Just Published: "Slovakia Oil & Gas Report Q2 2016"

Slovakia has above-average energy import dependency compared with the regional average. The country remains reliant on Russia, but is actively pushing through several projects aimed at improving bi-directional flows and establishing regional links for a regional gas market in Central and South East Europe.

Key Trends And Developments

Slovakia is almost entirely dependent on Russian oil and gas imports for its domestic consumption, with a total hydrocarbon import bill estimated at USD1.98bn in 2015, a strong decline on 2014 thanks to the fall in oil and gas prices. There is little prospect for an increase in oil or gas production.

While we expect the 130,000b/d Bratislava refinery will continue to run at high utilisation rates, downside risk to refined fuels production exists, given the difficult context for European refiners as a whole. However, the refinery's focus on diesel production could partially shield it from the negative effect of increased gasoline production in the US. The country will remain a small net refined fuels exporter throughout our forecast period.

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Gas consumption in Slovakia will stagnate, with a residential gas market close to saturation and no expansion planned in the already limited gas-fired power generation capacity.

Slovakia's refined fuels consumption will increase at a stable 1.5-2% year-on-year (y-o-y) in the medium term, broadly in line with underlying GDP growth forecast and pulled up by the increasing vehicle fleet in the country. We have slightly revised down our oil consumption forecast on the basis of lower forecast vehicle fleet growth. Further downside risk could materialise over the coming quarters based on vehicle fleet growth forecast changes.

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 LNG terminals in Poland and Croatia. This aims to boost energy security in Central and South East Europe by creating a regional gas market (North-South Corridor) and diversifying away from Russian supplies. If everything goes to plan, the connection could be operational in 2018, shortly before Russian plans to entirely bypass Ukraine for gas transits.

Ukraine signed a gas supply purchase agreement with Slovakia in early 2014. The deal allows Kiev to buy natural gas on the European spot market and annually import at least 10bcm of gas through Slovakia. An old and unused pipeline from Ukraine to Slovakia has begun reverse flows between the two countries. The pipeline has a capacity of 14.5bcm.

However, we note the increasing threat poses by Russian plans to bypass Ukraine entirely for gas transits by 2018. This would see gas transits through Slovakia and on the Western Europe substantially reduced, hurting government revenues.

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