Romania cuts dependence on gas and Russia

Romania cuts dependence on gas and Russia

Romania may be seeing its hopes for shale gas production disappear, but sinking annual consumption means its reliance on Gazprom imports is also steadily declining.

Gas imports dropped by 61% year on year in 2014, according to preliminary data from the INS statistics office in Bucharest, which also indicated national demand has fallen yet again. Annual domestic consumption has dipped sharply over recent years – from roughly 17.5 billion cubic metres in 2004 to a little under 11 bcm in 2014, according to BP and INS estimates.

This is the result of a number of factors, according to Ana Otilia Nutu from the Bucharest-based Expert Forum. Mild weather, reduced industrial consumption and the effect of market liberalisation have all served to dramatically dampen demand.

“By the end of 2014, there is no longer a regulated price nor the famous ‘basket’ requirement to purchase certain shares of imported and domestic gas. So now you have real competition between domestic and imported gas,” said Nutu.

The Russia factor also plays a role in Bucharest’s approach to gas policy, with the government keen to avoid dependence on Gazprom by upping indigenous production.

“Romania has always been a bit more anti-Russia and quite cautious with investment from Moscow. It’s now become publicly acceptable to use that as a policy argument,” Cvete Koneska, from Control Risks, told Interfax.

“Consecutive Romanian governments have been trying to reduce dependence on Russia and, meanwhile, there has been a longer-term trend of reducing consumption that has nothing to do with Russia.”

Political pipelines

Although Romania’s transmission system operator Transgaz announced last year it would not prioritise deliveries to Ukraine, the company has finished work on a pipeline to Moldova, providing the landlocked country with its first alternative to Russian supplies.

With winter looming, Gazprom cut deliveries last September to a number of countries in the region. Romania’s Energy Minister Razvan Nicolescu said at the time that it was part of a “game” designed to create confusion and stoke supply fears in retaliation for reverse-flow deliveries.

An interconnector project with Bulgaria is under development across the Danube, and the EU has also urged Bucharest to consider a link with Hungary as part of plans to shore up supply security in the region.

But with domestic production of 10.9 bcm in 2013 and Gazprom imports accounting for just 1.19 bcm in the same period, according to official company statistics, there is a limit to the impact of supply disruptions on Romania.

“I think in Romania they [Russia] might be lobbying for delays in interconnectors allowing gas exports – reverse-flows with Hungary, the two-way connection with Bulgaria, reverse flows with Ukraine and, of course, the finalisation of the Iasi-Ungheni [pipeline] to Moldova to actually make it relevant,” Nutu said.

NATO officials have also previously alluded to Russian backing for anti-shale gas campaigns in Romania.

For policymakers in Bucharest, options for increased production are appearing quickly on the horizon. The 2012 discovery by ExxonMobil and OMV Petrom of up to 84 bcm at the Domino well in the Black Sea has been followed by similar announcements and the apparent discovery of 20 bcm at the Pelican South 1 offshore well this past month.

Shale fail

One further potential avenue for boosting domestic output would have been the exploitation of shale gas, but Chevron decided to withdraw from its concessions recently – marking the full departure of the once-committed unconventionals explorer from Central Europe.

“In 2014, drilling of the first exploration well in the Barlad shale concession in northeast Romania was completed, as was a 2D seismic survey across two of the three concessions in southeast Romania,” a Chevron spokesman told Interfax, confirming the decision to depart from the licence.

 “This is a business decision which is a result of Chevron’s overall assessment that this project in Romania does not currently compete favourably with other investment opportunities in our global portfolio.”

The US supermajor has been beset by protests at rural sites stretching from Zurawlow in southeastern Poland to Barlad in Romania, but it appears simple economics were to blame for the decision rather than government policy failure or public protest.

“Chevron’s bottom line last year was hit hard by the decline of oil prices, and possibly they didn’t find much potential reserves to make future investments in exploration worth… a chance. The overall initial estimates for shale gas in Europe seemed to be heavily overstated. I don’t think Chevron’s decision had much to do with the protests,” Nutu said.

According to Koneska, much like elsewhere in Central Europe, the shale gas “hype did not correspond to the situation on the ground”.

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