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Oil & Gas Industry: Challenges and opportunities for Romania

As it appears from the four scenarios of the Romanian Energy Strategy, natural gas will play an important role with expected significant increases in the energy mix starting in 2020. Even though currently about 15 per cent of the national electricity production is based on hydrocarbons, natural gas could become the main fuel in 2030 for domestic energy production, with a 45 per cent share.

2017-09-25 14:39:10 - From the Print Edition

In the short and even medium term, Romania will face a decline in domestic onshore oil and gas production, and the Black Sea natural gas resources are expected to come into exploitation in the first part of the 2020s, depending on the oil and gas prices in the worldwide markets.

The exploitation of indigenous resources could be one of the smart options at present, both in terms of economic, social, economic benefits, and from the point of view of meeting EU targets. However, the idea of national energy security must take precedence over energy independence.
Under these circumstances, Romanian companies should make considerable and concerted investment efforts to ensure Romania's energy security, through projects to increase storage capacity and to achieve modern transport and resource interconnection systems.

The Diplomat - Bucharest organized the conference "Beyond Strategy: Oil and Gas Projects in Place", a debate on the current policy framework, the state of the projects implemented by the oil and gas companies, the plans and the coherent strategies by which Romania can become a regional hub.
The elite event was organized by The Diplomat in partnership with Romgaz and with the support of Ministry of Energy, ANRE (National Energy Regulatory Authority), ARPEE (Romanian Association for Promoting Energy Efficiency), AFEER (Association of Electricity Suppliers in Romania), ROPEPCA (Romanian Petroleum Exploration and Production Companies Association) and the World Energy Council. The conference was moderated by Valeriu Binig, partner in the Advisory Services practice with EY.

Robert Tudorache, Ministry of Energy: We are committed to continuing the tradition of the Romanian oil and gas industry

"Romania has one of the most relevant oil and gas industries in Europe and we are committed to continuing this long tradition and the hard work of many generations of specialists," said Robert Tudorache, state secretary, Ministry of Energy. "We are proud of the over 160 years of Romania′s oil industry. Recent changes on the international oil and gas market have significantly reduced investments in exploring and developing new production perimeters and thus urge us to be cautious in this respect. The effect is also felt in Romania."

According to Tudorache, the Romanian energy sector is a stable one for now and continues to benefit from a diversified mix of resources.
"We ask ourselves what will happen when these resources will be gone and how the Romanian energy system will look after several decades," said Tudorache. "It's up to us. There are solutions and we must have the determination to make the necessary changes today, not tomorrow. There is so much to be done and we need serious investments. There are certain projects already begun, as well as proposals of a certain value, which require a common approach oriented towards concrete results."

In his opinion, Romania needs dynamic debates to turn these ideas into development projects.
"We are in the process of finalizing an energy strategy for 2017-2030," Tudorache underlined.
"The strategy follows the directions of development of the Romanian energy sector over the next decades. We have decided to improve this strategy. We want a document that meets all of Romania's energy interests in this European paradigm. We cannot talk about energy security without considering Romania′s strategic position in the Black Sea. The use of major oil reserves in the Black Sea can give this region a central role in strengthening the energy security of Romania and the entire region."
Robert Tudorache said developing offshore resources is a priority for Romania, as well as attracting investment and collaborating with major companies that already have the know-how and technology needed to develop these resources.

"If we want to become an important regional player, to be recognized as an important country in the European and regional energy context and to ensure an increase of the energy security for our country, we have an obligation to promote the Romanian energy potential," the state secretary concluded.

Vlad Pavlovschi, Romgaz: We registered a good year′s performance due to increased demand for gas

In the first half of 2017, Romgaz produced 2.56 billion cubic meters of natural gas, 16.5 per cent over last year and 3.7 per cent more than the budget, according to Vlad Pavlovschi, business development director, Romgaz. "In the second quarter, gas production rose 49 per cent over the same period in 2016.
"This year′s good performance is due to increased demand for gas, which has made it possible to optimize gas recovery and good stock management."

Last year, natural gas production decreased by 24 per cent over the similar period of 2015 due to difficult conditions in the domestic market (unclear regulatory framework for setting minimum gas stocks, unfavourable tax framework for domestic producers, high temperature).
Romgaz natural gas production activities are performed by the two production branches with the headquarters in Medias and Targu Mures, together operating over 140 commercial fields, located in Transylvania, Moldova, Oltenia and Muntenia.

Romgaz production branches are set up in 14 production departments: Filitelnic, Delenii, Medias, Roman, Danes, Agnita, Cristur (Medias branch) and Sangiorgiu de Mures, Sarmasel, Grebenis, Sangiorgiu de Padure, Taga, Muntenia and Oltenia (Tg. Mures branch).
These fields produce through 3,240 wells and complex surface facilities made up of gathering pipes, gas heaters, impurities separators, compressors, dehydration stations and gas metering panels.
The production decline is maintained at minimum levels by an additional flow rate associated with performing development works and recompletion operations on the blocks under production, rehabilitation works of Romgaz mature fields as well as further to performing geological research works on the exploration blocks.

As for electric power production, electric power plant (CTE) Iernut is part of Romgaz's SPEE Iernut Branch.
CTE Iernut is a condensation electric power plant with intermediate superheating of 800 MV installed power. Its capacity to produce electric power accounts for five per cent of the domestic/national market share.
CTE Iernut has an installed capacity of 800 MW, consisting of 6 energy units split into four 100 MW energy units and two 200 MW energy units. The groups have been commissioned between 1963 and 1967. The global efficiency of the power plant is 39.5 per cent.
The medium and long-term objectives make the branch's activity more efficient and promote investments targeting the following: increasing the plant's efficiency to a minimum of 55 per cent; compliance with environmental regulations regarding NOx emissions; increasing operational safety.

Constantin Gheorghe, Regulatory Authority for the Black Sea Oil Offshore Operations: The offshore area comes with additional challenges and risks

"This area of activity is very difficult because you work with something you do not see. It′s down somewhere in the ground," said Constantin Gheorghe, state secretary, President of the Regulatory Authority for the Black Sea oil offshore operations. "The offshore area comes with additional challenges and risks. We must not forget that the Black Sea is a closed sea and any pollution accidents can have devastating consequences over the long term both for the environment and for local communities."
Unfortunately, Romanian legislation and international laws have some shortcomings in how these accidents are perceived and how we respond to them, according to the quoted source.

The Competent Authority in Romania will have the role of collaborating with all operators and all players involved in these activities to ensure that offshore operations are safe.
"We will focus both on the reactive side in case of an emergency, as well as on the proactive side to prevent accidents," said Gheorghe. "There are long-time operators in the Black Sea, such as OMV Petrom, who have very good security safety systems already. Our role is to discuss with these operators and see where we can improve certain aspects. We will be open, transparent, co-operative, balanced and we will look together to keep the Black Sea safe and people out of accidents."

Mark Wagley, ROPEPCA: Without any additional investments onshore, Romania will be out of gas in approximately ten years

Romania is blessed with an abundance of natural resources and the possibility to become energy independent, to have a secure energy supply with even exports to Europe being possible, said Mark Wagley, president of ROPEPCA.

"Not many countries in Europe can claim that, but we have a problem here about over-taxation, over-regulation, transparency," he continued. "We had a law passed in the middle of the night that took capital away from the investors. How can we run a business in these conditions? You cannot take away capital from the investors and expect to increase production."
Without any additional investments onshore, Romania will be out of gas onshore in approximately ten years, in his opinion.

"We need to see how we can incentivize investments to be stable and predictable, with no more laws passed in the middle of the night," Wagley underlined. "There needs to be transparency, collaboration, dialogue with the industry. There are a lot of opportunities, a lot of work to do, but we need predictability."
According to ROPEPCA, Romania has one of the lowest rates of production per well (20 boe/well/day) among all European countries: Norway (2,350), Denmark (964), UK (363), Italy (271).

Lucian Petrescu, OMV Petrom: Romania can become a natural gas exporter

"Romania has an opportunity to become a natural gas exporter and an energy security provider in the future," said Lucian Petrescu, director supply and logistics, OMV Petrom.
"We all need to focus on this opportunity. There is important gas stock in the Black Sea and onshore. With the necessary transport infrastructure, we can ensure energy security in the region".
The oil company OMV Petrom posted a net profit of 1.2 billion RON in the first six months of 2017, which is 199 per cent higher than the similar period of 2016, due to sales growth by 25 per cent and an investments reduction.

The sales increased in the first semester of the year by 25 per cent to 9.26 billion RON, due to the "crude oil prices being significantly higher and higher volumes of oil products, natural gas and electricity, partially compensated by the average sales prices on natural gas dropping lower," says a report.
Also, profit was supported by the elimination of the special constructions tax enacted on January 1. Investments dropped by 32 per cent in the first semester to 913 million RON compared with the first semester of 2016, mainly due to the substantial reduction of investments in the Upstream segment. For 2017, the company initially estimated investments close to 800 million Euro, 40 per cent higher compared with 2016, but has since revised the budget downwards.

Mihnea Craciun, EBRD: Our desire for Romania is to become a regional energy hub

The European Bank for Reconstruction and Development is in talks with the Black Sea Oil and Gas company to take part in the Black Sea gas exploration project, said Mihnea Craciun, deputy director at the bank.

"Predictability is one of the conditions for investing in conditions that investors can control. EBRD is a partner of the Romanian energy sector, the oil and gas sector in particular. At this moment, we are trying to have a holistic approach to all the opportunities that Romania has."
According to Craciun, EBRD is working across the industry. "We are one of Romgaz′s shareholders and we are trying to help the company in developing corporate governance policies at the level of similar companies in Western Europe. At the same time, we are working with Transgaz to fund the BRUA pipeline. We also work with private investors in the exploration stages of the Black Sea. We are also working with the competent authority on offshore safety; we are trying to help with a grant to speed up the procedures and policies on which the offshore safety side will be conducted in the future. Our desire is for Romania to become a regional energy hub. We have all the ingredients to develop this idea and move it forward."

EBRD provided 285,000 Euro for technical assistance to the Romanian Government to facilitate the implementation of the EU Offshore Safety Directive by supporting the institutional capacity building of the newly established Offshore Competent Authority which enabled its members to effectively perform their duties. The provisions also served to assist with the development of the legal and regulatory framework necessary for the effective implementation of the relevant EU legislation into Romanian secondary legislation.

Valeriu Binig, EY: European Union paves the way for going as low-carbon as possible

In the European Union, where the key word is decarbonisation, gas is seen as a transition fuel, according to Valeriu Binig, partner in the Advisory Services practice with EY.
"Clearly, the European Union, through its guidelines of energy policies and legislation, paves the way for going as low-carbon as possible," said Binig. "People from the European Commission say that investments in gas infrastructure made after 2030 may be no longer necessary. We are preparing for this. We must see if we wait and keep this gas or we take it out now and take advantage of it as much as we need. If we continue to wait, we can get to a state of technological development where we won't need gas anymore."

According to Valeriu Binig, if gas reserves are found, for sure companies will want to get the most out of them if technology allows it. "It is a private initiative and the state can only promote energy efficiency measures to encourage more efficient energies. We need to be aware that we are in a transition period that can take ten or 20 years and yes, the gas should come out on the market. Even the Persian Gulf countries have made this decision. Initially, they thought about keeping the oil for 100 years for the next generations, but they changed their minds and took it out now even at this low oil price, because they could have nothing more left to sell in the future."

Radu Dudau, Energy Policy Group: Romania has the interest to be connected to a gas hub with transparent prices

The possibility that Romania could somehow become a gas transit hub cannot be discussed without proper investments, said Radu Dudau, director, Energy Policy Group.
"We cannot talk about Romania as a gas hub until there is no prior access to the market, until there is no destination for the gas volumes in question. We shouldn't be naive to wait for the gas to come to us and then to decide what to do with it. This should never happen."
Radu Dudau explained that Romania has the interest to be connected to a gas hub with transparent prices, from which gas can be purchased even in a supply crisis.
"We have to put our thoughts in order. Do we want to behave like a regional player or do we want to perpetuate this policy of closure and isolation that we have now?" Radu Dudau concluded.

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