Romania Gas: Great Potential, Regional Complexities

Its strategic position and its 3.7 Tcf of proved reserves make of Romania a possible contributor to the Energy Union project proposed by European institutions in February 2015, but tapping into Romania’s potential requires multiple efforts that are not all contingent upon Bucharest. 

“Romania has a lot to offer to the European energy security strategy,” said one panellist during a conference held in Brussels under Chatham House rules. 

The main take-home message of the meeting organised by Natural Gas Europe and Energy Policy Group on Wednesday is that small-scale interconnectors would come in handy, helping the Eastern European country to export when it produces more gas than it consumes.  

These projects aren’t "low-hanging fruit" though, as they depend on European, regional and national decisions.  

COMPLEXITY NUMBER ONE: DOMESTIC POLITICS AND PUBLIC SPENDING

Experts gathered on Wednesday in the European Parliament disagreed on the public financing of energy projects at a national level. Indeed, while some said that Romanian investments are a necessary condition, others claimed that resorting to national spending is not a feasible solution given the lack of funds.  

That was the only point on which there was a divergence of views, the only contentious issue for which experts did not come up with a solution. On the other hand, positions were more aligned when it came down to regional and European strategies to promote new interconnectors. If supranational difficulties emerged in the debate, solutions were proposed, too. 

OTHER COMPLEXITIES: REGIONAL INTERESTS, EUROPEAN FUNDING 

“The problem is that each country has a country-centric approach,” one panellist said, referring to Eastern Europe.  

The point here is that each country in the region has its own short-term interests. For instance, several Transmission System Operators (TSOs) are tabling their proposals to create a regional gas market. In doing so, projects are reportedly competing with each other, slowing down the integration of energy markets and exposing the countries to energy security threats.

“When you look at the actual developments on the ground, you don’t see that much of a regional cooperation,” a person intervening in the debate argued.  

Participants representing opposing interests shared this view. Most of them agreed on the fact that the selection of the interconnector(s) should be based on markets, claiming that only the project(s) with the strongest business case should go ahead. Market-based decisions are the proposed solution to both regional and European quandries, being considered the least politicised criteria used for selecting among competing projects. 

In this sense, experts expressing national interests convened with Brussels’ latest plans. 

In its list of Projects of Common Interest presented in November, the European Commission said that there is a potential competition between four regional projects - the pipeline system from Bulgaria to Slovakia (Eastring), the pipeline system from Greece to Austria (Tesla), the infrastructure to allow the development of the Bulgarian gas hub, and the enlargement of the Bulgaria-Romania-Hungary-Austria bidirectional transmission corridor (BRUA).

In its report, the European Commission put forward the same answer given by panellists on Wednesday. The list of “potentially competing PCIs” does indeed say that "it is left to the market to determine whether one, several or all PCIs are to be implemented, subject to the necessary planning, permit and regulatory approvals."

ADVANTAGE: ROMANIA’S GAS POSITION BETTER THAN ITS PEERS'

Bucharest is in a better position than the majority of European countries. As reported by the European Commission in a recent analysis, Romania’s energy trade balance did indeed show a deficit of 1.4% of GDP in 2014, which is lower then EU average. This has to do with the fact that gas and coal are close to balance.

Additionally, while European countries are increasing their dependence on imports, BP data show that Romania has been decreasing reliance on Russian gas since 2006. Domestic production has declined steadily over the past three decades, but consumption decreased, too. This allowed the country to import an increasingly marginal part of its gas needs from Russia. As a result, Romania’s energy regulator, ANRE, reported in September that imports would only represent 3% of the country’s gas consumption in 2015.  

WHAT’S NEXT?

Also due to regulated prices, domestic retail prices for gas in Romania are the lowest among EU Member States. This could soon change, possibly affecting gas consumptions patterns.  

On the gas market, liberalisation was finalised for non-household consumers … as of 1 January 2015. According to a new roadmap adopted in June 2015, the gas market will be fully liberalised for household consumers by 2021 "at the latest," the European Commission wrote in November. 

From an interconnection point of view, Romania’s tests are around the corner. One expert told Natural Gas Europe that the next 14 months will be key to understanding which projects will be selected. A series of factors, ranging from Ukraine-Russia ties to new major projects connecting Russia with Europe, are likely to influence the business case of new interconnectors in the region. 

Romania is involved in the Bulgaria-Romania project known as Black Sea Corridor, in the Mid Continental East Corridor to Serbia, in an interconnection to Bulgaria and Greece, in the Romanian-Hungarian reverse flow, and in the above-mentioned Eastring and BRUA projects.  

The selection process will depend both on financial elements and on the countries’ willingness to cooperate in regional projects. In this sense, a first test will come on Thursday, when the investment agreement on the construction of interconnector between Bulgaria and Greece (IGB) is expected to be signed. Further delays could be both the result and the cause of additional mistrust.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci