Natural Gas: Vital to Romania's Economy

On 23 October, top representatives of Romania's natural gas industry from government, regulatory and commercial interests gathered in the Romanian Senate gathered for a roundtable event entitled Interconnecting Europe, Natural Gas in Romania. Speakers highlighted what they think needs to be done, both at European level and in Romania, to bolster the gas sector.

The event was opened by Ms. Norica Nicolai, Member of the European Parliament, who in her introductory remarks, noted: “More than ever, now, the lack of a unified energy policy on the behalf of the European Union is obvious, and has shown us how much we need a unified vision in this area.”

The topic, she said, is relevant for both the EU and Romania, since the natural gas market is vital for the development of the economic sector. “Beyond all of our ambitions targeting alternative or renewable energy sources, the tradition of oil and gas will remain dominant, in my opinion, for Romania's future development,” she added.

According to Ms. Nicolai, public dialogue on Romania's energy developments is dominated by people who are not knowledgeable on the topic.

“Things are not advancing fast enough,” she observed. “Romania is a voice in the area through its resource; maybe it's not a strong voice in Brussels, but nevertheless we've decided to [host] the voice of the professional community from Romania.”

Those knowledgeable in the topic, she said, should continue to promote Romania's interests in this field in Brussels, to raise the volume of Romania's voice there. The opinions of Romania and others within the European community, said Ms. Nicolai, should be heard and mirrored by appropriate legislation.

The director of the Energy Policy Group, Radu Dudau, (who moderated the roundtable) noted that with participants from across the board in attendance, including government, industry and regulatory speakers, the roundtable had the opportunity to look at European gas interconnection from a variety of perspectives.

The first speaker, Mr. Mihnea Constantinescu, Special Envoy for Energy Security (Romania), spoke of strategic issues regarding energy security.

Referring to a speech Vice-President of the European Commission, Maroš Šefčovič, had recently given in Bucharest, Mr. Constantinescu stated: “We are aiming at an Energy Union able to make the necessary connections between energy security and requirements for energy provision at affordable prices, a sustainable and competitive provision of energy, natural gas included.”

“At the same time, he said, “there needs to be contribution by the EU28 of objectives such as a good interconnection of the national energy systems, transport of natural gas, a better development of the indigenous resources existing in the European Union, and better cooperation at a regional level in order to create energy markets that are more flexible and attractive for investment.”

Taking into consideration the existing level of competitiveness in the EU compared to other places like the US, where the gas price allows for a high level of competitiveness, he said it made Europe more careful and mindful. “This has meant the efforts made by the EU, including financial ones, considered in the strategic development plan, place more emphasis on the fifth pillar of the Energy Union: research and innovation.”

He highlighted three trends, which he said were mandated by the Energy Union, the first being the reorientation of geopolitics towards the geoeconomics of the energy sector, because the geopolitical agenda had become omnipresent in every debate regarding the future of natural gas in Europe.

“All thing considered, we must not forget that the reason behind investments in the natural gas sector – exploration, production, and transport – is actually the liquidity of the market, and to the extent that we want the natural gas market to be unified, may secure energy in a safe, accessible, affordable, competitive and sustainable way for industry as well as domestic consumers.”

As regards interconnectivity, Mr. Constantinescu said a “simple drawing on a map” is not sufficient.

“The principle that we are promoting is that the European market must prevail in any design of infrastructure and connectivity regarding natural gas.”

The Third Energy Package, he added, is an essential condition for the development of new infrastructure. He said energy security is a common objective, inclusive of Romania's neighbors in South-eastern Europe, like the Republic of Moldova, and that it is necessary to maintain Ukraine as a transit state for natural gas.

“In our opinion,” he said, “this is a solidarity objective that we are obliged to consider for our neighbors, as well as for the EU as a whole – we must support it together for future energy security.”

Secondly, according to Mr. Constantinescu, focus should be changed from training strictly on energy security onto the objective of creating energy markets, including sustainable natural gas markets. “As Maroš Šefčovič said in his speech, there shouldn't be any tension or conflict between energy security on one hand, and sustainable natural gas use, on the other.”

The low levels of integration and liberalization of gas markets in the region, he said, generates quite a danger, “Making for low system flexibility when it comes to adjusting, modernizing or expanding the systems in due time.”

This meant, he explained, that investments in the gas sector are necessary, both to allow for increased interconnectivity as an objective, and to improve market conditions.

“Those who intend to increase the level of investments in Romania's gas sector understand perfectly that it is very necessary to have a robust and predictable gas sector market. We need to create secured demand, and a fluid market allowing supplementary gas volumes to be consumed in the future, which is also important for investments,” he said.

Mr. Constantinescu said it is prudent not to forget that the region has what he termed an “addiction” to one external natural gas provider. “It's a big vulnerability. There are six member states in the European Union that are at almost 100% dependent on one external supplier,” he noted.

He added that the low level of market liberalization is also an obstacle.

Third, he said he would draw attention to the “geography of competitiveness” for Romania and at the European level. “We require a better level of coordination when it comes to identifying various financing sources in order to support investments in gas sector infrastructure.”

He said there is a vast array of offers, starting with the European Fund of Strategic Investment, the Juncker Plan, or the 2014-2020 Cohesion Funds.

“For the sustainability of such investments in the energy sector, especially in gas, he said it is essential to consider three pillars: 1) better coordination at a regional level, 2) creation of a system to evaluate the bankability criteria of projects, and 3) a connection between the banking sustainability of investments in the gas sector with evolution in the gas markets.

Mr. Constantinescu concluded: “By securing a viable market, and an aggregated demand as robust as possible, those investments in the gas sector will also be encouraged and supported in the future.”

His talk was followed by Mr. Calin Popescu Tariceanu, President of the Senate of Romania, who noted that Romania is only “moderately dependent” on single suppliers, has a reasonable energy mix, and has the potential to become a transit country.

In addition to managing its energy security, he said that Romania needs to achieve an internal market according to European regulations, needs to reach energy efficiency targets, and in terms of decarbonization of emissions national ambitions should be raised through introduction of new technologies.

Mr. Tariceanu said Romania needs an updated energy strategy based on Romania's potential at the European level, reflecting 2020 targets.

He admitted: “I am not enthusiastic about exporting gas from Romania; I would prefer that this energy should be consumed domestically necessitated by our economic development rather than just becoming exporters of energy.”

Regarding the financing of natural gas infrastructure, he said he is convinced that Romania's macroeconomic developments should encourage investors and international organizations to become involved in regional projects of interconnection. “Of course, this should not be reason to believe it's enough; investments will come if Romania manages to provide more incentives to stimulate the sector's development – we need predictability, transparency, professionalism and better rules.”

Beyond that, he said the development strategy of Romania's energy sector should be based on a broader political consensus, so that objectives should not be swayed by political movements.

Domestically, explained Mr. Tariceanu, he said onshore gas production should be implemented via using advanced technology to exploit resources.

“The investment plan for developing the natural gas transport system should comply with new levels of capacity in terms of offshore production in the Black Sea, and must be compatible with other pipelines. Such investments by national companies with foreign capital should be stimulated taking into consideration the current constraints given by the global price of oil.”

He also touched upon gas storage capacities in Romania: “I believe that increasing the storage capacity in our country could generate interest in bigger projects, consolidating the arguments to attract financing from the EU in terms of transportation and the interconnecting of our systems at the European level.”

According to him, Romania should continue to promote gas supply alternatives via LNG, both at the regional and global level, including through promotion of the AGRI project.

Mentioning connections to Bulgaria, Hungary and Moldova, secure energy, he said, should not stop at the borders of Romania.

-Drew Leifheit