Big energy opportunities likely await Hydro in the larger EU

April 30, 2004, 14:00 CEST

"An expanded EU opens up power trading access and will have a positive impact on Hydro's position as one of Europe's largest consumers and buyers of electricity," says Olav Skalmeraas, head of marketing in Hydro Oil & Energy. "Trading volumes will grow as will the total number of players and market liquidity."

But EU enlargement is not without concerns.

"In the short-term, new EU countries are expected to exploit their production capacity and increase sales to the west. Meanwhile, western countries need to closely monitor transmission flows to ensure power from new countries follows market mechanisms," Skalmeraas says.

"Long-term, the new EU countries will have to upgrade their production facilities to meet environmental standards, which could raise production costs."

Gas flow

An enlarged EU "won't immediately impact Hydro's natural gas positions," he says. "Hydro has already established contacts in Poland and the Czech Republic."

Both countries have expressed the desire to diversify their sources of natural gas supply. Russia's Gazprom has traditionally delivered the vast majority of gas to the former eastern bloc.

"Gas transport won't be noticeably affected in the enlarged EU, except that a more standardized transport system may result," says Skalmeraas.

Hydro Oil & Energy expects an eventual economic upswing in new member countries, leading to higher energy demand and higher power prices.