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Romania could challenge Russian grip on Europe’s energy
BUCHAREST, Nov 18, 2018 (BSS/AFP) – Romania, one of the EU’s poorest
members, could emerge as an unlikely challenger to Russia’s iron grip on
eastern Europe’s energy supply thanks to vast oil and gas reserves waiting to
be tapped, experts say.
Its hydrocarbon riches already give Romania a high degree of energy self-
sufficiency, but there are many more untapped reserves under the Black Sea,
attracting the attention of the world’s oil and gas majors.
Some, including US giant ExxonMobil and Austria’s OMV Petrom, have started
drilling in the Black Sea.
“Romania’s position as a potentially significant gas producer in this
region is unique and the resources here may pose a threat to what has been
mostly a Russian monopoly,” said Mark Beacom, CEO of Black Sea Oil & Gas, a
company owned jointly by the Carlyle Group and the European Bank for
Reconstruction and Development.
But the energy majors have put their ambitions on hold after Bucharest
passed legislation that will tax revenues from offshore drilling and
stipulate that half of output must be reserved for the domestic market —
even though the country still lacks much of the infrastructure needed to
distribute and consume it.
Romania currently produces about 10.5 billion cubic metres of gas each
year, largely onshore, and consumes 11-12 billion cubic metres, making it
almost completely independent from Russian gas unlike its eastern European
neighbours.
According to varying estimates, further untapped reserves of between 170
and 200 billion cubic metres lie deep in the Black Sea that could be
extracted by 2040.
That represents the equivalent of Romania’s total annual consumption for
15 years, and four years’ consumption of a country such as France.
It was the former communist leader Nicolae Ceausescu who first launched an
offshore drilling project in the Black Sea 50 years ago.
And now Romania could “become a regional hub and contribute to Europe’s
energy security,” the Energy Ministry told AFP.
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— Russian stranglehold —
Russia is one of the biggest suppliers of oil and gas to Europe, a
stranglehold that the West has long tried to break in view of recurring
geopolitical tensions between the former Cold War foes.
In the 2000s, a dispute between Russia and Ukraine left Europeans
shivering in the middle of winter when Russian giant Gazprom cut supplies to
the West.
“The volume of (offshore) reserves can turn Romania into the main EU gas
producer, after the UK leaves the bloc,” Razvan Nicolescu, a consultant with
Deloitte told AFP.
To capitalise on this, authorities have started work on the Romanian
stretch of the BRUA pipeline, a 479-kilometre (308-mile) artery, partly
financed by the European Commission, that will also cross Bulgaria, Hungary
and Austria, and transport gas from the Caspian and Black Seas to Central
Europe.
But the plan can only proceed “if the gas companies decide to go ahead
with their investments,” Nicolescu said.
And therein lies the catch.
In October, the Romanian parliament passed a law introducing progressive
taxation on revenues from offshore drilling and stipulating that half of the
gas produced must be sold on the local market.
— Investment on hold —
The government hopes the new legislation will bring in up to $20 billion
(17.5 billion euros) over the next 20 years.
But companies are getting cold feet and putting their plans on hold.
“There are no assurances that the industry will move forward particularly
with these proposed fiscal terms,” BSOG CEO Beacom said.
Christina Verchere, CEO of Austria’s OMW Petrom, said that “we are
currently assessing the impact of the offshore law but we do not see a final
investment decision (possible) in the fourth quarter of 2018” as initially
planned.
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The Romanian Black Sea Offshore Titleholders Association (RBSTA), whose
members have invested more than $2.0 billion over the past 10 years, have
also criticised the bill.
Experts point out that Romania lacks the infrastructure to consume half of
the estimated offshore gas production — barely one in three households is
connected to the gas network, while rural Romania overwhelmingly uses wood
for heating.
But the government is standing firm.
“Having gas simply transit the country and contribute to the neighbouring
nations’ development would be unpardonable”, said the head of the ruling
Social Democratic Party, Liviu Dragnea, regarded as Romania’s de facto prime
minister.
Reversing the legislation “would be tantamount to treason,” echoed the
government’s main economic advisor, Darius Valcov.
As a result, investors are keeping cautious.
“Romania is in an enviable position,” Beacom stressed, but the new
proposals “are very onerous and will likely make (it) uncompetitive compared
to other offshore jurisdictions.”
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