In 2015, Maros Sefcovic, Vice President of the European Commission for Energy Union, was writing about Romania as being "at a crossroads - both in strategic and physical terms. The first European country to have exported its gas is (re)defining its role as an important regional energy hub". Indeed, for this country, which was the first in Europe to introduce electric street lights and to built a natural gas storage, the Energy Union can be the expected chance to stand up among the leading states in the EU, leaving behind its "laggard" status.
The Energy Union is one of the main priorities of the current commission. Adopted in 2015, the Energy Union sets out an integrated vision of the energy sector, based on three pillars : security, efficiency and competitiveness, for all of which countries must meet their objectives and coordinate their actions in order to achieve a true energy union. Romania's strategic geopolitical position ("a bridge between Eastern Europe, such as Ukraine and Moldova, and Central Europe"1) and its energy independency recommend it as a pivot-actor in the region with respect to the security of gas supply. However, to which extent is Romania prepared to assume a leading role in the making of the Energy Union, more precisely in ensuring the security of gas supply?
Romania can become and influential actor in insuring security of gas supply through diversification of sources and routes and through enhanced interconnectivity in the Central Eastern and Southern-Eastern Europe region. Its potential in gas production also recommends it for the position of a regional energy hub. However, this potential can only be unleashed if Romania implements in a timely fashion the internal market rules, namely regarding competitiveness, transparency and legal certainty.
The first part of this paper will explain that in order for Romanian gas market potential to become a strategic asset for the Energy Union to rely on, competitiveness must be improved. The second part will discuss Romanian major gas network infrastructure projects, making the case for Romania's potential to become a key player in the Energy Union by boosting security of supply through new routes and increased interconnectivity with other MS and Energy Community members. In the end, this paper will draw on the challenges that Romania still needs to overcome in order to become a reliant partner for the EU on energy security issues.
I. The necessary shift towards competitiveness
In 2015, the EU produced 46% of its total energy, out of which, natural gas represented only 14%2. Thus, natural gas consumption was supported in proportion of 70% through imports, the rest being provided by member countries making the EU "world's largest energy importer"3, largely dependent on Russia and Norway4. Given this context, three main arguments make the case for Romania as a oasis of security on the EU energy market. First, it is the fourth producer of natural gas with 6.5% share of total EU production. Secondly, in 2017, the World Energy Council ranked Romania on the 7th place in terms of energy security and on 25th position in terms of management of the energy trilemma (energy security, energy equity, environmental sustainability)5. Thirdly, currently Romania is close to energy independency (gas imports of 0.5 bcm in 2014) and its natural gas consumption has been steadily decreasing (from 32 bcm in 1990 to 10.4 bcm in 2014, the biggest decrease in the EU), while its renewable energy production has been increasing (with 24.7% of renewable energy in its total energy production, Romania has already achieved the 2020 objective on renewable energy). Given these three arguments, it is clear Romania holds a strategic place in improving security of natural gas supply in the EU, providing it holds the necessary infrastructure and invests in production capacities.
Competitiveness has become a central pillar of energy policy, in the context of the implementation of the Third Energy Package. Romania's progress on this pillar, although important, remains so far insufficient and hinders its potential of becoming an energy hub.
In order to fulfil requirements concerning unbundling, the National Energy Regulator, ANRE, certified Transgaz SA Medias as the gas TSO and CNTEE Transelectrica SA as the electricity TSO, both being state owned enterprises. Thus, whereas unbundling is ongoing since 2007 in the energy sector, Romania is confronted to a major challenge: the SOE dominate the energy sector and they still need to undergo corporate governance reform, in order to be in line with the internal energy market rules. SOE are frequently economically-inefficient and generate large losses, the most recent illustration of this issue being the opening of an "in-depth investigation into restructuring support for Romanian energy producer CE Hunedoara" by the Commission, on the 12th of March 2018 (6).
In addition, natural gas production market is highly concentrated, with Romgaz and OMV Petrom providing 94.85%7 of domestic production in 2015, dwarfing the other four producers present on the market. The wholesale market is as well dominated by three suppliers : Romgaz, OMV Petrom and OMV Petrom gas, which account for 78.4%8. Although beginning with the 1st of April 2017, regulated prices have been phased out for natural gas producers and suppliers, according to the ex-Minister of Energy, Razvan Nicolescu, competition on natural gas market remains a major issue. The liquidity of the market is still low, with a quantity of gas traded on the market only 20-25 % higher than the consumed quantity, compared to mature markets, where it tends to be 5-6 times higher. What is more, the Emergency Ordinance no° 64 of October 2016, meant to abolish regulatory barriers to export of gas and bring in more competition and transparency, risks to be watered down by an amendment currently discussed in the Parliament, requiring that 70% of the total gas transactions happen on OPCM, the centralised market for natural gas, putting a strain on producers' right to dispose of their property (ex : direct negotiations, exports). Therefore, legal uncertainty deters investments in natural gas production and supply.
Regarding competitiveness on the retail market, in 2014, the European Commission concluded that from the consumers' point of view, the gas market : "scores low on actual switching, ease of switching, choice and overall consumer satisfaction". Romanian gas prices for domestic consumers are the lowest in the EU: for instance, in the fourth quarter of 2017, while the EU average price was 5.83c€/kWh, in Romania it only represented 3.23 c€/Kwh9. Once regulated prices for consumers will be phased out in 2021, more competitiveness and presumably a better service and satisfaction of the consumer will be ensured. Liberalisation of prices must be tied to ensuring basic social support, disconnection protection and financing for improvement of the energy situation of the households. As a matter of fact, in Romania, in 2017, two-thirds (64,8%) of households were in energy poverty in urban areas and 82% in rural areas ( according to the 2M energy poverty indicator : a household that spends 10% of its income is in energy poverty)10.
To sum up this first part, Romania scores well with respect to the energy trilemma frame of analysis. Competitiveness, legal certainty and equity of access represent the major setbacks, but progress is underway, unless political factors hinder it. It is not only these aspects that prevented Romania from exploiting its potential in natural gas supply and its strategic position in the region . The lack of infrastructure, internally as externally (interconnectivity), has also played its role in that sense. The second part of this paper will present how the recent evolutions of the gas network infrastructure will bring Romania in line with its EU objectives and help it fulfil its potential.
II. Improving Romanian gas network infrastructure: a key to regional security of gas supply
Romanian gas infrastructure is operated by Transgaz. It comprises the gathering and the distribution systems, with pipelines of diameters ranging between 50 and 1200 mm, it has a total length of 12 585 km (13 138 km comprising transit pipelines). The current gas infrastructure is a crucial aspect preventing Romania from becoming fully integrated in the EU energy market. According to some Romanian experts11, the gas transport infrastructure lacks reengineering, with 70% of the pipelines and equipments being physically and technologically worn-out.
Another major issue is that Romania is lagging behind in terms of interconnectivity with other countries and reverse flows, fact that not only endangers its own security of supply, but represents a handicap for the Central-Eastern and Southern region. The national transmission system is connected with Romania's neighbours (except Serbia) in five connection points12. According to ENTSOG's13, in the case of a disruption of all imports to EU via Ukraine, for the risk group "Eastern gas supply - Ukraine" comprising 13 countries, there would be exposition to demand curtailment in Bulgaria (71%), Romania (9%) and Greece (2%) "due to infrastructure limitations", therefore "no neighbouring country can help mitigating the situation as the curtailment is infrastructure related". In addition, simulation of a disruption of the largest infrastructure to the Balkan region show sufficient flows from Ukraine to Romania, but a demand curtailment of 77% in Bulgaria, to which Romania cannot respond due to infrastructure limitations. Therefore, according to ENTSOG's evaluation, Romania and Bulgaria do not meet the basic N-1 criterion at the regional level (for the winter 2017/2018), in spite of Romania meeting the N-1 criterion at a national level (105.92%>100%, according to the Romanian Government14, in line with the European Energy Security Strategy provisions).
From a more optimistic point of view, Romania finds itself close to an historic opportunity to become a key regional player on energy security. To this end, Romania must strive to connect itself to the European energy grid, help other EU members and Energy Community members to become more resilient in terms of security of supply and, eventually, benefit from the expansion of off-shore gas production in the Black Sea. In this context, the Projects of Common Interest that Romania is already working on, as well as the internal infrastructure of on-going improvements, play an essential part in boosting Romania's role in the region.
The major project of gas pipeline with reverse flows is the PCI so-called "BRUA gas corridor", meant to offer, by 2019, better interconnection between Bulgaria, Romania, Hungary and Austria, while enabling links with other major gas infrastructures: it will connect Central Europe to the Southern Corridor which brings Azeri gas from the Caspian basin, via Turkey, through Greece and Albania. With a length of 1 318 km, the corridor is evaluated at 479€m in terms of cost, out of which 60€m provided by the EBRD, 179€m by the EU, 50€m by the EIB and 149€m represent investments made by Transgaz15. A major part of BRUA, 528 km, will be built on Romanian territory, in addition to which, Transgaz will build a 250 km-long connecting pipeline between Black-Sea and Podisor, in order to connect gas reserves in the Black Sea to the European grid. Moreover, the project will also contribute to the enhancement of Romanian gas transmission capacity on internal networks that would eventually be connected to the international transmission pipeline. This involves the rehabilitation of existing pipelines, as well as the building of new pipelines and compressors16.
On the 9th of February 2018, Transgaz (Romanian TSO) and Eustream (Slovak TSO) signed a Memorandum of Understanding on the Eastring pipeline project, that has obtained the status of PCI for the European Union, which is funding its feasibility study under Connecting Europe Facility. Eastring is a project of bi-directional gas pipeline interconnector between Slovakia - Ukraine border and Ukraine/Hungary - Romania - Bulgaria transit pipeline, aiming to offer "direct and most cost-effective transmission route between West EU liquid hubs and the Balkan region/Turkey17" and taking into account the potential carrying of natural gas from alternative sources, "including but not limited to Russia, AGRI, TANAP, Caspian, Iran, Iraq, Egypt, Israel and Cyprus to Central, South and Western Europe"18.
In addition to BRUA and Eastring, Romania is also currently trying to revive the AGRI (Azerbaijan-Georgia-Romania Interconnector) project, which figures in the Government's Plan of Preventive Action regarding measures to guarantee natural gas security of supply, but has been blocked for several years since 2010, mainly because the European Commission has not retained it as a PCI in its 2017 list. AGRI is the first LNG project in the Black Sea area, that would imply building an LNG terminal in Constanta, where LNG would be shipped from Caspian Sea (from different supply sources : Azerbaijan, Turkmenistan, Kazakstan). The maximum annual capacity would be of 8 bcm, with primary markets for sale being Romania and Hungary, and secondary markets could be Serbia, Croatia, Bulgaria, Moldova and Ukraine.
These three major projects will connect Romania to the European grid, substantially improving its interconnectivity and reverse flows capacity, while boosting its own and that of Central Eastern and Southern Eastern countries' security of supply through diversification of sources, routes and partners. Moreover, Romania is particularly concerned with becoming a reliable connector to the European grid for members of the Energy Community, such as Serbia and Republic of Moldova.
First, regarding Serbia, Romania promises19 to sign a Memorandum of Understanding in order to build a interconnecting pipeline, that will connect gas supply from BRUA with Serbian national transmission system, on the direction Arad-Mokrin, with a length of 80km. The project should be finalised in 2026, for a total cost of €43m, out of which €37m for building the necessary infrastructure on Romanian territory.
Secondly, Romania is attached to helping Republic of Moldova, who ranked in 118th position for energy security (2017, World Energy Council) to achieve better natural gas security of supply. To this end, an interconnecting pipeline on the direction Iasi-Ungheni was inaugurated in 2014. In 2017, the Ministry of Energy decided to further expand this interconnection in order to improve the capacity of natural gas supply by 2019. Further rehabilitation and modernising of the transmission system in North-East Romania and in the Republic of Moldova is also necessary, but it depends on whether the necessary funds will be secured. Romania may potentially use its diplomatic and politic influence to help Moldova secure international financing.
Finally, the perspectives of Romania becoming an energy hub, once the right gas infrastructure is in place, are further reinforced by the gas reserves that have been recently discovered in the Black Sea. OMV Petrom and Exxon Mobil estimated reserves of 84bcm following one of the first deep-water explorations in the Black Sea, while Lukoil found a natural gas field in the Black Sea of 30 bcm in 2015. A 27 bcm onshore natural gas field was discovered by Romgaz in 201720. These estimated reserves and first explorations' results, although currently not large enough to sustain long-term gas supply, are of increasing interest for big players in the gas market21. If interconnectivity, transparency and a regulatory framework in line with the Energy Union rules are ensured, Romania will then be able to export more natural gas to the European market, without endangering its own security of supply, as the available interconnections will help increase gas market liquidity.
The implementation of the above mentioned gas infrastructure projects, linked to new gas production opportunities in the Black Sea, as well as to the on-going implementation of reforms aiming at improving competitiveness, efficiency and transparency on the gas market, will transform Romania from a transit country into a key player of the Energy Union, at least in the gas market. However, the greatest risk that may prevent Romania from achieving this position is a lack of ambition, which transpires through moves such as the amendment to the Emergency Ordinance n°64, the slow progress on energy efficiency, the on-going opposition to gas exports. Other risks could be associated to the multitude of projects that are proposed in the region, that might lead to inefficient allocation of funds or to politicisation of the PCI process. Long-term vision, cooperation and ambition are thus key for Romania to choose the right way forward from where it stands: at the crossroads between remaining a follower and becoming a leader.
Bartelet H., Visenescu R., How Romania can become a key player in European gas market, The Energy Post journal, November 2017
Chisalita D., BRUA, a fi sau a nu fi!, Invest Energy (online journal), 18 March 2018
DG Energy, European Energy Strategy, 2015
DG Energy, Quarterly Report on European Gas Markets, Volume 10, issue 4, 2017
DG Energy, Country report - Romania, 2014
Eastring press release, Romanian Transgaz and Slovak Eustream signed Memorandum of Understanding on Eastring, February 2018
ENTSOG, Union-wide Security of Supply Simulation Report, 2017
European Commission, Press release, State aid : Commission opens in-depth investigation into restructuring support for Romanian energy producer CE Hunedoara, 12th March 2018
European Commission, Project of common interest : North-South gas interconnection in Central Eastern and South Eastern Europe, March 2018
European Commission, Investment Project EIPP-20160054 Eastring, July 2016
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Maro? ?efcovic, Romania's crossroads, European Commission website, 6 November 2015
Murafa C., Sinea A., Jiglau G., Badeascu G., "Energy poverty and the vulnerable consumer : how far are we from Europe?", The Center for the Study of Democracy, EU Energy Poverty Observatory
Rosca O., EBRD finances Romania's section of regional gas pipeline, European Bank for Reconstruction and Development website, 23 February 2018
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1 Maro? ?efcovic, Romania's crossroads, European Commission website, 6 November 2015
2 Eurostat, Shedding light on energy in the EU- A guided tour of energy statistics, 2017 edition
3 European Energy Strategy, Point 7
5 World Energy Council, Energy Trilemma Index, 2017
6 European Commission, Press release, State aid : Commission opens in-depth investigation into restructuring support for Romanian energy producer CE Hunedoara, 12th March 2018
7 US Export website, Romania Country Commercial Guide, export.gov
8 DG Energy, Country report - Romania, 2014
9 DG Energy, Quarterly Report on European Gas Markets, Volume 10, issue 4, 2017
10 Murafa C., Sinea A., Jiglau G., Badeascu G., "Energy poverty and the vulnerable consumer : how far are we from Europe?", The Center for the Study of Democracy, EU Energy Poverty Observatory
11 Chisalita D., BRUA, a fi sau a nu fi!, Invest Energy (online journal), 18 March 2018
12 Guvernul Romaniei, Plan de actiuni preventive privind masurile de garantare a securitatii aprovizionarii cu gaze naturale, 21 November 2017
13 ENTSOG, Union-wide Security of Supply Simulation Report, 2017
14 Guvernul Romaniei, Plan de actiuni preventive privind masurile de garantare a securitatii aprovizionarii cu gaze naturale, 21 November 2017
15 Rosca O., EBRD finances Romania's section of regional gas pipeline, European Bank for Reconstruction and Development website, 23 February 2018
16 European Commission, Project of common interest : North-South gas interconnection in Central Eastern and South Eastern Europe, March 2018
17 Eastring press release, Romanian Transgaz and Slovak Eustream signed Memorandum of Understanding on Eastring, February 2018
18 European Commission, Investment Project EIPP-20160054 Eastring, July 2016
19 Guvernul Romaniei, Plan de actiuni preventive privind masurile de garantare a securitatii aprovizionarii cu gaze naturale, 21 November 2017
20 Bartelet H., Visenescu R., How Romania can become a key player in European gas market, The Energy Post journal, November 2017
21 US Export website, Romania Country Commercial Guide, export.gov