The Romanian energy sector is at a watershed, says Radu Dudau, Director of the Bucharest-based Energy Policy Group, in an interview with Energy Post. “We are in urgent need of a new energy strategy. We need to decide what to do with our energy sector.” At the same time, says Dudau, the EU needs to get involved to coordinate regional energy matters in Central and Eastern Europe: “This is a region with no encouraging history of cooperation” But Dudau remains optimistic: “There is a lot of potential here. And some investments just make sense. We have to interconnect.”
Radu Dudau, a professor of international relations at the University of Bucharest, founded the Energy Policy Group (EPG), an independent think tank, in 2014, because, he says, “energy studies are not a subject at our universities. I wanted to be involved in the public debates around energy.” The idea behind EPG is to be an interface between local development and regional/international developments. “We want to connect what is going on in Romania to what is going on in the major decision-making centres of the world”, explains Dudau, who previously worked for the Romanian Energy Center (ROEC). “I would like to see our energy decision-makers more connected to discussions in Brussels about Energy Union and decarbonisation, so that we are active participants, rather than just reacting.”
Dudau deplores the fact that Romania has never been able to agree on a national energy security strategy. “Minister after minister, government after government, they have all been unable to complete it. It is now scheduled for October 2015, but I’m afraid it will be postponed again”. This is all the more unfortunate, he says, because the task has never been more urgent. “Romania and other countries in this region are at a watershed. We need to decide how to go forward with our energy sector. What investments to make. That’s very difficult at this moment.”
Oil and gas production in Romania has been going on for 150 years, says Dudau, but “production is decreasing year after year. If you want to continue to rely on gas, you need new sources. That will require new interconnections and for that you need to build markets and institutions.” The Romanian government had high hopes for shale gas, but these were dashed when Chevron decided earlier this year to exit from Romania. There are also high expectations of new exploration in the Black Sea, but “no commercial declarations have been made yet”, notes Dudau. “There is no clarity on market size, market access, infrastructure, interconnection with other countries. It all still has to be decided. And the new petroleum fiscal system, which is still in the making, will also be important.”
No hurry
According to Dudau, some Romanian officials feel that “we should not hurry too much in changing things. They are afraid that if you allow significant exports of gas, domestic production will go out of the country and prices will go up.”
“I expect that one year from now Romania will need gas export solutions, because we will have excess production”
He calls this attitude “very problematic”. For one thing, he says it contravenes the principles and rules of the EU energy market. For another, “I expect that one year from now Romania will need gas export solutions, because we will have excess production.” He points out that domestic demand for gas has gone down, particularly industrial demand, partly thanks to higher efficiency but also as a result of the economic slowdown. At the same time, gas storages are “filled to the brim” after a mild winter. Moreover, Russia is lowering its export prices, so “some industrial consumers will want to buy more Russian gas”. As a result of all this, says Dudau, Romania will be faced with a surplus of gas – and no way to export it.
“Our infrastructure does not allow us to make significant exports. Other than from Ukraine, we can only import from Hungary. We have a very limited interconnection with Moldova. We also can’t export to Ukraine or Bulgaria. An interconnector with Bulgaria is being built but not yet finished.”
The relative isolation of Romania has to do with the old-time Soviet system. “The Trans-Balkan pipeline through which Russia exports gas is isolated from the Romanian gas transport system. Not to mention the fact that our system operates at much lower pressure than the neighbouring grids.”
Turbulent changes
The need for a new energy strategy has become extra urgent in view of the turbulent changes taking place in the East and Central European gas market. Russia has said will end transit through Ukraine at the end of 2018, which means no less than 50 bcm of gas will have to be rerouted. At the same time, Gazprom has cancelled South Stream and replaced it with Turkish stream, which will bring the gas no further than Kiyikoy on the Turkish Black Sea coast. From there on, ‘Europe’ will have to figure out for itself how it will get the gas to final markets.
As a result of the cancellation of South Stream, a frantic race has started in the region to come up with new pipeline projects, some of them potentially in conflict with each other. Dudau outlines the most important plans.
First there is the plan for a South-North corridor (the Aegean-Baltic Corridor or ABC), which is to run all the way from Greece to Poland. “This plan is part of official Greek energy strategy, which came out last year”, says Dudau.
One part of ABC would go from Greece to Bulgaria, Romania, Hungary and then to Austria, the so-called “BRUA” option. This plan was proposed by Romanian TSO Transgaz and is backed by the EU, says Dudau. “This would connect Romania to the Southern Gas Corridor and the existing and planned LNG terminals in Greece, but it would also ensure flows of gas to and from the West. It is really a broad and inclusive plan to interconnect the gas grids in a large part of Europe.”
Romania plans to support BRUA domestically by building a 550 km pipeline between Giurgiu and Arad (the Danube pipeline), which would connect with a 250 km-long spur to the Black Sea coast. For this plan it has asked for financial support from the EU, as a “Project of Common Interest” under the EU’s Connecting Europe Facility.
Now another, formidable competitor has arrived: a Russian-backed plan to build a pipeline, dubbed Tesla, to connect Turkish Stream through Greece, Macedonia, Serbia and Hungary to Austria
In the meantime Slovakian TSO Eustream has also proposed a new project, called Eastring. The Slovakians, who are totally dependent on transit from Ukraine, stand to lose most when Russia stops transporting gas through Ukraine. Their proposal is to essentially use “the existing Trans Balkan pipeline, from Ukraine to Moldova, Romania, Bulgaria and Greece, in reverse flow”, says Dudau. “Eastring would connect with the Romanian part of the Trans Balkan to get gas to Slovakia.” This last part could either run across the South-West of Ukraine (which the Slovaks prefer) or it could go through Hungary (which the Hungarians prefer). (The latter option seems to have gained the upper hand, according to this article on Euractiv, which reports that at the recent Riga Eastern Partnership Summit on 21 May, Slovakia, Hungary, Bulgaria and Romania signed a joint declaration committing to build Eastring – even though Eastring as such was not mentioned.)
Formidable competitor
According to Dudau, ABC-BRUA and Eastring are compatible projects. “I see Eastring as a larger capacity system that can take gas from Turkish Stream and other sources converging into Turkey. BRUA I see more as a smaller capacity scheme, a number of smaller interconnected projects, that will tap into the Trans-Adriatic Pipeline (TAP) and possibly Greek LNG.” Romanian planners want to have the Danube pipeline first, but they also want Eastring, says Dudau.
The main problem, however, is that now another, formidable competitor has arrived: a Russian-backed plan to build a pipeline, dubbed Tesla, to connect Turkish Stream through Greece, Macedonia, Serbia and Hungary to Austria. This is in effect a new South Stream, except that Bulgaria has been replaced by Macedonia. This plan has “received a lot of political enthusiasm lately”, says Dudau, referring to a declaration made in April in Budapest by the leaders of Hungary, Turkey, Greece, Macedonia and Serbia – “a European corridor of Russia-friendly states”, according to Dudau.
But there are still major questions surrounding this plan, says Dudau. “What will the role of Gazprom be? How will it be financed? Will it be any different from the original South Stream from a regulatory standpoint? And if Gazprom is now prepared to accept EU regulations, why wasn’t it prepared to do so in the first place?” Dudau is convinced that Gazprom will have to be abide by EU laws if it is to get involved. “The European Commission has been intransigent. Russia will not be able to play hardball. They will have to comply.”
Nuclear reactors
One important difference with the recent past, says Dudau, is that the EU now looks to be the main financier of the projects. “A year ago countries participating in South Stream relied on Russian money. But Russia is much more reluctant now to provide funding than in the past. EU money will be the most important source of funding.”
“There are plans for two new nuclear reactors and a large hydropower plant. And we already have more electricity production than we need.”
This is one reason why Brussels will need to get involved in the decision-making. Another reason is that, according to Dudau, countries in the region will not be able to agree on a solution that is beneficial to all if the EU does not step in. “This is not a region with an encouraging history of cooperation. Everybody is looking for their own advantage. They all want to be a gas hub. They all want to have transit fees. The EU will need to act as arbiter and broker.”
Brussels has set up a high-level group for the region (“Central East South Europe Gas Connectivity High Level Group”) which met in February for the first time and will meet again in June. It consists of representatives from Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovenia and Slovakia, and of the European Commission itself. Dudau believes the results this group may achieve will be crucial to the future of the regional gas market.
In Romania itself there is also a risk of malinvestment, says Dudau. “There are plans for two new nuclear reactors and a large hydropower plant. And we already have more electricity production than we need. So we will need to export, but all countries in the region have a strategy of self-sufficiency in energy. They all want to export.”
Dudau fears that the planned investment in centralised power production will affect the growth opportunities for renewable power in Romania. Renewables – mostly wind power, more recently also photovoltaics – boomed in 2011-2013, but this came to an end by and large when the government curtailed the renewables support scheme.
In spite of all this, Dudau remains optimistic about the future. “I still see a lot of potential. For renewables, for smart grids, for better infrastructure. Some investments simply make sense. Romania has to interconnect. We have to work together with our neighbours to create a regional energy market.”
Ovidiu Demetrescu says
Well, first of all please allow me to eliminate some the confusion made in this article. It’s about one simple thing: TIME. Yes, today we have an excess power generation capacity but in 10 years from now, when the reactors and the pumped hydro storage plant will be commissioned a large chunk of the existing thermal power generation plant will be de-commissioned.
It is very simple and I am amazed that people have the tendency to overlook these simple things. Old plant retired and new plant needs to come on the modernised power grid.
All of this sparkles investment of at least 30 Bn Euro in the next decade. Alongside comes prosperity and of course energy security. I am not a politician but I honestly believe in putting the money at work in the local economy. Take the example of Germany that has taken the leadership in the energy sector as well driving the wave of renewables.
Radu Dudau says
It is correct that the structure of the Romanian energy mix will be different ten years from now, mainly because of the expected decommissioning of a good part of extant coal-fueled power generation.
However, that market share will definitely be fought for by renewables, natural gas, and possibly clean coal projects.
Besides, I’m not at all opposed to investments in new nuclear or large-scale hydro capacity, but I think it ought to be market forces rather than state planning that should lead to such decisions.
The state has a role, indeed, but mainly as a regulator. The government should lay down its strategic objectives and transpose them into stable energy and environmental policy. Investors must know asap what these priorities are.
Mike Parr says
Mr Dudau, “clean coal projects” – there is no such thing (adverts in the UK using this expression were removed by order of the advertising authority). Your comment “market forces rather than state planning that should lead to such decisions” is then immediately contradicted in the following paragraph, by your comment “The government should lay down its strategic objectives and transpose them into stable energy and environmental policy”. So in fact it is government policy (i.e. a plan) that drives markets – not markets per se. There is no such thing as a “market only” approach – energy “markets” are always influenced by gov’ policy & the choice is never “market forces” or “state planning” as you imply – but a mix of both.
Radu Dudau says
Mr. Parr, by “clean coal” I’m referring to technologies such as coal gasification (IGCC) projects combined with CCS. Romania, which still burns a lot of low-grade coal without mitigation, is well endowed to use this kind of technology. Poland or Serbia could fit the bill as well. However, if such a complex investment will ever come into effect in Romania, I don’t know. I can only say that it’s being pondered.
I think you are overstating the contradiction in my comment about market forces and state planning. First, I’ve never implied there was ever a neat separation between the two, as you suggest I have. In fact, I have clearly admitted that the state must act as a regulator and it must also state its strategic objectives. The policy framework that ought to be formulated according to the latter would constrain and guide investors’ interests in the energy sector.
Second, I agree that “state planning” and “market forces” always come in a blend, but the blend is a matter of degree – there is more and there is less of each component in different contexts.
I think the relevant question is, how ample a role the state is going to play in designing and regulating a country’s energy system. To this I have no general, ideological answer.
In fact, the heavily state-controlled Norwegian oil & gas sector seems to function very well on most accounts: it pursues national interest in a manner utterly consistent with attracting substantial investments, it is among the world’s most efficient and technologically advanced, and it is as aware as it can get about environment and climate.
On the other hand, the Romanian context is structurally different. The country’s energy system need tens of billions of euros in investments over the next two decades, and the private sector is expected to foot most of the bill. Then, the power-generation sector is still dominated by state-controlled companies. Three such large companies are either insolvent or on the brink of it.
A former energy minister did recently order state-controlled companies to invest in the construction of a new pumped-storage hydropower plant, and offered state support for it and for the construction of two new nuclear reactors (contracts for difference and various legal exemptions). No feasibility studies confirmed the opportunity of these projects and no private money were interested either – that is, other than under preferential terms.
I’m not saying such projects are not useful or desirable; in particular, there seems to be a good case for the Tarnita-Lapustesti pumped-storage hydro plant. I’m just warning against such heavy-handed and ill-planned governmental approaches, whereby billions of euros of public money are at stake.
I hope my take appears more persuasive now: the government should state its long-term strategic objectives in the energy sector – with as broad a public and political support as possible – and then create a level playing field for all the investors, private and public, to pursue their projects.