7 March, 2018

Energy security and natural gas market

Recently, a real excitement has been noticed in the Romanian internal discussion regarding the energy domain, especially about the natural gas and related projects. Are new developments in Brussels to justify this increased interest?

Because Romania is no longer an isolated state and its energy sector is part of the European market and regulations in the field, any significant evolution that takes place in Brussels also affects our country. Indeed, recently, there have been several events that have triggered much interest and even more controversy.

Firstly, there was a Public Hearing on the organization of the gas market and the revision of Directive 2009/73 / EC (The Gas Directive), which took place in Parliament’s Committee on Industry, Research and Energy (ITRE) on 21 February.

Then there is the decision of the European Investment Bank of February 6 to grant a EUR 1.5 billion loan for the Trans Adriatic Pipeline TAP project, the pipeline that connects with the Trans Anatolian Pipeline (TANAP) and South Caucasus Pipeline (SCP), completing the Southern Gas Corridor which links the Caspian Basin, namely the Azer Shah Deniz 2 gas field, through Georgia and Turkey with the southern area of the European gas market: Greece, Albania and Italy. It is the largest financial support ever granted by the EIB for an energy project.
Are there any major changes in the future gas policies that could be noticed out of the two events discussions? I know that both subjects have been surrounded by heated debate and there is a significant level of controversy around them.

We can not talk about major changes, but there is certainly a resolution of European policies in this domain and a sound strategic positioning.

First of all, there is the Commission’s proposal to extend the main provisions of the Gas Directive so that they apply to all current and future gas pipeline projects between EU countries and third countries. The target is the Nord Stream 2 – one of Gazprom’s and, implicitly, Russia’s major projects. For Nord Stream 2 and Gazprom, this translates into a need to separate the carriers from the producers, third-party access to infrastructure and transparent tariffs, as well as a diminution of Gazprom’s ownership by selling percentages of its shares to other investors. The result is either the abandonment of the project by Gazprom – if the goals of strengthening the Russian monopoly and preserving the political leverages are not negotiable – or a discussion of the project under the EU’s terms. No matter what Russia chooses, for the EU is a win-win situation: we are consistent with our strategic goals of diversifying and securing energy sources.

The changes to the Gas Directive are punctual, with a strong technical character, and that is why they don’t imply a major strategic change. But this does not mean that they do not disturb some waters and do not interfere with some interests, especially the Russian ones.

Regarding the second event – EIB financing of 1.5 billion for TAP, the controversy came mainly from the green political forces. Their argument is the futility of the investment, given that the EU needs to move more towards green energy. From a narrower perspective, the argument seems valid. But if we look at the whole picture and consider that at the moment the EU, because of the constant pressure closes nuclear power stations, it shuts down the coal and oil power plants, which is logical, and the alternative sources – especially the wind and photovoltaics do not provide the constant that is needed in an energy system, then we understand that gas remains indefinitely a source of energy for many and a buffer for the whole system. Even the hydro energy with water reservoirs begins to have problems because of the climatic changes – we already have encountered many situations with record levels (on plus or minus) of water reservoirs. The discussions regarding infrastructure environmental impact are another chapter, and they can go on indefinitely. But it is obvious that gas transport infrastructure has a significantly lower impact than oil or nuclear energy, and the associated risks are incomparable to the situation of oil tankers and pipelines. This is something even the greens acknowledge.

Taking into account the EIB’s ownership structure and long-time internal debates until the announcement of the favorable financing decision, the Bank’s support for TAP is, in fact, a check for the whole EU strategy of interconnection and diversification of the gas supply and transmission network.
As you said at the beginning, “Romania is no longer an isolated state and its energy sector is part of the European market and regulations in the field, any significant evolution that takes place in Brussels also affects our country”. How is Romania affected?

Romania began, some years ago, to take concrete steps in the right direction, at least in the gas domain. Slowly, we position ourselves where we should be and could have been already for some time: a key piece in the Southeast European area and a hub for energy for Central Europe.

We are the beneficiaries of an enviable energy independence, but we have not used it to position ourselves better. Just now we are doing it, and the spearhead is the BRUA gas pipeline.

EIB support for TAP is the last confirmation of the success of the Southern Gas Corridor. And for Romania, BRUA will not only help stabilize the regional gas transport system by interconnecting the networks in Bulgaria, Romania, Hungary, and Austria but will be able to deliver gas directly to Central Europe and LNG from northern Greece.

BRUA also offers the much-needed connectivity with the Black Sea Basin and the gas resources discovered there, as well as with the planned LNG terminal in Constanta, part of the AGRI project (Azerbaijan – Georgia – Romania Interconnector).

In this context, the changes envisaged for the Gas Directive favor us. A negotiation of European Union gas infrastructure connections with third countries under European law means more transparency, security, and predictability. It is also good news for the financial security of the projects because it will bring more attractiveness for the banks.

Romania also seriously works on its connectivity with the Caspian Basin and the energy resources there. That means major investments, and these latest developments are good news.
However, what are the reasons for the increased attention paid recently to Transgaz, its relationship with FGSZ (the Hungarian gas carrier) and the projects in which Romania is involved. I have seen a lot of articles in the last weeks press that draw attention to the Russian interests in the area, the position of Hungary – not always favorable to Romania, as well as the reactions of the Romanian side. Also, there was the visit of the Hungarian Foreign and Trade Minister Peter Szijjarto from the beginning of February and the contradictions in statements between him and Mr. Melescanu.

Transgaz is no longer just a national actor and plays seriously at the regional level. It has just won, through its branch in Moldova, Eurotransgaz, the tender for the privatization of the state-owned Moldovan state enterprise Vestmoldtransgaz, which will build the Iasi-Ungheni pipeline in Moldova.

Transgaz also bids, alongside Spain’s Reganosa, and the European Bank for Reconstruction and Development (EBRD), to acquire a 66% stake in DESFA, the Greek gas operator.

These regional developments perfectly match with the BRUA project and with the subsequent exploitation of the Black Sea gas reserves.

Clearly, Transgaz’s active role at the regional level affects Russian interests around Romania, in countries that have been captive to the Russian gas so far. Let us not imagine that this evolution, which hits both the political leverages and the financial resources of Moscow, remains without response. Similarly, let us not imagine that the answers will strictly limit to the international trade instruments. Unfortunately, in this area, Russia has a tradition of using other types of tools, less Orthodox.

On the other hand, our relationship with Hungary is played in a completely different register within the European Union. I am sure that Budapest perfectly understands its position and that a good relationship with Romania is extremely advantageous not only politically but also economically. Azeri gas in the Southern Corridor may be the key to breaking the Russian monopoly on the Hungarian energy market. And the gas in the Black Sea is another good news. Multiplying sources means even more competition, so a direct benefit to the final consumer pocket. Furthermore, Hungary has only to gain if its own gas transport network is part of alternative solutions for Central Europe. Any other position on the part of Hungary would disadvantage it both in the short and long term.

Regarding the job Transgaz does, things are much simpler. It is difficult for me to identify another project at the national level that evolves at least half as well as BRUA. Finally, I can say that there is a large project in Romania, which is advancing consistently in the right direction and that will bring significant benefits to our country.

The prospects are even more beautiful, if we talk about the BRUA interconnection with the port of Constanta and beyond, across the Black Sea towards the Caspian Basin. Both Azerbaijan and Turkmenistan are very interested because they definitely need a market for their gas offer and Europe is the most advantageous choice.
Because you mentioned Azerbaijan and Turkmenistan, I saw that one of the arguments of those opposing to the further development of energy projects such as the Southern Corridor is that such projects involve countries that have serious democratic problems and are hunted by corruption. European money would feed these regimes that do not have a favorable human rights record and the pockets of local oligarchs.

This is another discussion, but the answer to it should not be avoided. Until now, Europe has depended on Russian gas. This has created a great vulnerability, exploited by Moscow. Let’s look at what Moscow is doing these days. It reduced gas deliveries to Ukraine, even if the whole region faces a cold weather wave, demanding the signing of addendums on current contracts. Gazprom also returned advanced payments made by Ukraine. All of these, despite the Thursday’s decision of the Stockholm international arbitration court, which has ruled that Gazprom must pay the Ukrainian company Naftogaz $ 2.56 billion for violation of contractual obligations. On Friday, the situation has already escalated, Gazprom CEO Alexei Miller announced the initiation of the procedure for ending gas supply contracts to Ukrainian consumers and gas transit to European countries. Gazprom motivated this decision with the implications of the ruling of the Stockholm international arbitration court, saying that “the court’s ruling meant the company’s gas deals with Ukraine would no longer be commercially viable”. Obviously, this development is already worrying European countries, despite the insurances coming from Alexander Novak, the Russian Energy Minister. It will certainly be used by Russia as a leverage for its own projects that bypass Ukraine, such as Nord Stream 2.

Diversifying and securing gas sources is a strategic, justified EU policy response. Until now, no one complained that European money are going to a regime that doesn’t have a positive human rights record – the one in Moscow. Or that the same money end up in the pockets of the same oligarchs who are funding fake news, misinformation and trolls campaigns throughout the EU.

I think the development of other economic partnerships in the energy market is beneficial to everyone. Two entities that have an economic project in common will also address other topics more easily. Even for the simple reason that they will meet more often and discuss more. This is the case with the EU relationship with Azerbaijan or Turkmenistan.

I think that despite the short-term effects, the strategic moves made by the EU are also beneficial to our relationship with Russia. The latter will ultimately understand that it can not win this fight otherwise than through fair and legal market instruments. Giving up the dirty tactics will do well for both parties.

Certainly, economic relations and European money do not generate corruption and undermine democracy, but on the contrary. My position differs from the one of other colleagues in the European Parliament and I believe we can achieve more by economic diplomacy than by constantly condemning our neighbors. In addition, in this game, no one is the perfect angel and no one is the pure devil.


Interview with EVZ.RO.