Building up the Energy Union is one of the priorities on the European agenda and Romania, as a Member State, has made several commitments to support the set of measures taken by the European Union in this regard. Thus, in November 2015, the Ministry of Economy, Trade and Tourism has drafted the National Energy Strategy for 2015-2035. We talked to Mr. Iulian Iancu, President of the Romanian National Committee of the World Energy Council (CNR-WEC) and President of the Industries and Services Committee with the Chamber of Deputies, about the mentioned document and about the opportunities for Romania in the context of recent developments on the market of energy resources in CESEEC (Central, Eastern and South-Eastern European Countries).
Romania is committed to the common European approach in implementing the steps for reaching an Energy Union, for our country the priority measures being the ones to strengthen the European energy security, with regional cooperation as the key. What exactly is Romania’s role in this equation?
Iulian Iancu: In the top challenges the countries are facing, namely security, climate change and social inequality, security is the biggest challenge for the European Union (EU). The EU Member States depend on each other for the security of energy supply to their citizens in terms of trust and solidarity. The EU plans to speak with a single voice in the world, namely the voice of a European energy union. Achieving this objective requires a fundamental transformation of the European energy system.
Currently, the EU imports 53% of its energy needs at a cost of around EUR 406 billion per year, meaning some EUR 1.11 billion per day, which makes it the largest energy importer in the world and the importer at the highest price.
Each Member State plays a key role in order to build the ‘spirit of solidarity’ on energy, which in fact is the core spirit of the energy union.
Romania, which ranks fifth in the EU in terms of oil and gas production and third in terms of reliance on imported oil and gas with a 25% share, holds a privileged place among the EU Member States and therefore, plays an important part in regard to the dimension of EU’s energy security. Having large reserves of oil and gas in the continental shelf of the Black Sea, an underground storage capacity of natural gas of about 6 billion cubic meters, a geographical position favourable for building a safe alternative to the ‘southern corridor’ of gas, which would enable the Central Asian countries to export gas to Europe, Romania plays, we might say, the role of balance and safety for the entire central and SE Europe in the process of diversification of corridors, of supplying sources and security of supply.
The European strategy for achieving the single market, completed with Romania’s strategy for SNTGN interconnection with the systems of neighbouring countries, has led to starting several interconnection projects. Thus, by diversifying the gas infrastructure and the export opportunities, Romania may have the opportunity to take part to strategic projects at EU level. Recently, Transgaz has requested a grant from the EC for the development of BRUA corridor and the AGRI project is a candidate on the list of projects of common interest. Which of the projects of interest promoted by Romania has, in your opinion, real chances of success and why? Let us not forget the Nabucco lesson…
Iulian Iancu: As I was saying, Romania plays a very important role in Central and SE European region in terms of diversification of sources, of suppliers and of supply routes for access to affordable and competitive energy.
For the selection in November 2015 of the Forum on Infrastructure held in Copenhagen, Romania has applied for funding through the mechanism Connect Europe CEF ENERGY 2015, within the projects of common interest, by submitting the documentation for “Development in Romania of the National Transmission System on the BRUA gas corridor – Phase I (a grant of EUR 224 million). Also, the “Black Sea Corridor” was included by the European Commission in the first list of Projects of Common Interest, forming, together with three projects for lines and stations in Bulgaria, the “Bulgaria – Romania Group, increase of capacity”, which includes Romania with the following projects of common interest:
– LEA 400 kV d.c. Smardan – Gutinas;
– LEA 400 kV d.c. Cernavoda – Stalpu with an entrance-exit circuit at Gura Ialomitei;
– LEA 400 kV s.c. Suceava – Gadalin.
These projects, once qualified for funding, will be carried out and will offer Romania the opportunity to strengthen and integrate the regional and European markets of electricity and gas.
Regarding the AGRI project: although the EU aims to explore the full potential of liquefied natural gas (LNG), including as reserve in crisis situations, when the natural gas coming to Europe through the existing pipeline system is not enough, however I believe that the project has small chances of promotion and to get financial support, mainly due to the regional geopolitical context of the crisis and especially due to the Russia-Ukraine crisis. This project, with an investment estimated between EUR 1.2 billion and about EUR 4.5 billion, depending on the transport capacity, seems to be a “very beautiful girl, but with no chances to get married”, which in addition to the exceptional situation coming from the Russia-Ukraine crisis, has to overcome the barrier of the limited quantities Azerbaijan can provide due to the competition from TAP and TANAP natural gas transportation projects.
The new EU Strategy for LNG to be developed in 2016 will consider all options and supply sources, including Azerbaijan and Turkmenistan, as well as the transport infrastructure required to connect the LNG access points to the internal market. This could mean that “when conditions are favourable, the EU will consider framing the energy relations with Russia based on fair competition in terms of market opening, environmental protection and safety for the mutual benefit of both parties”. In other words, only in such a situation we could hope to ensure a safe corridor for the AGRI project.
The concept of the new strategy for achieving the Energy Union has arisen as a consequence of energy dependence on Russia. A solidarity mechanism was envisaged by which the parties to support each other in limit situations, with financial support for the development of storage capacities and the construction of natural gas transmission pipelines. On the other hand, the Gazprom project to increase the transport capacity of the Nord Stream pipeline, supported by the EU (a project involving major Western European companies), changes the map of energy flows in Europe and unbalances the CESEEC countries, by dangerously increasing energy dependence on Russia. What would be the solutions to solve this paradox?
Iulian Iancu: I was just telling you that, in order to strengthen its role on the world energy markets, the EU will consider framing the energy relations with Russia. However, European Commissioner Miguel Arias Cañete, asked about this double language and hence the lack of a EU single voice regarding Nord Stream 2, stressed that the EU has ‘taken note’ of the shareholders’ agreement to carry on the implementation of two new sections of this pipeline and in fact this remains a commercial project, the shareholders being the ones to decide which infrastructure is viable or not. However, he insisted to emphasize that, just like any other natural gas transmission pipeline in the EU, this pipeline will have to fully observe the EU laws, in particular the third package of Energy, as well as the environmental conditions, competition, including in the field of public procurement.
We should notice that the EU invocated the commercial status of the project, although the gas transport capacity from Russia to Europe is used only 50%, thus exceeding the European demand. Following the construction of the two new sections of the pipeline, the excess capacity to transport natural gas will increase from 50% currently to more than 80%.
Obviously, the greatest risk stands for Ukraine and Slovakia, countries which currently cover about 50% of the current transport capacity of natural gas from Russia to Europe. Specifically, this project, although it will not benefit from the status of a common interest project and will never benefit from European funding, as Commissioner Cañete underlined, will nevertheless drastically decrease the transit through Ukraine and it will concentrate about 80% of gas imports from Russia on one route, i.e. Nord Stream, and will lead to Gazprom’s dominant position on the German market, by increasing the percentage from 40% today to more than 60%.
Given the situation mentioned above, that Romania can become independent of gas imports in 2016 and in view of the new significant discoveries in the Black Sea, what opportunities and what impediments our country has in order to have a say in regard to the security of supply with resources in the region?
Iulian Iancu: As I was saying from the beginning of our discussion, being the fifth producer of oil and natural gas in the EU and third in terms of dependence on energy and raw materials imports, Romania is an element of balance and security in Central and SE European region. For us it is an opportunity in order to be included in the scope of the EU projects of common interest and to capitalize the chance to exploit with maximum efficiency the Black Sea resources. This is not only an advantage, but also our opportunity. We will be able to qualify for European funding for the major transport corridors for electricity and natural gas and thus to the full integration of the energy market in the European single market.
We have the advantage of submitting projects for underground storage of natural gas and for the storage of CO2 in deposits that can be built in the depleted fields, and also for electric energy storage in water storages and harnessing it through hydropower plants. However, there are vulnerabilities as well, coming from external factors, namely the regional critical situation generated by the Ukraine-Russia conflict and also Russia-Turkey, as well as from the increasingly serious crisis in Moldova. The region is a powder keg that will seriously hinder the strategic projects of national interest and European interests.
The adopting of a common strategy was discussed, including in the Black Sea region, in view of limiting the dependence on Russian resources. The combined efforts of NATO – by expanding its presence in the region and the cooperation with the riparian states – and the EU – by expanding the interconnection of natural gas networks, the lifting of restrictions in terms of exploration and production (E&P) of unconventional resources, the introduction of a taxation system favourable for the E&P operators – should normally be supported by Romania. Referring to the long discussed issue about the taxation regime for the companies in the oil and gas sector, what is your opinion about this heated topic?
Iulian Iancu: The taxation regime is the most important and the most sensitive issue for a resource-holding country. It requires a new fiscal philosophy that must take into account Romania’s interest to capitalize this wealth with maximum efficiency, but with permanent attention to sharing the risks with the investor.
So far, investors haven’t complained specifically about the level of royalties, but mainly about the legislative unpredictability in the field. I believe the patterns in major oil-producing countries could be the main source of inspiration for Romania. I refer in particular to Norway, Canada and Israel, after studies, and therefore following the experience in relation to foreign investors, could draw very practical models, but also very beneficial for their countries’ budgets. The success of the taxation legal framework is ensured also by the set of complementary legislation, such as offshore specific legislation, environmental legislation, the legislation regarding obtaining access to land, obtaining building permits, labour legislation, horizontal service legal framework, etc.
According to the latest statements by the EC President Jean-Claude Junker, the European Union’s position towards Russia, a factor to be taken into consideration in regard to security of supply with resources, should be reconsidered. How do you see this change of position and how should Romania react?
Iulian Iancu: In the new geopolitical context and facing unprecedented challenges, the European Commission President Jean-Claude Junker cannot open new vulnerability channels, especially with Russia, from which the EU imports 1/3 of the total energy raw materials. Our world is changing at a fast pace and self-isolation in a globalized world is a bitter illusion of those who do not understand the world we live in. Strategic errors are catching up on all of us who are part of the club, the collective bill growing from day to day. Lamentably, we are going through one of the worst periods in the political history of Europe, but also of Romania. Europe and Romania, facing the current challenges, are bound to overhaul: political, institutional and moral.
Romania must be a loyal partner of the European Commission decisions and must capitalize the opportunity, turning a crisis situation into an opportunity.
We are going through an extremely difficult period for the oil and gas industry, both globally and locally, which is likely to continue this year. Now, more than ever, there is a need for the EU to specifically address this industry. What levers exist in this regard and how can return to sustainability be sustained?
Iulian Iancu: Indeed, the oil price has fallen by 45% in 2015, reaching a historic low of just USD 36.7 per barrel, on the background of the OPEC decision not to cut the output despite the oversupply of the market. The oil and gas industry has abandoned projects worth USD 200 billion. Projects for production of 5 million barrels per day were cancelled or postponed.
A prolonged period of low oil prices is unsustainable because it will lead to significant cuts in investment and in the soundness of the oil industry, which will undermine the future security of supplies and will create conditions for crisis worsening.
Unfortunately we are registering a negative record: since the ‘80s it is the first time that the oil industry cuts investments for two consecutive years. The worst part is found in the vulnerabilities in the sector, namely the layoffs of human resources in percentages as high as 11%, as in the case of Chevron – a company which, together with Exxon, reported losses of over USD 1 billion.
Staying on the topic, where do you get your ENERGY from?
Iulian Iancu: My answer is as short as your question. The best medicine for body and soul is love. If you love, you’ve got ENERGY. But if you don’t have ENERGY, you have nothing.