Project Status and Q&As

Q&A - Frequently asked questions about the WAG Loop 1 project

The WAG Loop project stands as an essential measure safeguarding both local and European energy security. Given the current geopolitical landscape and the imminent expiry of the transport contracts between Rus-sia and Ukraine at the end of 2024, there is a risk of a gas shortage for Austria and the Southeast Eu-ropean region. In an initial step (WAG Loop 1 project), the approximately 40-kilometre section from Oberkappel to Bad Leonfelden is to be extended by a parallel pipeline in addition to the existing pipe-line. This additional pipeline would increase the transport capacity from Germany by about 30% or 27 TWh per year and thus provide better access to gas sources in North-West Europe (e.g. Norway and LNG along the coast in Germany, Belgium, the Netherlands and France). In addition, climate-friendly hydrogen could be transported over the new pipeline in the future. The WAG Loop project not only makes a significant contribution to domestic security of supply, but also sets the stage for a green, sustainable future.

Planning for the WAG Loop 1 project began immediately after the war. It was then presented to the Ministry of Climate Action and Energy’s Gas Summit on 22 June 2022 and subsequently included in the Grid Development Plan. The coordinated grid development plan was officially approved by E-Control in the summer of 2023. Immediately thereafter, Gas Connect Austria started the implementation of the project and has been pursuing it consistently ever since, as if funding were assured. E-Control and the ministries involved are well aware of the project and its timetable. Important steps have already been taken, including a feasibility study to determine the optimal route, the identification of protection zones or assets along the route, and discussions with relevant stakeholders such as suppliers, political actors and engineering partners. GCA has also received written letters of support or expressions of interest from a number of stakeholders. In addition, we are currently working on the Environmental Impact Statement (UVE), which will form the basis of the Environmental Impact Assessment (UVP).

If faster implementation were desired, as is the case for gas infrastructure projects in Germany, for example, acceleration laws would have to be created. Such laws are not being discussed in Austria. The current and rather ambitious project plan envisages completion by 2027.

The next important milestones are the adjustment of the tariff system by E-Control to current market conditions, the clarification of the overall project financing and the examination of the project under state aid rules by the EU Commission in Brussels.

GCA operates as a regulated entity, generating revenue primarily through gas transportation tariffs. However, the existing tariff regulations, established in 2013, do not reflect current market dynamics, such as a significant decline in the transit business, which previously accounted for 80% of revenue, due to ongoing conflicts. To address this issue, a new tariff framework is being developed to ensure economic stability for transmission system operators such as GCA, even in the face of drastic reductions in transport volumes. This new system will therefore serve as a key reference point for decision-making within the WAG loop.

The path to FID is a series of interlinked steps.

Once specific partial funding is in place, the state aid assessment in Brussels can begin. If this assessment is successful and the new tariff system is presented in a way that allows us to assess its impact on the project, the financing can be clarified, paving the way for the FID decision.
The faster these stages are completed, the faster FID will be achieved. However, in line with past practice, preparations will continue at full speed until FID is secured.

Austria has an annual natural gas demand of around 90 TWh (in 2022 it was approximately 88 TWh),which currently and primarly originates from Ukraine and the Baumgarten hub, as well as from Western Austria. In case of a cease of the natural gas flow through Ukraine, the following alternative routes would need to take over the supply: the Trans-Austria-Gas Pipeline (TAG) from Italy, which could currently carry about 70 TWh in reverse flow, and the West-Austria-Gas Pipeline (WAG), which already has a reverse flow capacity (from Germany to Austria) of about 90 TWh per year, making it a total 160 TWh. Additionally, there is the volume of Austrian gas storage facilities, where approximately 90 TWh can be stored when fully filled, with about half of that available to Austria. In addition, the expansion or establishment of LNG terminals could also enble new supply routes from the north or southeast.

Austria is embedded in a European gas network, which means that it can also be supplied via alternative routes. The European Commission's Security of Supply Regulation (SoS Regulation) stipulates that neighbouring member states must help each other in the event of a supply crisis. A solidarity mechanism stipulates that vulnerable customers must also be supplied across borders. So if there are extreme weather conditions (very cold, low water levels, little wind and sun for alternative energy production), storage reserves are already depleted and neighbouring countries also need to be supplied, it may be that the capacity currently available is not sufficient. In such an extreme case such as a gas shortage, the market would initially react with a significant increase in the price of gas (probably to a multiple of the normal price). The resulting additional costs to be borne by gas consumers would quickly exceed the current cost of WAG Loop 1 (around EUR 200 million). It therefore makes sense to expand the capacity of the WAG now and as a precautionary measure. The WAG Loop will help to avoid bottlenecks and price increases in extreme cases by increasing capacity in the west-east direction. In addition, the pipeline can also be used for hydrogen transport in the future.

Government financial support would be desirable for the rapid implementation of the WAG Loop project, as the costs of pipeline expansion are not currently financeable through the market. Normally, grid expansions are triggered and financed by market demand. However, this is not the case for the WAG Loop project as current demand can be met with existing capacity and the project is primarily focused on future security of supply. Due to the lack of transport bookings, Gas Connect Austria faces a significant financial risk. Government guarantees or subsidies to secure the project are therefore essential, as has been the case for similar infrastructure projects in other European countries such as Germany and Croatia. If faster implementation were desired, as is the case with gas infrastructure projects in Germany, acceleration legislation would have to be introduced. However, such discussions are not taking place in Austria. The currently proposed and rather ambitious project plan aims for completion by 2027.

The project is currently scheduled for completion in early to mid-2027. Gas Connect Austria is taking significant measures to meet this ambitious timeframe and facilitate swift implementation. However, the realisation of the project is also subject to numerous external factors that are beyond our control, including approval procedures, environmental impact assessments, negotiations for rights of way, and supplier availability and lead times. Austria does not have a law similar to the one in Germany that allows for accelerated construction of critical infrastructure.

Some parties are considering accelerating the WAG Loop 1 project and completing it by the first quarter of 2025. However, this is not feasible whilst adhering to the given framework conditions.

Gas Connect Austria immediately initiated the WAG Loop 1 project following its integration into E-Control’s long-term planning and has since been diligently working on the project, thus taking proactive measures.

Although E-Control has approved the project and the costs as suitable for the grid, this does not guarantee that the project will be financed or that the costs will be covered. Due to the currently applicable tariff system, there is indeed a very high financial risk for Gas Connect Austria.

The return on investment cannot be secured in advance, as is usually the case, due to the lack of corresponding transport bookings. However, the ongoing expansion of the WAG is indispensable for ensuring supply security and, therefore, has to be assessed and financed differently than usual. Discussions are currently underway with E-Control, the authority responsible for setting GCA's tariffs. There is currently no state guarantee or subsidy for security of supply.

From GCA's experience with other pipeline projects, it is unrealistic, as demanded by some, to complete the project by the first quarter of 2025. The necessary regulatory approval process alone takes at least one year. Prior to that, as part of the Environmental Impact Statement (UVE), approximately two vegetation periods are required to survey protected assets. Even with an extremely ambitious approach, the production and laying of steel pipes do not anticipate completion before the end of 2026.

A comparison in terms of timing with the construction of an LNG pipeline in Germany is also flawed since Germany specifically enacted the LNG Acceleration Act for its expansion, which includes exemptions for the Environmental Impact Assessment procedure (UVP), nature conservation laws, and similar regulations. Such measures were not initiated by the Austrian Ministry. Additionally, Germany operates under a different tariff system that actually guarantees cost recovery.

Gas Connect Austria operates independently from its owners when it comes to project design and financing, in compliance with unbundling regulations.

There is currently no delay in the WAG Loop. Despite ongoing financial discussions, GCA has been pursuing the WAG Loop as if the final investment decision had already been made. 

It is important to note, however, that the natural gas industry is going through a period of change, which makes it difficult to bear the sole responsibility and financing of such an investment, especially as there is no secure economic basis in the form of existing bookings, as it is usually the case. Hence Gas Connect Austria's request for financial support from the government. For regulatory reasons (Unbundling), the aforementioned majority owner, Verbund, has no operational role in the project. Gas Connect Austria has full responsibility for the project.

The Ministry of Climate Action and Energy (BMK) repeatedly emphasizes that the approval of WAG Loop 1 mandates its construction. However, the approval by E-Control only signifies that a project is fundamentally beneficial for the grid; it does not mean that it must be built without economic security for the long-term operation of a line - and this is not yet the case. The realisation of infrastructure projects such as the WAG Loop 1 depends on the existence of long-term bookings under the current regulatory regime, which allow for a return on investment. Now, the government's programme has announced the goal of climate neutrality and consequently the phasing out of natural gas by 2040. This threatens the viability of projects such as the WAG Loop, as the legal and economic framework for the expected future hydrogen transport has not yet been finalised.

As mentioned elsewhere, there are already diversified transport routes for gas supply. However, Gas Connect Austria has also made provisions for imports from the west. We have implemented temporary safeguards and reinforcements on the existing pipeline, which already allow us to transport higher volumes in an emergency, roughly in line with the expansion plans. This will ensure security of supply during the construction phase of the project

Information on the WAG Loop1 press conference in December 2023 can be found here.