Baltic Team, Visegrad Team
30 September 2021

Łukasz Lewkowicz
IEŚ Commentaries 450 (147/2021)

Slovakia: price crisis and possible problems with access to natural gas

Slovakia: price crisis and possible problems with access to natural gas

ISSN: 2657-6996
IEŚ Commentaries 450
Publisher: Instytut Europy Środkowej

Currently, a significant challenge facing Slovakia is the rapidly growing prices of energy commodities, including natural gas. This problem affects not only large enterprises, but also individual clients. In addition to rising prices, the low level of filling of natural gas storage facilities is also worrying. Russia’s steps to reduce gas transport via Ukraine also directly affect Slovakia, and the project to build the Nord Stream gas pipeline (NS2) is negatively assessed by most political parties. The conditions for importing natural gas will not improve until 2022 with the commissioning of the Poland-Slovakia interconnector.

Determinants of Slovakia’s energy policy. Since 2019, there has been a political consensus in Slovakia regarding the achievement of the climate neutrality target by 2050 by EU countries. The Prime Minister of Slovakia, Peter Pellegrini, for the first time confirmed this position at the European Council summit on June 20-21, 2019, while President Zuzana Čaputová presented it at the climate summit in New York that same year. At the same time, the Slovak side has since then been of the opinion that the EU’s energy and climate policy should take into account the existence of differences at the national and regional level and enable the application of solutions adapted to them in order to implement climate neutrality.

In May 2020, Slovakia, together with Bulgaria, the Czech Republic, Greece, Lithuania, Poland, Romania, and Hungary, prepared a white paper in which it states that natural gas would be an indispensable tool for them in their pursuit of EU climate neutrality by 2050. The parties to the document agreed that this commodity and other gaseous fuels (biogas, decarbonised gas) can significantly reduce the emission of greenhouse gases, dusts, and other pollutants. Moreover, in their opinion, natural gas can offer security and a source of balancing the development of renewable energy sources (RES) for the power system. The signatory of the document also states that gas infrastructure will in the future be better adapted to the transportation of renewable gases (hydrogen, biogas), which will gradually replace natural gas. For this reason, it should be treated as an important tool of transformation in the heating and electricity sector, transportation, and industry.

The current energy discourse in Slovakia. Energy issues played a role in the election campaign ahead of the parliamentary elections in February 2020. The largest party of the current government coalition – Ordinary People and Independent Personalities (OĽaNO) – in its election program declared support for Slovakia’s competitiveness in the transit of natural gas and electricity by expanding connections with neighbouring countries and building alternative routes. The document also demanded a guarantee of maintaining natural gas flows through Slovakia in the context of the NS2 gas pipeline, which is currently being terminated. It was decided that this project should not be used to put political pressure on Ukraine and should not threaten the security and economic interests of the Slovak side, which will significantly lose in the domain of transit, similar to Ukraine. Relatively little space has been devoted to natural gas in the government program for 2021-2024. It declared, inter alia, legislative support for projects aimed at the development of energy infrastructure in Slovakia. However, no specific projects aimed at diversifying supplies were indicated, and no direct reference was made to the problem of the NS2 gas pipeline. Nevertheless, in Slovakia, there is a consensus among the main political parties of the threat posed by the construction of the gas pipeline.

Currently, in the political discourse in Slovakia, the rapidly rising prices of natural gas are identified as a major challenge (over 90% of citizens have access to this commodity) – within one year its price on the stock exchange increased from EUR 14 to EUR 80 per megawatt hour. Gas prices are already so high that the fertilizer manufacturer Duslo, a.s. in Šaľa, began to reduce production. It should be emphasized that this company is the largest gas consumer in Slovakia. Extremely high prices are also hitting the steel industry and cement plants. A large portion of this commodity is also used in the petrochemical industry (mainly the refinery in Bratislava). Rising prices in raw materials markets will increase operating costs and worsen the refining margin, which is already low due to the decline in fuel demand related to the COVID-19 pandemic. Another significant group of recipients are households and small businesses, for which prices will not increase until 2022. The increase is expected to exceed 10% for both natural gas and electricity.

The theme of rising prices is used in political debates. Peter Pellegrini, the leader of the opposition Hlas, blames the government for the lack of aid to households, as does the rest of the opposition. In his opinion, Slovaks affected by increases in energy prices should receive financial compensation or tax breaks. In addition, Pellegrini wants Deputy Prime Minister and Minister of Economy Richard Sulík (SaS) to prohibit the state-owned gas company Slovenský plynárenský priemysel (SPP) from raising prices. Karol Galek (SaS), secretary of state in the Ministry of Economy, proposes to use funds from the state Environmental Protection Fund for subsidies for companies and individuals. Sulík himself at an extraordinary session of the National Council on energy prices blamed the current crisis on former Prime Minister Robert Fico and related entrepreneur Jozef Brhel, who is responsible for the construction of solar power plants in Slovakia.

Gas problems in the short term. In 2020, the COVID-19 pandemic did not adversely affect the decrease in demand for natural gas in Slovakia, mainly due to the low price of this commodity on international market (an increase of 4.3% compared to 2019). On the other hand, in 2021, along with the economic recovery and above all, with a longer period of lower temperatures, there was a surge in consumption of this commodity (in January-June 2021, the demand increased by 20.1% compared to the same period of 2020). In January-June 2021, the temperature in Slovakia was lower by 1.2°C compared to the same period in 2020 (13.7°C vs. 14.9°C), which translated into a longer period extruding natural gas from storage facilities (April). In these conditions, the process of re-injection of gas took place throughout Europe in June 2021. As a result, in September 2021 the level of storage in Slovakia was only 63% on average compared to 91% in 2020. Only in Bulgaria – compared to other Central European countries – had a more difficult situation. The chances of a quick rebuilding of inventories are zero, so the possibility of balancing the market in the autumn and winter period will be extremely difficult. In the event of similar weather conditions to those of 2020, energy security may be at risk.

In these conditions, cooperation with other countries in the region, i.e. Austria (access to warehouses in Baumgarten) and the Czech Republic (supplies via an interconnector located in Lanžhot), will be of key importance for Slovakia during the upcoming period of increased demand for natural gas.  Russia, which aims to build the NS2 gas pipeline, limits natural gas supplies to Europe and will ensure stable gas supplies in the event of such needs from Slovakia. Therefore, it is important for Slovakia to build the Poland-Slovakia interconnector (Strachocin-Veľké Kapušany). In addition, thanks to the construction of the Baltic Pipe gas pipeline (10 bcm) and the expansion of the regasification terminal in Świnoujście (7.5 bcm vs. 5.0 bcm at present), it will be possible to import gas through Poland via the gas pipeline under construction (at the beginning of August 2021, “golden weld” on the gas pipeline). However, such an option will be available in 2022.

Conclusions. There is currently a political consensus in Slovakia on EU climate policy and achieving climate neutrality by 2050. The challenge for the government is, however, the way to achieve this goal. The most important energy topic in recent weeks has been soaring electricity prices. This problem concerns not only large enterprises, but also smaller companies and individual customers. Energy issues are becoming an increasingly important part of the Slovak political debate and may have an impact on the polls of individual parties. However, there is currently no governmental strategy to tackle rising prices. On the other hand, the opposition’s proposals seem very costly and, therefore, unrealistic. This topic will be an important element of the political debate in the coming months as Slovakia’s preparation for the fall and winter season is insufficient. The chances of increasing cooperation with Poland (as part of the diversification strategy) will appear only in 2022, so for now, Slovakia must count on an increase in supplies from Russia.