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South East Europe: Regional Gasification Study Draft Final Report: Macedonia Market Report October 2007 submitted to The World Bank, KfW, PPIAF and ESMAP by: Economic Consulting Associates Penspen Energy Institute Hrvoje Požar Economic Consulting Associates Limited 41 Lonsdale Road, London NW6 6RA, UK tel: +44 20 7604 4545, fax: +44 20 7604 4547 www.eca-uk.com DFR-Macedonia 17/10/07 Contents Contents Acknowledgements iii Contacts details for further information on the study iii 1 Physical, Demographic and Political Profile 1 2 Economy 2 3 Energy Sector 3 3.1 Energy Resources 3 3.2 Energy Usage 3 3.3 Energy Development Plans 5 4 Gas Sector 6 4.1 Policy and Legal Framework 6 4.2 Regulatory Bodies 7 4.3 Institutional Framework 7 4.4 Fuel Prices 8 4.5 EC Gas Commitments 9 4.6 City Distribution Demand Studies 9 4.7 Overall Demand for Gas 13 4.8 Current Gas Supplies 14 4.9 Anchor Loads 15 4.10 Future Gas Supply Options 16 5 Conclusion 19 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP F:\Projects\SEE Gas 244+234+222\Docs\2.DraftFinalReport\COUNTRY REPORTS\DFR-Macedonia.doc 17/10/07 i Contents Tables Table 1 Potential demand 10 Table 2 Estimated capital costs 11 Table 3 Potential demand 12 Table 4 Estimated capital costs 13 Table 5 Gas transit volumes 15 Table 6 Supply options of immediate interest to Macedonia 18 Figures Figure 1 Macedonia map 2 Figure 2 Skopje distribution map 10 Figure 3 Tetovo distribution map 12 Figure 4 Gas demand 14 Figure 5 Macedonia gas transmission 15 Figure 6 EC Ring – Macedonia 17 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP ii Physical, Demographic and Political Profile Acknowledgements This study was made possible by the generous contributions of funds from ESMAP, PPIAF and KfW, and was overseen by staff from The World Bank and KfW. The Public-Private Infrastructure Advisory Facility (PPIAF) is a multi-donor technical assistance facility aimed at helping developing countries improve the quality of their infrastructure through private involvement. For more information on the facility see the website: www.ppiaf.org The Energy Sector Management Assistance Program (ESMAP) is a global technical assistance partnership administered by the World Bank and sponsored by bi-lateral official donors. ESMAP's mission is to promote the of energy in poverty reduction and economic growth in an responsible manner. For more information see the website: www.esmap.org KfW Entwicklungsbank (KfW development bank), on behalf of the German government, provides funds and expertise for projects and programmes within the scope of Financial Cooperation. The objective of Germany’s development cooperation is to improve the economic and social situation of people in developing countries and economies in transition. For more information see the website: www.kfw-entwicklungsbank.de Contacts details for further information on the study Franz Gerner, Senior Energy Economist Sustainable Development, Europe and Central Asia Region The World Bank 1818 H Street, NW Washington, DC 20433, USA T +1-202-473-5019 [email protected] www.worldbank.org Rolf Seifried, Principal Project Manager, Europe KfW Entwicklungsbank Palmengartenstr 5-9 60325 Frankfurt, Germany T +49-69-7431-3755 [email protected] www.kfw-entwicklungsbank.de Alfred Schuch, Senior Gas Expert Energy Community Secretariat Am Hof 4, Level 6 Vienna 1010, Austria T +43-1-535-2222-00 F +43-1-535-2222-11 [email protected] www. energy-community.org SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP iii Physical, Demographic and Political Profile 1 Physical, Demographic and Political Profile The Republic of Macedonia, often referred to as Macedonia, is a landlocked country on the Balkan peninsula in southeastern Europe. It is bordered by Serbia to the north, Albania to the west, Greece to the south, and Bulgaria to the east. It was admitted to the United Nations in 1993; however, the UN and many other international institutions and countries use the provisional reference the former Yugoslav Republic of Macedonia (FYROM), pending resolution of a naming dispute with Greece. The capital is Skopje, with 500,000 inhabitants, and there are a number of smaller cities, notably Bitola, Kumanovo, Prilep, Tetovo, Ohrid, Veles, Štip, Kočani, Gostivar and Strumica. It has more than 50 natural and artificial lakes and sixteen mountains higher than 2,000 meters (6,550 ft) above sea level. In 1991 the Former Yugoslav Republic (FYR) of Macedonia (Macedonia – hereafter) gained independence from Yugoslavia and founded itself as a new state based on the principles of democracy and an open market economy. These principles are expressed in the country’s Constitution, adopted in the same year. Macedonia is a landlocked country located in the Balkan Peninsula in south-eastern Europe. It borders Albania to the west, Bulgaria to the east, Greece to the south and Serbia to the north. It covers an area of 25,333 sq km and its population is around 2.05 million. In December 2005, the country received the status of official EU candidate. In February 2006, the country joined the Central-European Free Trade Agreement (CEFTA) and this may have a positive impact on trade performance. The stable growth performance at around 4 per cent per year should be sustained in the medium term, supported by progress in EU accession process and further structural reforms1. 1 EBRD Country Strategy for Macedonia, 2006 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 1 Economy Figure 1 Macedonia map Source: CIA World Factbook The Republic of Macedonia has an estimated population of 2,055,915 citizens, (July 2007) with 58% of the population living in urban areas. 2 Economy Macedonia scores well on indices of international freedom (71 in the world in the 2007 Index of Economic Freedom). GDP is growing at a steady 4% per annum, with GDP in 2006 at US$ 15.7 billion in current prices equating to a GDP per capita of US$ 3,059. This is combined with a very low inflation rate of 3.2% for 2006, forecast to fall to 2.5% during 2007. Looking back, the country together with Montenegro, Bosnia and Herzegovina and Kosovo belonged to the less developed regions in the former Yugoslavia. It suffered severe economic difficulties after independence, when the Yugoslav internal market collapsed and subsidies from Belgrade ended. In addition, it faced many of the same problems faced by other former socialist East European countries during the transition to a market economy. Its main land and rail exports route, through Serbia, remains unreliable with high transit costs, thereby affecting the export of its formerly highly profitable, early vegetables market to Germany. The outbreak of the Yugoslav wars and the imposition of sanctions on Serbia and Montenegro caused great damage to the Republic's economy, with Serbia constituting 60% of its markets prior to the disintegration of Yugoslavia. When Greece imposed a trade embargo on the Republic in 1994–95, the economy was also affected. Some relief was afforded by the end of the Bosnian war in November 1995 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 2 Energy Sector and the lifting of the Greek embargo, but the Kosovo War of 1999 and the 2001 Albanian crisis caused further destabilization. Since the end of the Greek embargo, Greece has become the most important business partner of the Republic of Macedonia. Many Greek companies have bought former state companies in the country, such as the oil refinery Okta, the baking company Zhito Luks, a marble mine in Prilep, textile facilities in Bitola etc. Other key partners are Germany, Italy and Slovenia. 3 3.1 Energy Sector Energy Resources The total reserves of coal in Macedonia are 941 million tons most of which (about 80 %) are proven reserves. Additionally, exploration reserves comprise about 60 % of the total balance, approximately 82 % of existing reserves are suitable for surface exploitation, while 18 % are strictly explored underground. Current production is at 7.2 Mt. There are no oil and no gas resources in Macedonia. The country’s domestic demand for petroleum products is relatively stable at around 800 000-1 000 000 tons per year. The possibility for the theoretical production of hydro-potential into electric energy is estimated to be much higher than its annual exploitation. The total hydroelectric potential in Macedonia, which is technically suitable for exploration, is 6,436 GWh/yr. This energy can be best utilized by building hydropower plants with a total capacity of 1,620 MW installed plants. 3.2 Energy Usage Macedonia produces no natural gas, importing all its requirements. Total primary energy consumption in Macedonia in 2006 was 115.78 TJ. Almost fifty percent of the country’s primary energy demand is covered by imports of, mostly, oil and coal (oil 38 %, coal 3 %, gas 2 %, electrical energy 6 %)1. Coal: The total reserves of coal are estimated at 941 million tons, and it is mostly lignite. Macedonia has two power plants operating on lignite.2 Oil. There is no oil resource in Macedonia. At present, natural gas competes only against heavy fuel oil in the industrial sector. The refinery OKTA, under the management of Hellenic Petroleum, has the capacity to process 2.5m tons of crude oil per year. Currently the processing rate of crude oil is about 0.8m tons per year. 1 http://www.eva.ac.at/enercee/mk/demand.htm 2 B. Donevsky: A survey of Energy Situation in Macedonia SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 3 Energy Sector The production rate is dictated by the domestic demand (plus small amounts of exports) for heavy fuel oil. High penetration rates of natural gas would reduce the share of heavy fuel oil in the domestic market and undermine the position of OKTA Hydropower: The possibility for hydropower production in the country is estimated as much higher (6.4 TWh per annum) than its annual production (24%) by 12 hydropower stations. Consumption from hydropower currently amounts to 1.4 TWh per annum. Of domestic consumption, 46.7% of residential demand for energy was met with electricity. This reflects heavy reliance on electricity based heating. According to the expansion plans, natural gas is to be introduced in the residential and commercial sectors. In this case natural gas will compete mainly against diesel, firewood and electricity in the residential sector and against electricity and diesel in the commercial sector. Expansion of the natural gas distribution system in areas of Skopje covered by district heating is not considered a priority for the time being. ERC has adopted a tariff methodology for the natural gas sector, applying the incentive method (price caps/revenue caps) in price and tariff design for: Natural gas transmission: revenue caps; sliding scale for the initial period of price control to decrease the risk of high profit/loss due to inadequate data; Natural gas distribution: price caps, additional encouragement to reduce technical loss. The natural gas prices are varying and the only consumers are the companies from industrial sector. These prices are not publicly available because the small use of the gas line system is a result of the undefined ownership rights between the Government of Macedonia and Makpetrol. There are claims that the low consumption rate of natural gas is explained by the fact that consumers in Macedonia paid for the most expensive gas in the regionaround $300 per thousand cubic meters.1 The main reason is however that the existing gas pipeline is used at only 10% of its capacity (annual capacity is 800,000 million cubic meters of gas, while annual gas consumption is only 80,000 million cubic meters). This situation is the result of the unsolved- ownership dispute between the state and Makpetrol. The long lasting dispute seems to be entering its final stage: the legal assessors declared the state as a dominant owner. Now the final decision of the court is to be made. Many hope that finally the main obstacle on the way of the realisation of the ambitious expansion plan that has been proposed by the public gas utility GAMA. 1 http://www.invest-in-macedonia.com; M. Mihajloska “Mass gasification ahead for Macedonia”, 2006 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 4 Energy Sector Those informed about the situation in this ownership dispute, say that powerful Makpetrol will not easily give up majority ownership. In the field, however, there is a different story1. Besides the construction of industrial gas-supplying ring around the city (Skopje) that is under way, several pilot projects are promoted for gasification of appropriate urban settlements. The companies simply can’t wait any longer for this bureaucratic procedure to finish, they are starting gas businesses, actually preparing to introduce it as a dominant energy substance in production plants. So businessmen from the region of Tetovo and Gostivar have already revealed that they are interested in installing gas rings in this region. The local government of Kumanovo has gone furthest with these intentions, as they have already started construction of gas infrastructure, and during the first year of the realisation of the project they invested a million euros. The owner of the gas pipeline network will be Kumanovo-Gas Company. Allegedly, Gazprom, together with Russian electric power giant RAO UES, is ready to buy Negotino thermal power plant, which is the spare capacity of electric power company of Macedonia, because it works on expensive fuel oil, and to turn it into a gas energy plant. According to unofficial sources, Gazprom has already registered a firm in Macedonia. The serious investment plans of this company are also confirmed by the Russian ambassador to Skopje, Agaron Asatur. 3.3 Energy Development Plans Gas is used only in industry, and for District Heating (Skopje). A gasification project to supply industry around Skopje is under way. The national action plan related to Macedonia’s obligations in the framework of the UN FCCC foresees the gasification of urban residential areas in Skopje in order to replace electricity as an energy source for heating. Introduction of natural gas was among the first priorities of the Government after the establishment of the new state. The policy objectives were to diversify the energy supply system and to provide a clean and efficient form of energy for consumers. Priority was given to gas supply to industrial consumers in the Skopje area. In 2004, the government adopted the “Energy Efficiency Strategy until 2020”. It focuses on the implementation of technologies to provide for efficient energy use, and provides guidance for the energy efficiency policy in the Republic of Macedonia. In the residential sector, the following measures should be implemented: consumption based billing, extension of district heating systems, insulation of windows, reflection shields for radiators, and thermostatic valves. Where possible, the shift from electricity to natural gas for heating should be achieved, or otherwise insulation of the building shell implemented. 1 http://www.invest-in-macedonia.com; M. Mihajloska “Mass gasification ahead for Macedonia”, 2006 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 5 Gas Sector Industry with an energy intensity 5 times higher than industry in England or France, the measures target at substitution of electric engines and drives, avoiding the conversion of electricity to heat, saving measures at ligthing systems, air compressors, thermal insulation and improved capacity factor. Reforms and National Development Strategy have focused on the following objectives: Speed up privatization, restructure the economy and the energy sector and open up to foreign investment Accelerate growth approx. 5.7 % p.a. Shift from heavy to light industry Promote energy conservation and efficiency Shift from electricity to gas heating Energy subsidies to be eliminated and prices to reflect costs. 4 4.1 Gas Sector Policy and Legal Framework Macedonia made some progress in developing the regulatory field for natural gas. Energy Law (adopted in 1997, with amendments in 2000), saw new amendments in 2005.It is now better suited to regulate the natural gas sector in Macedonia. A framework is now provided for the establishment of gas market in line with the EU Gas Directive. The amendment stipulates: Obligation for legal and account unbundling of transmission from distribution and supply activities; threshold for eligible customers (TPP - gas fired and customers with consumption of 5 or 10 mcm); third party access and public service obligations rights, obligations and relations for participants in the gas market. Reforms in the gas sector include: Separation of public services from the commercial activities; Separation of the ownership of the transport infrastructure from the transport operation and transport; system operation of natural gas as a public service; SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 6 Gas Sector Formation of an independent company for transport services under regulated conditions; Granting concessions for gasification, distribution and supply of tariff consumers for a specified territory and determined period for investors. The new Energy Law was published in the Official Gazette and entered into force in May 2006. It replaces the Law on Energy of 1997 which had been amended several times, the last time in 2005. 4.2 Regulatory Bodies Energy Regulatory Commission of the Republic of Macedonia (ERC)1 was established in July 2003. In the natural gas sector it is responsible for licensing, tariffs, grid codes, security of supply, monitoring and developing secondary legislation. 4.3 Institutional Framework The Ministry of Economy is a key player in the running of reform of Macedonia’s energy sector and institutional framework. One of the bodies of the Ministry of Economy is the Sector for Energy and Energy Efficiency. Its main obligations are: to conduct energy policy of the state through the programs, measures and other activities, to create and develop laws, sub-laws, and other legal documents on energy, to initiate, join and implement the policy for energy sector restructuring, to create and develop concession acts, licences, approvals and agreements for any energy activity and exploitation, to establish tariff system and other acts as the regulator of the energy prices. In July 2005, the Law of the Republic of Macedonia was adopted in order to establish an Energy Agency. The Agency will be independent in its work, and financially accountable to the Ministry of Economy. The defined role of the Agency is to initiate, coordinate, study and prepare appropriate documents, together with domestic and foreign specialized companies and experts, and to suggest concrete solutions and activities to the Government, through the Ministry of Economy. 1 http://www.erc.org.mk/ (under construction) SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 7 Gas Sector The import, transport and gas supply activities are carried out by a private trade company Makpetrol- Skopje. Makpetrol is the largest distributor of oil products in Macedonia. It is a joint stock company with almost 100% of its shares under private ownership. As mentioned above, Makpetrol used to be a public company and the Government assigned to it the realisation of the gas transmission line project. During the construction of the transmission line, Makpetrol was privatised. The majority of shares were given to the personnel and the management. Since then, Makpetrol has operated as a private company. It is a key player in the oil and gas market with significant political influence. GAMA is Macedonia’s public gas utility. It was established in 1997 to represent the state in the gas sector after the privatisation of Makpetrol. It is staffed by about 20 people but its activities are limited. Due to a lack of financial resources, GAMA is not involved in gas trading and supply to consumers. Makpetrol carries out all these activities. Other market actors are: The power company Electrostopanstvo na Makedonija (ESM) - not a natural gas consumer but it could be a significant potential client in the future. The Skopje District Heating Company Toplificacija, currently operating one gas-fired plant (HOB) while all other plants consume heavy fuel oil. The DH Company is expected to become one of the most significant natural gas consumers. Besides use of gas in the rest of the DH plants, Toplificacija plans to invest in a gas-fired CHP plant in Skopje. The Skopje Refinery OKTA, which could be considered a competitor for the natural gas market. In 1999, the Greek consortium EL.P.ET, which also undertook the management of the refinery, bought 54% of OKTA. 4.4 Fuel Prices The latest fuel prices available are for the end of 2006. Prices for oil products, December 2006 (incl. VAT, in euro/liter) Lead-free motor gasoline – LFMG 95 Diesel fuel – DF EURO 0,83 Extra light fuel oil - LUEL 0,65 0,99 The natural gas prices for industrial sector are varying. These prices are not available for public purpose because the small use of the gas line system is a result of the undefined ownership rights between the Government of Macedonia and MAKPETROL. The biggest consumers of natural gas in 2006 were: SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 8 Gas Sector AD ELEM ENERGETIKA (14 mmcm/yr), CELICANA (12 mmcm/yr), MITAL STILL-Skopje (12 mmcm/yr), MAKSTIL AD Skopje (14 mmcm/yr), TOPLIFIKACIJA-Skopje (7.8 Mmn³/yr), PIVARA-Skopje (4 mmcm/yr). The price of propane gas and butane gas is 0.94 euro/kg as the bottle, and 0.46 euro/litre as the vehicle fuel. Heat Prices According to the methodology for heat price determination the Independent Regulation Commission is announcing heat prices depending to the movement of crude oil price on world market. The price for production, transportation and distribution of heating energy in December 2006 were: 39 EURO/MWh for householders paying on the basis of measurement of consumption, 0.46 Euro/m² for flat rate households (12 months payments), 1.58 euro/m² for services sector and 72 Euro/kW for industrial facilities and spaces. 4.5 EC Gas Commitments Macedonia is a Party to the Treaty Establishing the Energy Community and will cover the following: Macedonia has started to develop a detailed energy framework. In parallel, a new Energy Law has been recently approved. However, both primary and secondary legislation still needs development The Regulator plays a substantial role in the market relations in the energy sector. In fact, most of the concrete demands as indicated in the energy acquis, are not to be found in legislative acts, but in rulings of the Regulator Macedonia has implemented partially the acquis on environment 4.6 City Distribution Demand Studies Skopje Skopje is a city with a population of approximately 467,257. It is made up of a residential and commercial area of around 8.55 km2 and 0.45 km2 Industrial. This gives a population density of 54,650per km2. Figure 2 shows a map of Skopje. SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 9 Gas Sector Figure 2 Skopje distribution map Data provided shows the total number of households to be 137,367 estimated to comprise 103,025 apartments and 34,342 houses. Based upon an annual estimated consumption of 15,240 kWh and peak consumption of 3m3/hr per residential customer, residential demand is estimated at 2,093,473 MWh per annum, with a peak hour demand of 309,076 m3/hr. Using the sectoral demand assumptions set out above results in the following potential demand estimates as shown in Table 1. Table 1 Potential demand Sector Annual demand Peak hour demand MWh Cu.m/hr Residential 2,093,473 309,076 Commercial 872,280 38,493 Industrial 523,368 19,247 Total 3,489,122 366,816 The EC Ring is routed to pass in close proximity to the outskirts of Skopje. It is suggested that gas would be supplied to the city from an off-take station supplying SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 10 Gas Sector gas directly into a City Gate Station located to the east of the city. Gas would be metered and the pressure reduced to 16bar for supply to a HP steel distribution system comprising 13.9 km of 30in diameter and 5 km of 12in diameter pipelines. The high-pressure distribution system would supply the 4 bar medium pressure network, which would in turn supply customers. Estimated capital costs for the gas supply system are shown in Table 2. Table 2 Estimated capital costs Item Total Cost US$ million EC Ring Connection 5.0 Spur Line 0 City Gate Station 5.0 HP Distribution System (16bar Steel) 14.8 MP Distribution System (4bar PE) 27.5 Residential Connections 111.5 Residential Installations 32.6 Industrial and Commercial Connections 15.4 Total 211.8 Tetovo Tetovo is a city with a population of approximately 50,376. It is made up of a Residential and Commercial area of around 4.0 km2 and 0.5 km2 Industrial. This gives a population density of 12,439 per km2. Figure 3 shows a map of Tetovo. SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 11 Gas Sector Figure 3 Tetovo distribution map Data provided shows a total number of households to be 10,967 estimated to comprise 8,225 apartments and 2,742 houses. Based upon an annual estimated consumption of 15,240 kWh and peak consumption of 3m3/hr per residential customer, residential demand is estimated at 167,137 MWh per annum, with a peak hour demand of 24,676m3/hr. Using the sectoral demand assumptions set out above results in the following potential demand estimates as shown in Table 3. Table 3 Potential demand Sector Annual demand Peak hour demand MWh Cu.m/hr Residential 167,137 24,676 Commercial 69,640 3,073 Industrial 41,784 1,537 Total 278,562 29,286 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 12 Gas Sector It is suggested that gas would be supplied to the city from the proposed EC Ring via a 20 / 8in. diameter spur line, which will transport gas to a City Gate Station located to the south east of the city. Gas would be metered and the pressure reduced to 16bar for supply to a 4.8 km / 8in diameter high-pressure steel distribution system. The high-pressure distribution system would supply the 4 bar medium pressure network, which would in turn supply customers. Estimated capital costs for the gas supply system are shown in Table 4. Table 4 Estimated capital costs Item Total Cost US$ million EC Ring Connection 5.0 Spur Line 4.1 City Gate Station 3.0 HP Distribution System (16bar Steel) 1.2 MP Distribution System (4bar PE) 3.2 Residential Connections 8.9 Residential Installations 2.6 Industrial and Commercial Connections 1.2 Total 29.2 4.7 Overall Demand for Gas Figure 4 shows historical trends in gas natural gas consumption (same as import for 2005) in Macedonia and projections of the future gas demand potential. SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 13 Gas Sector Figure 4 Gas demand Bcm/y Total demand for Macedonia 1.4 1.2 1.0 0.8 1.2 0.6 1.1 0.4 0.8 0.7 0.2 0.0 0.1 2005 4.8 2010 2015 2020 2025 Current Gas Supplies With no gas production facilities all of Macedonia’s gas is imported. Currently, MakPetrol (a private Macedonian company) transits gas from Bulgaria, via Kriva Palanka to Skopje. The pipeline approximately has a capacity of 0.8 bcm. The diameter of the pipeline is 20 inches, and it has a maximum operational pressure of 40bar. The average age of the pipeline system is 13 years. In addition, gas may also be supplied to Skopje via the Pristina - Skopje pipeline. The Kosovan side of the pipeline is damaged, but investigations1 have shown Macedonian side to be in full working order up to its rated pressure of 25 bar. Figure 5 shows a diagram of the main transmission pipeline network. 1 Energy Sector Technical Assistance Project (ESTAP) Kosovo SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 14 Gas Sector Figure 5 Macedonia gas transmission Table 5 shows the transit volumes for the consumers as well as the maximum capacity. Table 5 Gas transit volumes Country Volume (bcm/y) Capacity (bcm/y) Kosovo (Import) 0 0.21 Bulgaria (Import) 0.081 0.82 4.9 Anchor Loads The major anchor load is a 500 MW plant in Macedonia. A new gas fired power station is planned in Skopje. Consequently, gas uptake in Macedonia is expected to increase considerably3. 1 Source: www.bulgargaz.com/content.php?show=pages&id=24 2 Energy Regulatory Commission Macedonia 3 http://www.nbuv.gov.ua/new/2005/makedon/about.html SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 15 Gas Sector 4.10 Future Gas Supply Options In 1999, Macedonia's state oil and gas company MAKPETROL agreed to finance a new import gas pipeline from nearby Bulgaria. Regionally, the new TransMacedonian gas pipeline may be extended to Albania in due course. Expected to cost over US$100 million by the time it reaches full capacity, this is potentially the largest energy infrastructure project in Macedonia to date. There have also been investments announced in a gas pipeline network towards Negotino and Bitolj, the western part of Macedonia. This is a joint project by Russian Itera and Toplifikacija of Skopje, which is worth about 120 million euros. The construction of the gas plant is of multifunctional importance for the country, because it will lead to a significant increase in gas consumption. Henceforth, they expect that the other municipalities and companies will also start gasification sooner, following the positive example. Gas is becoming a more and more desirable energy substance, because of the expected growth in the price of electricity after the privatization of Macedonia Electric Distribution to Austrian company EVN.1. A number of activities are planed with regard to the gas infrastructure within Macedonia. These include: Additional Import Capacity - In order to secure the supply of gas to the power generation plant in Bitola an additional import pipeline from Bulgaria is planned. In addition to serving the power plant, the pipeline would also transit gas to Greece and Albania. The capacity of the pipeline is 2bcm/y. Extension of the Kriva Palanka - Skopje pipeline: The extension of this pipeline will allow gasification of towns in Western Macedonia and will also provide additional transit capacity to Albania. The capacity of the pipeline is 0.3bcm/y. Additionally, a new gas fired power station is planned in Skopje. Consequently, gas uptake in Macedonia is expected to increase considerably. It should be noted that the Government of Macedonia and Makpetrol are currently in dispute over the ownership of the Kriva Palanka - Skopje pipeline. This is expected to delay any development of the gas infrastructure in Macedonia. Figure 6 shows the EC Ring from the perspective of Macedonia. Skopje, Macedonia’s main city is well placed along the main EC Ring route. 1 : Energy Observer, 2006 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 16 Gas Sector Figure 6 EC Ring – Macedonia The transmission connections options for Macedonia include a connection to the Greek system in the south, reinforcement of the connection with the Bulgarian system in the east, a connection with Albania in the west and a connection via Kosovo in the north. A pipeline providing connections with Albania and Kosovo should be sized at constant diameter along its length with a view to it subsequently being connected from Pristina to Nis and being extended from Albania northwards through Montenegro, forming the Energy Community gas transmission ring described in detail elsewhere in this report. The supply possibilities are summarised in Table 6. SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 17 Gas Sector Table 6 Supply options of immediate interest to Macedonia Transmission connection Contract source/s Delivery and physical flows Physical source and swaps Bulgarian border Contract for increased Russian gas supplies Via Bulgaria as with present contracts.1 Swap LNG at Revithoussa for Russian gas contracted to Greece on the Bulgarian system and pay Bulgarian exit fees and Macedonia transmission fees. Yields transmission cost savings in Greece and Bulgaria. Bulgarian border Contract for LNG via Revithoussa Backhaul through Greek system. Physical molecules flow to Athens. Russian gas flows to FYR of Macedonia via Bulgaria. Swap LNG at Revithoussa for Russian gas contracted to Greece on the Bulgarian system and pay Bulgarian exit fees and Macedonia transmission fees. Yields transmission cost savings in Greece and Bulgaria. Greek border Contract for LNG via Revithoussa Backhaul through Greek system. Physical molecules flow to Athens. Russian gas flows to FYR of Macedonia through the Greek transmission system. Swap LNG delivered at Revithoussa for Russian gas contracted to Greece at the Greece-Bulgaria border and pay Greek transmission fees. Yields transmission cost savings in Greece. Greek border Contract for Algerian gas via TransMed Backhaul through Greece-Italy Poseidon pipeline or TAP and the Greek system. Physical molecules flow up into Italian system. Russian and/or Caspian gas flows though the Greek system. Reduces GreeceItaly flows. Swap Algerian gas at Mazara del Vallo for Caspian gas at the Greece-FYR of Macedonia border (or at the TurkeyGreece border and pay Greek transmission fees). Yields transmission cost savings on Poseidon and maybe some transmission cost savings in Greece. Unusually in the region, Macedonia contracts for Russian gas at the Bulgarian-Macedonian border, not at Ukraine’s western border, so Gazexport pays the transmission fees to the Macedonian border. 1 SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 18 Conclusion Transmission connection Contract source/s Delivery and physical flows Physical source and swaps Albanian and Bulgarian or Greek borders Contract for Algerian gas via TransMed Backhaul as above. Russian and/or Caspian gas flows to Macedonia either though the Greek system or via Bulgaria reducing Greece-Italy flows on Poseidon or TAP. Swap Algerian gas at Mazara del Vallo for Caspian gas at the Greek border (or at the Turkey-Greece border and pay the Greek transmission fees) or for Russian gas at the Bulgarian border. Yields transmission cost savings on Poseidon. Maybe some transmission cost savings in Greece or Bulgaria. UNMiK border Transit gas delivered via the Greek system to Kosovo Via Skopje or via Nis Direct contracting for offtake of Russian or Caspian gas or backhaul LNG or Algerian gas through Greece and swapped for Caspian or Russian gas. 5 Conclusion A Development of the natural gas sector has been a common policy objective for all governments of Macedonia since the country’s establishment in 1991. This is expressed in various official documents. Indicatively the National Environmental Action Plan foresees a “long term plan for expansion of the natural gas system and substitution of oil with natural gas in thermal power generation and district heating”. The gas expansion plans elaborated cover all major cities of the country and foresee interconnections with the existing or future gas systems of the neighbouring countries. The ownership problem of the existing gas system will, hopefully, be de-jure, resolved soon. However, market penetration of natural gas in the FYR of Macedonia depends on the economic development and participation of the whole energy sector. Viability improves under the scenario in which: energy industry and in particular district heating and a new CHP plant become gas consumers; prices being set at a sufficiently high level to recover the investment costs. The main reform themes in the Macedonian energy market continue to be: Continued harmonisation of the energy policy according to the European Union Directives SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 19 Conclusion Series of additional policy measures for the development of a complete legislative and regulatory framework and for the promotion of natural gas use. Development of regional market. To realise the ambitious expansion that covers all major cities and power plants of the country and foresees interconnections with all neighbouring countries, considerably higher gas prices would be necessary to cover the costs of the investment. In the event that the expansion plan is realised, the capacity of the existing transmission line would not be adequate to cover future demand. In this case, additional interconnections would be required. The specific regulatory framework for the gas sector needs to be developed, and policy measures for the promotion of natural gas penetration in the energy system are needed, but the State resources to support these measures are very limited. SEE Regional Gasification Study –Macedonia Market, October 2007 Economic Consulting Associates, Penspen, EIHP 20