The Czech Republic Has Moved Forward to Energy Independence from Russia

Thursday 24 February 2022 will have been etched into history. After Russian aggression against Ukraine, all reasonable people quickly came to the conclusion that Russia is not a partner for us, not only in energy sector cooperation but in any other areas as well. Eight months from the outbreak of war, the time has come to ask ourselves a question: How has the Czech Republic progressed in limiting its dependence on Russia’s fuel supplies?

Life brings many surprises. Many experts thought that the substitution of Russian natural gas supplies would pose the greatest challenge, yet it has come about unexpectedly smoothly. Everything happened without much drama at the end of August and beginning of September 2022. Since then, we import Norwegian gas via the German infrastructure or originally liquefied natural gas (LNG) from terminals in Belgium and Netherlands. In one of them, Czechia even owns a stake.

It will not be exceptionally hard to wean ourselves from Russian coal imports either; they were not large to begin with, unlike other European countries (e.g. Poland or Germany). In two years time, our dependence on Russian nuclear fuel will have decreased as well. The biggest issue remains substituting oil from Russia, and that is tied to the current discount.

Unexpected Speedy Replacement of Russian Gas

The topic of prices and supplies of natural gas has been hot for over a year. It all began in the summer of last year when Russians intentionally began to decrease the volume of gas exports to the EU. We can only speculate about their intentions – it could have been meant as pressure to speed up the launch of the new undersea pipeline Nord Stream 2, an attempt to force EU countries into long-term contracts, or to earn money before the planned attack on Ukraine.

In any case, the result was a rapid price increase with repercussions on the electricity markets.

The price increase of both commodities was reflected in retail prices and led to the collapse of some companies involved in the supply chain (in the Czech Republic the most prominent being the end of the Bohemia Energy group and the company Lumius).

As of the beginning of April, the Russians have begun to squeeze the supply even tighter. The Jamal Pipeline was turned off completely, while the capacity of Nord Stream 1 was running at 40 percent at first and then at 20 percent. At the end of August, the pipeline was shut off completely under the pretext of maintenance. One month later, there were mysterious undersea explosions near Bornholm island; a clear message to all to dispel any doubts about the end of Russian gas supplies to Central Europe.

In this context, it is slightly amusing when one recalls the recent warnings of consultant Vladimír Štěpán and other similar, pro-Russian ‘experts’. They were absolutely serious when claiming that Russian gas is ‘indispensable’ for the Czech market, it would take five years to replace and require astronomical sums of money.

What is the reality?

Russian gas has been harmoniously replaced with supplies from Norway and from LNG terminals in Belgium and Netherlands via Germany’s critical infrastructure. The volume of imports in September and October 2022 was sufficient enough to meet the Czech demand, to store gas into underground tanks, and to export to Slovakia to boot. The price on European exchanges remains extremely high, yet it is lower than in August during the last days of Russian supplies, and is gradually falling.

American Gas from Dutch Terminal 

The Czech Republic has accomplished a feat that, in these uncertain times, is to be certainly envied. With the support of the Czech government, the company ČEZ acquired a stake in a new LNG terminal in Eemshaven in the northeast of the Netherlands. For five years, ČEZ can import up to 3 billion cubic meters of natural gas, which amounts to one third of Czech consumption.

The floating LNG terminal in Eemshaven was built by the Dutch company Gasunie, and was built very quickly. Its full operation was launched, with festivities, on 8 September 2022, six months after the decision to build was made.

ČEZ will acquire cargo from the first eight tankers in what amounts to 800 million cubic meters before the year’s end.

The first two tankers brought gas from the US, and thanks to reserved transportation capacity in German pipelines the gas is on its way to Czech consumers. Such claims are supported by the statistics of the German gas industry association Trading Hub Europe (THE). On Thursday 6 October 2022, for example, the volume of imports from Germany to the Czech Republic reached 424 gigawatt hours, (40 million m3), which amounts to a record since the Russian squeeze on European supplies. On 10 October 2022, the Czech storage capacity was 92 % full (without taking into account the storage facility in Dolní Bojanovice which is servicing Slovakia’s needs).

In addition, the Czech government is working on strengthening its energy security. It has renewed negotiations with the Polish government about the construction of a connecting pipeline which would provide access to a future LNG terminal in Gdansk. There are other future German LNG terminals in play – ideal from the Czech perspective would be the one in the East German town of Lubmin, which plans to incorporate an existing infrastructure from the disused Nord Stream, as there are direct high capacity pipelines into the Czech Republic.

Temelín Switches to Western Fuel

As concerns natural gas, we have been fortunate. The same can be said about the change in the nuclear fuel supplier. In April 2020, ČEZ launched a public tender for the supply of nuclear fuel for Temelín power station. It seemed for a long period that the Russian manufacturer Tvel stood a good chance of winning and continuing to supply both Czech nuclear power stations. As of February 2022, there has been pressure from the political and security establishment that ČEZ find a substitute for the Russian supplier. At the end of June 2022, ČEZ signed a contract with Westinghouse and Framatome, who will share the contract to supply Temelín’s reactors. The contract is for 15 years, beginning in 2024.

“The selection of two suppliers shall secure a maximum continuity in delivering a strategic commodity and minimizes the risk of disrupting fuel supplies”, stated Ladislav Štěpánek, director of the Fuel Cycle division at ČEZ, when signing the contracts.

French Framatome is a novice in production of hexagonal fuel rods designed for originally Russian reactors, whereas American Westinghouse has already acquired some experience, as it supplied Temelín with fuel between 2000 – 2010. The production will be once again coming from a facility in Swedish Vasteras.

There remains the issue of finding a fuel supplier for an older nuclear power station in Dukovany. In this regard, ČEZ has thus far issued only generic statements, claiming that it is planning to secure an alternative supplier. 

Russian Oil with a Discount is Attractive

There are considerably more issues with replacing Russian oil. Both Czech refineries belong to Orlen Unipetrol company, which in turn belongs to the Polish holding PKN Orlen. For many years, there has been a simple rule: the refinery in Litvínov processes heavy sulfurous oil from Russia, while the smaller refinery in Kralupy nad Vltavou processes lighter oil from Azerbaijan, Kazakhstan and other countries. In past years, the share of Russian imports was almost exactly 50 %.

Unlike with gas supplies, there has been almost no disruption in Russian oil deliveries. On the contrary, in recent months the volume has actually increased. The problem began with Kazakhstan deliveries which go through Novorossijsk port. Thanks to Russian intrigue, the Kazakh supplies were limited and since June Czech refineries have not processed any Kazakh oil. An alternative solution has been imports from the US and Saudi Arabia.

The Czech government has been taking part in sanctions aimed at the Russian regime and the EU’s ambition is to end Russian imports as soon as possible.

It will not be an easy task, considering not only the volume, but the price as well. In June, for example, the price of Russian oil imports was 14,750 CZK per one ton, in case of oil from other countries it was between 20,000 – 21,000 CZK per ton. Due to international sanctions, the demand for Russian oil has fallen and it is being sold 30% cheaper than the normal market price.

Hence arises a problem with the low motivation of Central European refineries to replace cheap Russian oil with other suppliers. PKN Orlen and MOL Holdings have actually been taking in record profits.

The Czech government, led by Prime Minister Petr Fiala and the Minister for Industry Jozef Síkela, has been negotiating to change this. In accord with their colleagues from Germany, Austria and Italy they are trying to find ways to increase the capacity of the oil pipeline TAL, which has been operating near full capacity for years now, as it services refineries in southern Germany, Austria and Litvínov as well.

The state owned operator of Czech oil pipelines MERO is striving to make additional investment into TAL pipeline so that it can completely replace deliveries of the Družba pipeline to the Litvínov refinery from 2024.

It is not a complicated affair – the solution is to increase the capacity of pumping stations along the pipeline.

The problem could be solved within two years.

A Moral Obligation to End it

Mention should also be briefly made of anthracite coal imports. Imports from Russia were of some importance between 2018 and 2021, when between 310,000 – 430,000 tons were imported every year. It constituted about 10% of import volumes, with Poland remaining the lead producer. According to public information, the main buyer was the metallurgical company Liberty Ostrava.

This year, the imports from Russia have been only 59,000 tons, with 8,000 tons  imported just before the EU embargo went into effect on 12 August.

It should not be a problem to find a substitute, especially if a decision is made to continue with coal mining in the Ostrava – Karviná region.

Peace in the European East is nowhere near to be seen. As Russia is bombarding civilian targets with its rockets and openly celebrates every hit, it is a moral duty of every European country to end its dependence on any and all Russian commodities and imports. We can view as a success that since the end of August we have been sending no money for overpriced natural gas. What remains to be seen, however, is a replacement of suppliers of oil and nuclear fuel.

David Tramba

After graduating in finance from the Prague University of Economics (VŠE), David Tramba embarked on a career in economic journalism, with a specific focus on power engineering, investment and industry. He has worked, consecutively, for the Czech Information Agency since 2002, the daily Lidové noviny (2010-2013), the weekly Ekonom (2013-2015) and the online magazine Dotyk Byznys. He has been a staff writer with the weekly Euro since December 2016. Apart from writing for print and online media, he is also the principal author of the publications Česká energetika [Czech Power Engineering 2013-2015], Atom Energy Outlook (2015) and Euro Top miliardáři ČR a SR (od roku 2017) [Top Euro Billionaires in the Czech and Slovak Republics since 2017].

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