18-months nomination of capacity in advance. In addition, shareholders in the pipeline are served fi rst. Delivery takes 6 to 8 weeks from loading an oil tanker in the Persian Gulf through unloading in Trieste to delivery to Kralupy nad Vltavou. Pipeline capacity is 42 Mt per year, but there is potential to increase it to more than 50, by renewing the operation of the pumping stations on the route of the pipeline that were taken out of service. Two out of the six stations are currently operating, and the cost of renewing each of the four remaining stations would be of the order of hundreds of thousands of euro.

Tab. 4.10: TAL Pipeline

Source: The Transalpine Pipeline

The current project is a proposal to increase the emergency petroleum and petroleum products re-serves. The document entitled “Analysis of the possible involvement of private business in the storage of emergency petroleum and petroleum products reserves in order to implement the required increase in petroleum and petroleum products reserves to a level equal to 120 days of consumption” based on the requirement of Government Resolution of 30th January 2008, which was submitted and approved by the National Security Council on 27th April 2009 and in which it was proposed to increase the petroleum and petroleum products reserves to 120 days of consumption. Therefore the petroleum and selected petrole-um products reserves are to be maintained pursuant to Act No. 189/1999 Coll. on emergency petrolepetrole-um reserves, as amended, at a level of at least 90 days of net imports. These reserves represent the mandatory reserves and are primarily intended to address an oil emergency, fulfi lment of international obligations arising from membership in the IEA and the EU, and to address other emergency situations. Moreover, an additional type of reserve will be set up (i.e. strategic reserves), thereby increasing the total volume of reserves up to a level of 120 days of net imports (see Nowak & Hnilica, 2010, p. 9; Administration of State Material Reserves, 2009, MIT, 2010). The reserves will cover both emergencies and are also to be used by businesses to cover their needs in the form of a loan from ASMR, without jeopardizing the mandatory level of reserves and the need to notify the EU about its decrease. The idea however has been criticized by players in the oil market who may be exposed to additional costs.

In July 2012, the Government passed a bill introducing the changes of Act No. 189/1999 Coll. on emergency oil reserves, on oil emergency management and on amendment of some associated Acts (The Act on Emergency Oil), as amended. The Act no longer operates with the term strategic reserve, but it adds to the emergency reserves at the level of minimum 90 days of net imports specifi c reserves which can include emergency reserves. The Czech Administration of State Material Reserves (SSHR) can form specifi c reserves from seventeen products in an amount corresponding to at least 30 days of average daily domestic consumption in the reference year for at least a one year period.

Specifi c reserves would accordingly increase the emergency ones, but they would also serve the busi-ness sector for possible coverage of its needs in the form of a SSHR loan without endangering the quota of obligatory reserves and the requirement to give the EU notice of their reduction. Specifi c reserves also enable disposal of ad hoc reserves relative to market development without necessarily increasing all prod-ucts’ blanket reserves as indicated by the EU and IEA legal acts.