Prospects for Energy Independence in Romania: Shale Gas and beyond

 

03.04.2014 PASGDB10Romania, historically one of the world’s main energy producers, became a net importer of oil and gas in the 1970s when production started to declined. However, Romania is still luckier than other Central and Eastern European countries in terms of energy dependence. With regards to natural gas supplies, about 75 per cent are produced domestically, and the rest is imported. To compare, all of its neighbours – Ukraine, Moldova, Hungary, Serbia and Bulgaria – are almost completely dependent on imported gas from one source: Russia.

 

 

Nevertheless, gas imports remain a crucial element of Romania's energy security. Although the share of imported gas in total consumption is low at 25 per cent, at least the amount of imported gas is considerably large: about 3.5 billion cubic meters. By comparison, in neighbouring Bulgaria the annual total consumption of gas is around 3 billion cubic meters.

 

Secondly, the fact that external energy supply is not diversified further threatens energy security. Exactly 98 per cent of gas imports come from Russia. A painful energy crisis will be inevitable if supply is disrupted, whether for political, economic, environmental, technical or any other reasons. There will simply be no alternative sources to substitute the cut-offs. The crisis will hit households and different sectors of economy hard, since natural gas is a main source heating. That was the case in the 2006 and 2009 when disputes between Ukraine and Russia interrupted gas flows to Eastern Europe. Cut-offs seriously jeopardised energy supplies in Romania as well.

 

Last and not least, Russia accounts for 98 per cent of imports while Romanian-Russia relations remain tense because of clashing interests over Moldova. Romania considers Moldova its historical territory and promotes its European integration, which it thinks will mitigate Russian influence in Moldova and create favourable conditions for the eventual integration of Moldova with Romania. Russia in turn sees Moldova along with other post-Soviet republics as its sphere of influence and creates obstacles to its European path. The main leverages Russia has is its monopolist position on the exports of oil and gas and its capacity to manipulate the Transnistria conflict in Moldova. Hence, while dependence on one source is in itself an undesirable outcome, tense Romanian-Russian relations further aggravate the already difficult situation.

 

To mitigate the situation and diversify its imports, Romania invested great hopes for the realisation of the Nabucco West gas pipeline project designed to bring gas from Azerbaijan to Romania and other energy dependent countries of the region. On May 20th 2013, the governments of Austria, Hungary, Romania, Bulgaria and Turkey made a joint statement emphasising the importance of the Nabucco project for the Western Balkans and Visegrad countries. Not long afterwards, the heads of those same countries sent letters expressing their support for the project to the President of Azerbaijan Ilham Aliyev. However, expectations muted when on July 28th the Shahdeniz Consortium members involved in the production of gas in Azerbaijan preferred TAP (the Trans-Adriatic Pipeline) over the Nabucco West project. TAP will carry gas to Italy through Greece and Albania, bypassing Romania and the others.

 

Disappointed with the news, Romania from then on had no choice but to rely on its own. While expressing disappointment, the president accused the European Union of letting the project to fail and demanded compensation for the 23 million euros that Romania spent on the project. He also declared that Romania will not wait on others (implying the EU) to decide anymore and will follow its own path to meet its energy security.

 

Indeed, the president had the right to say this. Those developments came at a time when new offshore fields were discovered in the Black Sea and the government gave a green light to shale gas explorations. Those developments, the president stated, will make Romania energy independent and perhaps an energy exporter for the first time since the 1970s. Besides, Romania actively develops interconnector infrastructure to integrate into the regional networks. Hence, those three directions – exploration and exploitations of shale gas resources, development of offshore gas fields in the Black Sea and development of the network of interconnectors with neighbouring countries – should lead Romania to energy independence.

 

To start with shale gas, Romania has one of the biggest reserves in Eastern Europe. According to the estimates of the US Energy Information Administration, Romanian shale gas reserves equal 1.4 trillion cubic meters. In other words, keeping the current consumption levels constant those resources would be enough for 100 years. However, having shale gas resources is one thing, and exploring, exploiting and consumption are another. In short, there is a long way with many obstacles to go before these resources become available for consumption.

 

In general, the shale gas issue is a subject of disputes not only in Romania but in other European countries as well. For instance, following long debates, Britain finally waived the restrictions on shale gas production. By contrast, Bulgaria, France, the Czech Republic and the Netherlands have all suspended national shale gas exploration activities. The main objections to shale gas production result from the application of hydraulic fracturing, pumping water and chemicals under high pressure into underground rocks. Critics say it can cause the poisoning of water resources and small earthquakes as a result of tectonic changes. However, energy companies assure that it is not dangerous due to the introduction of the latest technologies and strict safety regulations. As for governments, they have to face the dilemma and delicately calculate the costs and benefits before taking a position. On the one hand, shale gas explorations mean huge investments, employment opportunities, opportunities for cheaper energy due to the growing domestic production and tougher competition and decreased dependence on external sources. On the other, governments should not forget about environmental concerns, not in the least because they can result in public and then political unrest and can harm the image of those in power.

 

The root of these controversies goes back to 2010, when Romania signed an agreement with Chevron on shale gas exploration in an area of 2 million hectares. However, after only two years the dissemination of information to the public about the alleged negative effects of shale gas production on the environment led to mass protests. The protesters successfully demanded the government to prevent shale gas explorations. The government saw no solution but to ban it. The ongoing political and economic crisis at the time also played a role. In an intense political rivalry, none of the political forces wanted to take responsibility for the controversial shale gas explorations and risk losing voters.

 

Only after the union of liberal and socialist parties the Social Liberal Union won the parliamentary elections on December 9th 2012 and relative stability established in the country, the government began to reconsider its position on shale gas. Initially, in December when the ban expired, the government did not renew it. Soon after in March 2013, a moratorium on shale gas was waived. Next, in July the government announced plans to attract 10 billion euros in investment and create 50,000 new jobs. The development of shale and offshore gas fields and gold mining projects were among the projects in the plan introduced by the government. But these projects were perceived ambiguously. Thousands poured to the streets and started to protest, claiming that those projects threaten the environment. Although the main concern of the protesters was the development of the Rosia Montana Gold Mining project (and the use of toxic cyanide), protests covered shale gas developments as well.

 

Since the government lifted the ban on shale gas, Chevron saw no obstacles to announcing its first drilling plans in November 2013 in the small village of Pungesti. The government and Chevron neglected public opinion. Nonetheless, despite attempts in November and later in December, local protesters did not let Chevron bring its facilities for drilling the area. It resulted in clashes and police interventions. Afterwards, the Romanian government and companies clearly understood it is important to engage with local communities before starting explorations. What was done in Romania to this end was very limited, whereas in the United Kingdom, for instance, to promote shale gas developments the government ruled that local councils which allow shale gas development can keep 100 per cent of the business rates they collect from shale gas sites. Consequently, the Romanian government launched initiatives to this end, such as organising meetings and discussions with local communities and considered holding local referendums. However, to gain the public’s trust will not be an easy task, especially taking into account that Romanians’ trust in their government is low. Romania is the third most corrupt country in the EU after Greece and Bulgaria.

 

By no means, however, should public consent, if achieved, be seen as a good for Romania. It will only pave the way for the first exploration drillings. Poland is a good example to have an idea of how long it can take to prove the volumes of the reserves: 50 exploration wells have been drilled so far and there are plans to drill another 30 wells this year, while a minimum 200 of such wells are needed for a full estimation of the reserves. Hence before reaping the benefits Romania will need to patiently deal with public discontent for the explorations to prove whether there is a commercial volume of reserves and only then, if proved, to wait for the exploitation projects to start, which also will take considerable time.

 

Meanwhile, Romania is also seeking to develop conventional offshore gas fields discovered in the Black Sea. In February 2012, ExxonMobil and OMV Petrom, the daughter company of Austria’s OMV, jointly declared finding a major gas field, Domino-1. The amount of the deposit, according to initial estimations, is 40-80 billion cubic meters. Annual production is expected to be about 6.5 billion cubic meters. Findings attracted a fair amount of attention in neighbouring countries as well. So far, Bulgaria signed a deal with France’s Total for the exploration and development of the Khan Asparuh block. Ukraine planned to sign an official agreement with ExxonMobil at the end of 2013. However, due to the political turmoil after refusing to sign Association Agreement with the EU it become impossible for indefinite period.

 

Hypothetically, if the volumes will not be far from what is expected and desired, the impact of them will go beyond Romania and change the energy map of the whole region. So far, however, there is modest evidence of this. Expectations are mainly based on optimistic scenarios. The news release by the companies exploring the fields in the Black Sea mainly contains forward-looking statements such as "anticipates," "estimates," and similar references to future periods. Besides, initially the production in Domine-1 was expected to start in 2015-17. It became clear that first production is estimated at the earliest at the end of this decade. Back then, the plan was to start drilling for exploration and not production towards the end of 2013. However, there is still no official news from either the companies or the government.

 

In the meantime, while potential resources are still to be delineated and properly appraised, Romania focused on developing interconnectors with neighbouring countries to integrate with the regional gas market. The construction of the interconnector Giurgiu-Ruse between Romania and Bulgaria started in October 2009; completion was scheduled for January 1st 2013. However, it is still not completed and a new deadline was not yet declared.   The pipeline will have a capacity of 1.5 billion cubic meters and a total length of 25 km (8.4 km in Romania and 16.6 km in Bulgaria). Transgaz and Bulgartransgaz, companies from Romania and Bulgaria, respectively, contributed €14.9 Million while €8.9 million was co-financed by the EU.

 

The construction of the interconnector Ungheni-Iasi between Romania and Moldova started in August 2013 with a ground-breaking ceremony during Romanian Prime Minister Victor Ponta’s visit to Moldova. Along with energy concerns, Romania considers this project important to integrating Moldova as well. The Romanian government has committed to assist Moldova with €9 million for the project. The total cost is estimated at €26.5 million, of which €7 million is funded by the EU. On January 8th 2014, Romania’s National Agency for Mineral Resources reported in a note released that “the consortium has concluded the main work in Romania”. Overall, 32.19 km of the 42.49 km pipeline is in Romania and 10.5 km is in Moldova.

 

Completed in 2010, the Arad-Szeged interconnector between Romania and Hungary operates in one direction to import gas from Hungary. As for Serbia, the gas interconnection Mokrin-Arad that is to link it with Romania is in a conceptual stage, although it was first proposed years ago.

 

The completion of these projects will make Romania part of the integrated gas transport system which is important for security since it provides diversified routes of imports. However, two factors, although not eliminating, are seriously limiting the importance of those interconnectors. First, none of Romania’s neighbours is a producer and, as stated in the beginning of this article, all are completely dependent on Russian imports. As follows, although the routes of imports will be diversified, the source of imported gas will stay the same. Secondly, the capacities of interconnectors are, as usual, limited for a large volumes of imports. Nevertheless, those interconnectors can be crucial for security when struggling with supply cuts during short period crisis and are mainly designed to for that purpose.

 

Ariz Huseynov is an Expert at the Foreign Policy Analysis Department, Center for Strategic Studies (SAM) and a lecturer at the International Relations Department, Qafqaz University. His field of research includes the Wider Black Sea Area and Energy Politics. He also reads lectures on Political Science, Geopolitics and Energy. He is the author of the monograph The European Union's External Energy Policy: A Liberal Intergovernmentalist Aassessment of the EU's External Energy Ppolicy towards Russia and the Caspian Region. (LAP LAMBERT Academic Publishing, 2012). He also writes columns on the politics and energy issues in the Wider Black Sea Area. He holds an MA in International Relations from the University of Manchester, UK.

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