RIGC 2021 Day 3

The hottest topic of the moment, ‘Rising Energy Prices and Security of Gas Supply’, incited energy experts to analyse the factors that have generated this situation at global, regional, and local levels and try to find medium and long-term solutions to the crisis.

The new design of the gas market in Europe and Romania, transition from coal to natural gas, amendments to laws in the energy sector and measures for Romania to align with the European trend it is part of have been under review.

 

Creating a functional hub would change Romania’s position in the region

Julian Bowden – Senior Visiting Research Fellow at Oxford Institute for Energy Studies (OIES), presented OEIS perspective on the gas market in the region, together with the main challenges faced by the energy sector in the following period. He briefly explained the reasons for the rampant increase in energy prices in South-Eastern Europe, presenting relevant data, for example the TTF gas and electricity prices in states such as Germany or Italy. He also noted the decrease in storage capacities at European level in Q1/2021.

Regarding the 2022 outlook, the OIES representative believes that markets will become less tight, prices will decrease slightly, remaining however at high levels. There are suspicions, he also said, on Russia’s position, which could block access to natural gas for Europe.

Regarding security of supply for South-Eastern Europe, some observations came out: transportation and supply landscape changed dramatically; LNG imports in 2019 and 2020 demonstrated LNG capability; Romania’s system expanded with BRUA phase 1; TAP is on stream; Turk Stream is operational in Europe; Greece has 2 more LNG terminals planned. The question is: does Europe now have sufficient interconnecting capacity?

The expert also showed that SE Europe gas demand has suffered changes lately. Thus, in Romania the gas demand increased by 4% in the first 8 months, in Bulgaria the rise is 22%, while Greece saw a 13% increase.

Another finding is the beginning of the process of replacing lignite-fired production with natural gas. In Romania, for example, lignite production fell by 31%.

In South-Eastern Europe, power generation has significant differences within the region. Renewable energy sources have witnessed significant increases in some states. Greece added the most wind capacity in 2020, Turkey added 1.2 GW in wind, while most countries added no wind capacity.

Regarding the situation of the gas market in Romania, Julian Bowden believes that exploitation of Black Sea resources would be an important step and Romania would become a major exporter in the region. Creating a functional hub is a desirable revolutionary objective, and if this were to happen, it would change Romania’s position in the region. Also, due to its storage capacity, Romania can play an important role in Europe, vulnerable from this point of view.

 

ANRE’s point of view: FID for Black Sea gas, the most convenient solution to contribute to help overcome the crisis

ANRE’s point of view regarding the causes of exaggerated energy prices was presented by Zoltan Nagy Bege – Vice President of the national regulatory authority for energy. “Prices have gone from one extreme to another, in the period 2020-2021, both in Europe and in Romania, reaching today unimaginable values. We are in the middle of an energy crisis. It’s difficult to explain to consumers that they must pay 5 times more for utilities. It is also difficult to understand this situation”. The reasons would be the increased demand, the incapacity of supply to react, the decarbonization process initiated by the EU, which does not allow return to the use of fossil sources with increased emissions, Russia’s position and, obviously, other local sources, all these contributing to the full picture of the crisis. “Although many invoke liberalization to explain the rising prices, I don’t think this is the reason,” he showed.

With local specificity, Romania imports 20% of its gas needs and is dependent on electricity imports.

Referring to Law No. 259 on capping gas and electricity prices for certain categories of consumers, the expert mentioned that it would have long-term consequences difficult to estimate. Moreover, through this measure, competition in the retail market has disappeared in both gas and electricity markets. Even after the price capping ceases, as of April 1, competition will not be able to recover, although possible amendments to this law are possible. The potential amendments should consider encouraging producers and not stopping production, ANRE believes. The state can extend the price cap/compensation, depending on the available financial resources.

“We need to focus on medium and long-term solutions, crises mobilize humankind and in the energy sector it will happen the same, new energy production capacities will emerge in line with EU commitments. These prices will encourage the emergence of new technologies and give impetus to the decision to invest in Black Sea gas, the most convenient solution to help overcome the crisis at European level. There is no better time to invest in Black Sea gas than now. Natural gas will have a decisive role, as well as nuclear energy, in the energy transition, even after 2050”.

It should be noted that the obligation to offer gas in the market also applies for offshore Black Sea resources. The extracted gas can be exported but it must also be supplied to consumers on the domestic market.

We should not forget that Romania is no longer an isolated market; following investment in infrastructure, we are no longer an island in Europe, which helped offset the lack of electricity or natural gas. Being part of the European market, price changes were naturally felt on the domestic market.

 

ACUE warns on consequences of delay in investing

Daniela Daraban – CEO, Executive Director, ACUE, warns on the fact that delaying investments in the energy sector will have unwanted long-term consequences.

“In Romania there are two serious errors of understanding the context, which risks motivate inadequate decisions in problem solving. Suppliers don’t have benefits from rising prices, suppliers buy from the wholesale market, being the last in the chain; the consumer therefore misinterprets the invoice data,” explained Daniela Daraban. “In addition, it’s about a misunderstanding regarding the association between liberalization and rising prices. We don’t see an increase in competition in the area of gas and electricity market players, liberalization alone stimulates investment, and in the end the consumer benefits,” added the ACUE director.

Romania has taken quite ambitious measures, but we should make sure we have the necessary funds to compensate the bills, as no large supplier can afford to finance these schemes in the long run, added Daniela Daraban. In her opinion, aids allocated by the state from the public budget should take income into account. For the business area there are also measures, but they must comply with the European law.

Regarding the security of supply, ACUE members are working to ensure that all consumers in the portfolio have access to the energy they need. But the state must make firm and adequate decisions, allowing the start of investments, such as those in the Black Sea and in renewable energy sources.

“We close 2021 without having firm packages of measures, and each day of delay affects investments in the medium and long term. We see a concern to increase the storage capacity, but we would want it to be accompanied by regulatory measures,” Daniela Daraban also mentioned.

 

Conclusions

At the end of the event, Andra Ioana – Senior Advisor, Roland Berger, presented a summary of the debates held during the three days of the conference, insisting on the most important steps for a smart energy transition in Romania.

Mihnea Catuti – Head of Research, EPG, added, as a general conclusion, that price capping is not the wisest solution, the alternative being the new European package, which will include measures to protect consumers. The expert also emphasized the role of the new advanced technologies for the decarbonization of molecules in market organization for their niched use in industry, transport, heating.

“I hope that amendment to the offshore law will begin this year,” said Catalin Nita, reminding the recent statement of Romania’s Energy Minister, Virgil Popescu. “I am confident that things will clarify next year,” continued the Executive Director of FPPG.

FPPG supports, through its experts, the requirements and actions of the competent authorities involved in finalizing this law.

Professional associations try to provide a platform for dialogue and perspective, through the expertise and resources made available by the industry, to help create an applicable legislative framework, so necessary to overcome the crisis.