Global natural gas demand is growing strongly. 2019 was another record year and the global demand is set to keep growing over the next five years. At the same time, the European Union spent the last months focusing on how to respond to a higher energy demand while providing it in a cleaner manner.
CEENERGYNEWS spoke with Franck Neel, Member of the Executive Board responsible for Downstream Gas at OMV Petrom, about the role that gas will play in Romania and the company’s projects, while taking into account the current external factors shaping the industry.
A challenging year
To Mr Neel, 2019 was quite a challenging year for the entire energy sector, dominated by regulatory volatility, particularly after harsher market regulation became effective at the end of 2018 and the beginning of 2019.
“Looking at the CEE region in 2019, we saw a significant oversupply of natural gas,” he says. “The diversified supply sources of natural gas, including the increasing flow of LNG, combined with the high volumes in storage against the backdrop of a mild winter and the uncertainty regarding the transit of natural gas through Ukraine, brought down the CEGH spot prices by 34 per cent compared with 2018.”
Romania, in particular, saw a market contraction mainly due to warm weather as well as increased gas prices in the context of the country’s limited interconnection capacity, increased storage obligation and decreasing domestic production.
“We strongly believe that gas will play an increasingly important role in the energy mix because it represents the cleanest fossil fuel solution for ensuring sustainable energy supply and the affordability of the gas and existing important infrastructure (storage) will be essential in the implementation of the green deal,” he adds. “Improved gas grid connectivity will continue to be a key objective in order to achieve a fully functional European gas market.”
For 2020, several completions of gas corridors are expected: the first phase of the Romanian section of BRUA, Nord Stream 2 and TAP.
The latter is already in the commissioning testing stage and will diversify the sources of natural gas supply for Italy, Greece and Albania.
Those steps forward might be slowed down by the outbreak of the coronavirus, also known as COVID-19, which will have dramatic impacts on the energy industry. As it is un unprecedented situation, Mr Neel thinks it is difficult to predict either possible impacts or further developments.
“We currently face a severely depressed oil price environment accompanied by a weakening economic situation,” he comments. “At the company level, we implemented a series of measures to ensure the smooth running of activities and to protect the health of employees and customers, while supporting the efforts of the authorities and the population to combat the spread of COVID-19.”
In addition, OMV Petrom will intensify its efforts for CAPEX prioritisation, portfolio optimisation and cost reduction while maintaining its commitment to safety, to reduce its carbon footprint and to create long-term value for its stakeholders.
I would like to emphasise the fact that modern life cannot exist without energy. Especially in the current context, gas and electricity must be available to support hospitals, households and business activities.
However, low prices represented a huge challenge also last year, combined with other obstacles in Romania, and CEE in general, like the poor energy infrastructure and few interconnections.
“In 2019 in Romania, regulatory measures announced in 2018 and 2019 became effective, leading to significant distortions in the gas market,” Mr Neel explains. “I refer here to the obligation for producers to supply gas to the regulated market (households and district heating) at a regulated price of RON 68/MWh, but also the obligation to sell 50 per cent of the natural gas production on the centralised markets. Amendments of this regulatory framework were implemented beginning of 2020, providing for a faster return to a liberalised market.”
Mr Neel also points out that the level of taxes on gas and oil producers is the highest in Europe, which is a challenge for further investment and to guarantee the security of supply. And finally, the country needs to upgrade its transport infrastructure by using better the European Union’s funds, also important to develop industrial investments.
OMV and the future of Romania
In the last years, in both Europe and Romania, the focus has been on responding to a higher energy demand while providing it in a cleaner manner.
“While Europe works towards this goal by diversifying energy supply sources and building efficient energy market mechanisms, Romania needs to follow along the same path, taking steps towards achieving meaningful interconnections, encouraging investments and taking steps towards liberalised gas and electricity markets,” comments Franck Neel.
According to him, Romania has currently one of the lowest energy dependency rates in Europe, due to the availability of a balanced mix of energy sources.
“Low-carbon electricity and heating is an important topic in Romania, taking into account the specific challenges imposed by the existing national energy mix, which includes a high proportion of coal,” Mr Neel underlines. “In this context, the flexibility provided by the OMVP 860 MW Brazi gas power plant is essential for the Romanian energy system, as it can balance other variable resources in the energy mix, such as renewables, thus contributing to the stability of the national power grid.”
Moreover, the gas discoveries made in the Black Sea open new opportunities for the country in terms of energy independence, but also the ability to play a meaningful role on the regional gas market. But, according to Christina Verchere, CEO of OMV Petrom, the gas extraction from Neptun Deep Block will be uncertain, if the Offshore Law is not amended.
“In order to unlock the Black Sea gas projects, investors need stability, predictability and competitive fiscal terms,” agrees Mr Neel. “We have laid out the prerequisites for progressing towards a final investment decision: stable and competitive regulatory and fiscal framework, liberalised gas market and development of gas infrastructure. In order to remove barriers for the Neptun Deep development, concrete steps should be taken in the near future, meaning the Offshore Law should be amended accordingly.”
Climate change is also a topic of utmost importance that is being addressed at the EU level and Romania needs to take an active role in these discussions. In this regard, Mr Neel believes that natural gas is the energy carrier of the future, due to its lower carbon emissions, affordability, the capacity of being stored and availability.
We have been exploring what we can do to reduce our carbon footprint and have already taken significant steps, which led us to achieve a 22 per cent reduction of greenhouse gas emissions in 2019 versus 2010. Our goal for 2025 is to achieve a 27 per cent reduction.
OMV Petrom is also committed to sustainability and it recently contributed 4.6 million euros to the largest privately funded forestation initiative in Romania. The company supports relevant causes for the society, such as Efficient Romania, which for Mr Neel, addresses an aspect that we should all consider, that is our own personal contribution to a cleaner environment.
This is not a mission that is solely the responsibility of governments and companies, but each and every one of us should contribute by becoming more energy efficient.