Western Balkans natural gas expansion risky: experts

Western Balkan countries are doubling down on natural gas, amid a massive planned expansion of import infrastructure which would lock in gas dependence and expose them to stranded asset risks in the future, experts warned.

Natural gas currently has a very marginal role in Western Balkan countries energy mix, standing at just 1% of total European consumption — around 4 billion cubic meters — with Albania, Kosovo and Montenegro barely using any natural gas at all.

Despite that, the region, which also comprises Serbia, Bosnia and Herzegovina, and North Macedonia is planning to expand import capita to reach 10.5 bcm, more than three times its total 2023 gas consumption, as well as building 2.9 GW of additional gas-fired generation, according to a new report by CEE Bankwatch Network and Beyond Fossil Fuels.

The plans risk jeopardising the energy transition in the region — which has a population of just around 18 million people and is still heavily reliant on coal; locking in gas dependence; as well as clashing with wider EU targets, the report said.

These countries should instead leapfrog gas and focus on expanding renewable capacity and in particular hydropower, as well as ramping up energy savings measures, including housing insulation, heat pumps, and cutting losses in electricity distribution networks, the report added.

Russian gas dependence

The expansion of gas infrastructure in the region has been supported by the EU and U.S. in the past amid a push to diversity away from Russian gas.

However “ any infrastructure would cement completely new dependencies, either on Azeri gas or LNG, mainly from the US, arriving via Greece,” the report noted.

“The gas infrastructure expansion is mainly driven by the possibility of losing gas imports from Russia when the EU’s proposed ban comes into effect in 2027,” Ana Maria Jaller-Makarewicz, energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told Gas Outlook.

However if Western Balkan countries “focus on reducing gas consumption and replacing it with clean energy, the region could guarantee security of supply without the need for more gas infrastructure,” she added.

The construction of the EU-funded gas pipeline from Bulgaria to Serbia, which was completed in 2023 and aimed to allow imports from non-Russian sources, has “resulted in Serbia buying some gas from Azerbaijan, but only a small share, and Serbia is still about to sign a new deal with Russia,” Pippa Gallop, Southeast Europe energy policy officer at CEE Bankwatch Network told Gas Outlook.

“So its diversification strategy has not succeeded and it’s doubtful whether Serbia is serious about it,” she added.

Financing hurdles

Another aspect that remains unclear is how the new infrastructure will be financed.

The EU is “virtually closing the door on gas financing in the Western Balkans” however the European Bank for Reconstruction and Development approved a loan for the Greece to North Macedonia inter-connector in 2024, and the North Macedonia to Serbia inter-connector may still receive EU support, despite mainly serving to gasify southern Serbia, the report said.

Similarly, the financing prospects of gas-fired power generation capacity “are unclear… With promoters from Greece, Azerbaijan and Turkey involved, it remains to be seen how successful they will be in mobilising financing” and “project failure (is) likely in many cases.”

At the same time, expanding renewable energy capacity as recommended by the NGOs has to contend with issues that even wealthier European countries have not managed to overcome, such as financing, permitting, grid constrains, intermittency and negative pricing.

“The Western Balkan countries face similar issues in developing a fully renewable mix as Western Europe, mostly intermittency and grid bottleneck, but they have some specific advantages that could allow them to create an almost entirely carbon-free power generation mix,” Jonathan Bruegel,  a power sector analyst at IEEFA, told Gas Outlook.

The current low share of natural gas in the energy mix represents a “unique opportunity to remain gas free (and) should not be missed since the region has some alternatives to gas.”

Moreover, the Western Balkans have the largest untapped potential of hydropower in Europe, with as much as 6 GW of economically viable unexploited hydropower resources, according to a study by IRENA.

“Developing these hydropower capacities combined with more wind and solar could create a system entirely based on renewables, where intermittent renewables are dispatched in priority and hydropower – with its considerable storage capacity – serves as a complement to this mix, making it 100% carbon free,” he argued.

“Renewable expansion requires time and significant financial investments, which may create a supply void in the next decade if electricity demand keeps growing,” he continued.

Against that backdrop, Serbia and Macedonia could keep using gas as a transition fuel while the remaining Western Balkans scale up their renewable capacities.”

“The key requirement for this scenario to materialise would be the strengthening of power interconnections in the West Balkans six.”

“For the next one or two decades, Serbia and Macedonia could supply gas-fired power when renewables are not sufficient in the rest of the region,” he added.

“But in the long run, the West Balkans region could have an entirely carbon-free power mix [of] wind, solar and hydropower.”

(Writing by Beatrice Bedeschi; editing by Sophie Davies)