With the Gas market still emergent, all hopes immerse in the Black Sea
Romania has over 150-year history in oil and gas production and looks with great hopes in the deep of the Black Sea, expecting to find new deposits, especially natural gas
The domestic gas production is decreasing as the available deposits are being exploited and the new stocks seem to be insufficient to keep the balance.
The Romanian gas market is still developing, being quite isolated from European markets due to the reduced interconnection of gas pipes. Another issue is the lack of gas exchange transactions on the capital markets even though this possibility exists both on the OPCOM and the Romanian Commodities Exchange (the Romanian BRM). However, the highest risk is represented by the oligopoly on the market since Romania has only two gas producers, OMV Petrom and Romgaz Medias, besides a single real import source, the Russian Federation. In the field of gas distribution, a similar situation is present with two major players, E.ON and GDF Suez.
"Romanian authorities should find solutions to allow a functional exchange, meaning they should support the establishment of a fair balance between demand and offer. Currently, we face a risk of serious distortion in the gas market, due to the oligopoly created by the existence of only two major players and only one source for import," state the representatives of E.ON Romania, the local branch of German energy group E.ON.
The authorities are trying to bring liquidities on the market by making the large producers trade certain amounts of their gas production on the capital markets. Even if the legislation exists for this matter, the trades are long in coming. For instance, OPCOM registered only nine trades this year. On the BRM, the market exchange that has been licensed in July 2013 by National Energy Regulatory Authority (ANRE) to run gas trades, a total traded quantity of 210.5 million cube meters of natural gas was counted, with 90 per cent having been produced on the domestic market. Almost 10 per cent of the traded gas represented a mix of imported and domestic natural gas transactions while only 0.2 per cent represented exclusively imported gas. However, the volumes traded both on OPCOM and BRM are insignificant compared to domestic consumption.
"Currently, the natural gas market in Romania is developing, from a regulated market towards a free market," Romgaz representatives say. According to ANRE, the natural gas market in Romania is a functional market, enrolled in a continuous integration process within the European unique market and therefore improvable. Once the development and the liberalization of the market are completed, the trading on the centralized markets in Romania will register more and more active deals from year to year. "ANRE will keep on supporting the development of centralized markets for natural gas, the diversification of products submitted to trading and the increase of liquidity of these markets, taking into account the undeniable benefits brought to all the players on the market," the ANRE representatives underlined.
According to E.ON representatives, only the trading of significant gas volumes on the OPCOM and BRM platforms would bring notable effects on the market, defined by reasonable prices and a reduction of these prices for consumers. E.ON officials state that BRM launched in October a new trading application called SEGN that allows the licensed gas providers, suppliers, producers, traders and consumers to trade gas in real time on shorts, medium and long-term intervals, without submitting warranties. "This application offers a higher flexibility for the market participants in choosing the wanted product according to the individual consumption needs. Nevertheless, the authorities need to keep on searching and implementing different solutions in order for the natural gas exchanges to properly function," E.ON officials state.
The German group managers show that, even if the natural gas actors start to get involved more and more actively in the trading process on the centralized markets, several breaches in the regulatory area have to be resolved, in order for the liquidity and functionality of the market to be secured. "We need a liquid en-gross market, able to offer products and terms according to the client's demand, besides all the connected market tools, necessary to develop alternative offers. In the same time, the business community expects a stable politic and economic landscape that conveys trust and allows projections on a long term, besides the simplification of administrative procedures, removal of excessive bureaucracy and reduction of taxes," according to E.ON Romania.
The ANRE officials state that in 2015 the gas exchanges will increase with the development and complete liberalization of the market. The ANRE regulations issued this year state that between July 15 and December 31 the natural gas producers in Romania have to trade gas on the centralized market as much as 20 per cent from the overall production targeting the competition-based market or the entire available volumes remaining after meeting all legal and contractual requirements, if the volumes would be less than 20 per cent. Also, ANRE suggests that producers and their correspondent economic operators should be forced to sell on the market the entire gas volumes generated from the internal production and targeting domestic consumption, after the meeting of certain regulations in the first three months of the next year, after which, the obligations will decrease yearly until 2018.
For the interval of January,1, 2015 – December,31, 2018 ANRE suggests that the obligations to be met by producers and suppliers should decrease yearly until 2018 along with a more intensified trading activity on the centralized market and a growing voluntary participation, according to a methodology suggested by ANRE. Therefore, for the interval of April - December 2015, ANRE suggests that producers and affiliated economic operators meet the duty of trading gas on the centralized markets until the end of the year, in order to reach an annual traded volume of 45 per cent from internal production targeting domestic consumption. For 2016, the amount is set at 40 per cent, while for 2017, the quantum is 30 per cent, and 20 per cent for 2018. Also, the gas suppliers will have to trade gas on the centralized markets as much as 25 per cent from the traded volumes targeting the competitive markets between March-December 2015, while for 2016 the volume is set for 20 percent, with 15 per cent in 2017 and 10 per cent in 2018, if the natural gas volumes are larger than 1,000 MWh.
The Energy Department states that the Romanian Government made some steps to encourage the making of price policies for domestic consumption through transparent mechanisms to support competition and avoid discrimination, in the context of offers meeting the demand on the centralized markets. By this, the authorities plan to hold back the administrative interventions in making the prices for the gas volumes traded on the domestic market. Equally, the regulators target the building of a solid role for the natural gas market in Romania in the context of the current development of a unique European natural gas market, corroborated with an objective market value establishment and the increase of efficient consumption within a sustainable economic frame and a complex regional political landscape. "Considering the duty of producers and suppliers to trade minimum volumes established by ANRE on the centralized markets starting 2015, we can anticipate a more intense activity on these markets," representative of the Energy Department state.
Let's liberalize the gas market! No, let's wait instead
The market liberalization is no easy matter. Not long ago, all private companies were eager for the liberalization to happen, but in the meantime, they concluded that this liberalization is killing the consumers, due to the increase of prices. Moreover, the increase of gas prices for domestic consumers that had to be applied in October, has been postponed by the Government. Following the liberalization schedule for gas prices, agreed by the Government and the European Commission back in 2012, the liberalization should have ended at 31 December, 2018. After the Government got the green light from the EU to cancel the liberalization, the new deadline is 30 June, 2021. The liberalization schedule involves several quarterly price increases regarding the domestic production. Once the liberalization was suspended, the new increase of prices had also been cancelled.
As stated by the Department of Energy, the liberalization of the market reconsiders the economic meaning of natural gas on competitive criteria, transparency and indiscrimination, but also on "capitalizing" this resource, starting from an objective reasoning and efficiency in gas utilization. At present, the natural gas market in Romania is in the process of reorganization based on specific criteria according to a competitive, transparent and non discriminatory environment, in line with the demands of the EU in order to create a unique European gas market as reflected in the papers of the "Third Package – Energy", according to representatives of the Department of Energy.
Also, considering the present geopolitical landscape, Romania has to maintain the security in supplying the natural gas and fulfilling the role of regional stability factor, by actively getting involved in diversifying and development of routes and supply sources for natural gas. ANRE states that the first positive signs of liberalization process are starting to show, as Romania paid last year two billion dollars less for the external bill issued for imported gas, compared to previous years. "Practically, after the liberalization process has started, we registered a decrease of consumption especially in the inefficient energy intensive area. These consumers started to invest in efficiency, in producing for lower costs their products, leading to a decreased share of imported gas from 35 per cent in previous years to 15 per cent in 2013," ANRE officials state.
This year, the ANRE representatives state that the share of imported gas will not exceed 9 – 10 per cent from consumption, considering that, in November, ANRE set a limit of two per cent for imported gas, while in previous years, the share was 20 per cent to 40 per cent, which is a "significantly major" decrease of import dependency.
Salinas - a real solution for gas supply?
In September and October, the Russian group Gazprom reduced several times the natural gas supply to Romania, without offering further reasons. This game of hide and seek with the gas, as it has been described by the Deputy Minister for Energy Razvan Nicolescu, fired again the issue of Romania's capacity and potential to secure the necessary gas resources in a context like this. Nicolescu offered at that time the oath that Romanian consumers would not be affected even in the case when the Russians stopped the gas exports to Romania, since the consumption is lower compared to production. Nicolescu stated then that "we have to get used to situations like this".
However, the Russian gas imports are extremely low, of around 0.2 million cubic meters per day. According to Romgaz, the gas imports from Russia will not be necessary anymore when the offer will exceed the demand. A moment like this could be met around 2020, when the start of gas production in the Black Sea is estimated. Besides the gas production, Romgaz manages six storage deposits, being the largest such operator. For the winter of 2014-2015, Romgaz deposited 2.45 billion cubic meters of gas.
The company, with HQ at Medias, undertook this year investments worth 27 million Euro in order to increase the capacity of storage at Urziceni, from 250 million cubic meters to 360 million cubic meters. Following this investment, the overall storage capacity of Romgaz increased from 2.7 billion cubic meters to 2.8 billion cubic meters.
According to E.ON Romania representatives, due to domestic natural gas production, Romania is in a way "privileged" compared to other European countries regarding the dependency on natural gas imports. "Considering the actual national consumption, we estimate that domestic gas production is sufficient to cover the national consumption during the winter. The risk may appear only if the consumption increases, but even then already-established measures would be applied, such as the switch of large consumers onto other fuel types or the closure of gas supply for non-intensive energy consumers," according to E.ON Romania. The storage goal for E.ON Romania for 2014-2015 is around 5.4 million MWh (around 509 million cubic meters). The company met this storage goal from its own resources and by contracting the deposits of other suppliers. The overall costs paid by the company to secure the deposits for the winter is estimated at 590 million lei.
Still, in a further perspective, Romania should consider several strategic moves to prevent a possible crisis in gas supply and to reduce the dependence on imports. Some examples given by E.ON representatives include the creation of strategic deposits, the completion of inter-connectivity with Bulgaria and the increase of efficiency in inter-connectivity with Hungary, in order to facilitate the access to European hubs. Not the least, the implementation at a larger scale of energy efficiency measures, especially for the large consumers. Romania consumed a yearly 12.5 billion cubic meters of natural gas and produced around 11 billion cubic meters. The difference stands for the volumes imported from Russia, through different intermediaries, at higher prices compared to the production obtained on the domestic market. Some 60 per cent of gas consumers are present already on the free market, while 24 per cent represents domestic household consumers. The rest of 16 per cent is represented by non-domestic consumers which buy energy for a regulated price.
Several years ago, GDF SUEZ Energy Romania, controlled by the French group of the same name planned to make a partnership with the salt producer Salrom, a state-owned company, in order to find solutions for building some underground salt deposits in Salrom Salinas. GDF Suez is, along with Romgaz, the only operator for underground gas storages in Romania, but its depositing capacity is small, around 300,000 cubic meters. The French company's plan has never been implemented. The Department for Energy shows that such projects of building underground storage spaces for natural gas has as main objective the increase of operational flows and the growth of mining capacity, within a safe context for securing the deliveries to consumers.
Also, the Department for Energy admits that the natural gas storage in Salinas still has unpractised potential but which could be taken into consideration in order to increase the security in gas deliveries to consumers. Depositing natural gas in Salinas has a major benefit, due to the high operational reaction speed but it has also a downside, due to the low storage capacity, compared to classic deposits. "In order to identify the locations that might fulfil the optimal characteristics and the safety features for storing natural gas, several studies and analyses should be run for each case at a time," says the Department for Energy. Besides, Romgaz doesn't seem to show too much interest in this matter and no talks have been taken so far with Salrom representatives in order to identify the solutions for developing such deposits.
Everybody expects the energetic Neptun spirit from the Black Sea
For some years now, Government officials and other institutions keep saying that Romania has gas resources only for 10 to 15 years. This is that kind of statement that should give chills both to government leaders and producers and consumers, especially since the perspective of importing gas from Russia is not the most comfortable thought, since Gazprom has a known history of ceasing gas deliveries without more or less clear reasons. Then, even if Romania has an interconnectivity pipeline with the markets in Western Europe on the Arad-Szeged route, the imports coming through this line are low quantity, unable to provide in case of emergency and deficit due to Russia. This year, Romania launched another pipeline with the Republic of Moldova but the role of this pipeline is to transport gas exports and not imports. Again, an investment that, from the perspective of security and diversification for natural gas, doesn't solve the problem.
The cancelation of the almighty Nabucco project didn't cause strong feelings in Romanian Government officials, which seem not in a hurry to build the pipeline to link with Bulgaria, through the Giurgiu-Ruse route. Hence, Bulgaria is also not a gas exporter, as the country is massively dependant on Russian imports. Not least, after two years of protests, hopes and attempts of exploration of potential reserves of shale gas, Romanian PM Victor Ponta recently stated that Romania has no such deposits. This is a statement that should be treated with little weight, since no technical analyses regarding the existence of such reserves has been concluded yet. So, what is to be done? All eyes look in hope to the Black Sea. Even if it is a territory which has been exploited for only three years, the Black Sea holds the hopes for a future security and a lower dependence on Russian gas.
"Considering the decline of domestic gas production achieved within conventional land perimeters, estimated to around 2.5 - 3 per cent per year, but also the intention to minimize the imports dependence, Romania opted for identifying new domestic resources, with economic potential. The plans are to develop the offshore production," representatives of Department for Energy say.
A step ahead for the investments in such perimeters has been recorded in 2012 by OMV Petrom and Exxon which announced they have discovered a significant gas reserve following the drilling well Domino-1, estimating preliminary volumes of 42 - 84 billion cubic meters. In October this year, the two companies announced they have started the drilling to a new prospect located in Neptun perimeter in the Black Sea. Romgaz and OMV Petrom are the main gas producers in Romania, supporting over 90 per cent of the overall consumption. Another company, the US-based Stratum Energy, announced it would invest over 150 million dollars in Romania in the future, after it had discovered natural gas reserves in Moinesti area, Bacau County in Eastern Romania. If they proceed with this plan, Stratum would become the third local producer, even with a small volume of over 500 million cubic meters of natural gas.
Romgaz has hands-down reserves of 62 billion cubic meters of gas, equalling production for 11 years
The oil rush has drawn in the game Romgaz, which joined ExxonMobil and OMV Petrom for a lease contract for the deep waters perimeter Midia XV in the Black Sea. Petrom signed in February 2013 an options agreement with Romgaz for participation in operations in the offshore perimeter of Midia, an option contingent upon the completion of the transfer for exploration and production rights for a portion of the perimeter of Midia from the existing holders of licenses.
In October 2012, ExxonMobil Exploration and Production Romania Limited and OMV Petrom signed a transfer contract with Sterling Resources and Petro Ventures Europe in order to acquire a participation of 85 per cent for exploration and production rights of hydrocarbons in a segment of the Midia XV perimeter from the Romanian side of the Black Sea. ExxonMobil is the operator for oil activity in the deep waters perimeter of Midia, a perimeter neighbour with the Neptun perimeter, wherein Exxon and OMV Petrom said they have found the gas deposits in 2012. Romgaz stated that in 2014 it had a budget for exploration of 666 million lei. "Currently, we are running the mandatory exploration program to be completed this year, then processing and interpreting the data from the 3D seismic analysis, after which we decide the location of exploration wells according to the minimal program," Romgaz stated.
OMV Petrom is the largest oil and gas producer in southeastern Europe and has in exploitation reserves estimated at 775 million barrels equivalent of oil (750 million barrels equivalent oil in Romania). In Romania, OMV Petrom is the largest oil producer supply for half of the domestic gas production. In 2011, OMV Petrom produced 5.23 billion cubic meters of oil.