Interview with Walter Peeraer, Ceo Of FluxysFebruary 19th, 2015
Natural Gas Europe had the pleasure to interview Walter Peeraer, CEO of Fluxys. We spoke about the company's investment plans.
Peeraer said that eventual decisions would come after the outcome of the negotiations that just started in Sofia - not before the end of the summer. We also discussed the conditions the transmission system operators (TSOs) need to invest in new interconnectors. "If you don’t have long-term contracts, you need some other kind of collateral to make these kind of investments bankable, for example grants from the European Commission" Peeraer commented.
During your intervention at the EU Energy Law & Policy conference, you mentioned long-term contracts as the backbone of European energy strategy, as a way to make greenfield investments bankable.
Yes, when you want to build brand new gas infrastructure for bringing new gas flows into Europe, you need long-term contracts to make them bankable.
In case of long-term contracts, you said that TSOs would be interested in investing. You said that the alternative condition would be a support from the European Union.
If you don’t have long-term contracts, you need some other kind of collateral to make these kind of investments bankable, for example grants from the European Commission. Such grants however create the risk of distorting competition between projects and discouraging more efficient alternatives. As Fluxys we are prepared to take a part of the risk in such greenfield projects.
When do you expect news that might impact on one of the two conditions (long-term contracts or support from the European Commission)? Do you expect any support from the European Commission any time soon?
There are different solutions under investigation in order to diversify supplies to the countries in the South East and connect them to the rest of Europe. There is the Eastring project in Slovakia, there are projects to bring gas from the Balkan countries to Baumgarten and there are also plans in Poland andRomania. All these projects have their rationale but are also at least partially in competition with each other. This was the case with the Southern Corridor as well: Nabucco and TAP were competing projects, and the producers of Shah Deniz 2, the suppliers of the gas for the pipeline - Socar, BP, Statoil,Total - made the final choice. In the case of the South East countries, I think that one or two of the proposed projects could be chosen but, in the absence of long term contracts underpinning supply, these projects need some form of support from the European Union to be viable.
So you are basically saying that any eventual decision would come after the outcome of the negotiations that just started in Sofia? In other words, you are saying that there will not be any investment decision before the end of summer?
Yes. We are not involved in the negotiations that have started in Sofia but we keep an open eye on the outcome of the process. An infrastructure company like Fluxys is ready to participate in the investment, subject to either long-term contracts or support, and easy access to financing.
During your presentation, you also mentioned another problem. You said that Greece andAlbania represent significant challenges, when it comes down to the permitting process - you basically said it is not that easy to get permits. What do you mean? Can the European Commission do anything to make this process easier?
No. This is a local issue that TAP management has to solve with local governments. Permitting issues are a common hurdle in the pipeline business and hence something we are used to. In Belgium, Germany or France it is not too difficult to get to know what the procedures are and who is the owner of a piece of land. But in Albania, for example, there is no land register and this requires another approach than usual. I do want to insist in this context that projects like TAP not only supply energy but also bring social improvement: TAP will build new roads and bridges, for example, and makes great efforts to enable opportunities for local companies and workforce.
Speaking about the new interconnectors that are supposed to bring gas to Europe, do you see any competitors? What are the other investors that might be interested in taking a stake in these projects? Could pension funds be interested?
When we speak about greenfield projects, in my opinion only suppliers and transmission system operators would be ready to take the risks involved because they are players with an industrial interest and a long term investment outlook. In TAP, for example, we have a combination of producers - BP, Socar, Statoil - and TSOs like Fluxys and Enagas. This is a good ensemble combining different layers of expertise. I personally think that investment and pension funds would only be interested once a greenfield project is commissioned, not before.
Speaking about Fluxys and its investment decisions, what could be the schedule? When could you take decisions on interconnectors and other projects? What are the areas that you are focused on? Is there any regional project particularly appealing from your perspective?
Our central focus is Belgium and NorthWest Europe. Secondly, further away, we look at new gas pipeline or LNG infrastructure that could unlock new sources of gas for Europe. And we also keep an eye on investment opportunities outside Europe which can give a reasonable return to our shareholders. With TAP, additional gas will arrive in Italy, the Italian network is being reinforced to handle flows to the North and our reverse flow project will allow to move the gas further to the North in Switzerland and Germany. From the North of Italy it can also move into Austria. In other words, in the future we will see a corridor from South to North but also from West to East providing reverse flow into South East Europe.
So would you prefer a vertical interconnector from Greece to NorthWest Europe?
No. A southern project to Italy then going up would be fine as well.
Is there any specific project that you would particularly prefer?
We are looking at every opportunity in gas infrastructure that makes sense from a gas business point of view, allows us to develop know-how and brings a stable return to our shareholders. Opportunities outside Europe are in our scope as well. If there would be an interesting LNG project outside Europe that fits in with our strategy, for example, we would certainly have a look at it.
In this case, would the competition be stronger?
For existing assets, it is not unusual to have competition between gas infrastructure companies and investment or infrastructure funds. For greenfield projects however, there is a more cooperative approach between interested parties. But several greenfield projects can be in competition with each other.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci