Saturday, June 22, 2024
HomeInterviewsWhat makes Romania a regional gas hub - interview with Franck Neel,...

What makes Romania a regional gas hub – interview with Franck Neel, Member of the Executive Board of OMV Petrom

Franck Neel will be one of the speakers at the Budapest LNG Summit, to be held on 3 April.

The Romanian oil and gas company OMV Petrom has reported a record net income profit of 10.3 billion lei (2.1 billion euros) with 3.6 billion lei (735 million euros) spent on investments and a contribution of around 20 billion lei to Romania’s state budget (4 billion euros) according to the company’s preliminary financial statements.

A record but also an “unprecedented” year for the energy industry. CEENERGYNEWS spoke with Franck Neel, Member of the Executive Board of OMV Petrom about the company’s results of 2022 and the plans for 2023 in different sectors, focusing on the role that Romania can play as a regional gas hub.

“If we look at our business as a whole, the year 2022 was an exceptional one in terms of results, amidst a very difficult context,” he says, referring to the 7 regulations1 changes and the 20 tax changes that happened in Romania. “It was challenging to adapt but our team has done a very good job, keeping also up with customers’ supplies at our petrol stations.”

According to him, the fourth quarter of 2022 was particularly challenging on the power side because of the massive changes in the regulations.

“Despite the fact that oil and gas fields are mature, new exploration and drills were able to create a balance,” he points out.

When it comes to Romania, Mr Neel underlines that the country’s main advantage to becoming a regional gas hub is that it has its own gas resources, onshore and offshore, being the second largest gas producer in European Union.

“Gas markets changed profoundly in the last years,” says Mr Neel. “They are not just local or regional, but they become much more interconnected at a global level. In this context, regional hubs became one of the pillars for ensuring energy security, especially in the European Union.”

Thus, the “ingredients” of a gas hub, according to him, are flexibility and supply diversification, which ensure market liquidity.

“Where you see market liquidity, for sure you will see a stronger energy security level, because hubs enable to move gas from one point to the other in a transparent way,” he notes.

Also, a very important benefit of a well-functioning market hub is that it provides correct price signals for market participants and depending on the complexity of products traded, for example, the potential for long-term price signals, essential for investments and predictability. These features are underpinned by the physical infrastructure and by predictable and coherent market mechanisms.

“Looking at Romania,” Mr Neels continues, “it has an opportunity of becoming a South-East European gas hub. The country has taken significant steps recently, by increasing the degree of interconnection with the neighbouring countries and the region through BRUA and by completing other gas reverse-flow projects. These have helped companies reach new sources of natural gas, including LNG.”

So, what else is needed to fulfil Romania’s energy potential?

“The scope of any market is to create competition,” replies Franck Neel. “In the case of the gas market, which is highly complex, the goal is to also ensure a high degree of liquidity. This is done by stimulating competition between several sources of gas supply. Without liquidity, one could see market tightness and unreliable price signals, which can create dysfunctions, thus affecting both the consumers and the economy. To avoid such situations, there is a need for openness and predictability to encourage investments to unlock new gas resources, but also by stimulating trading activities, to bring gas from abroad to the hub and from the hub to supply other customers.”

The attractiveness of the hub is given not only by the geographical positioning or existing infrastructure, which, of course, are necessary but also by the market design and by the taxation level.

In particular, if we look at the Romanian market, Mr Neel sees that it has the shape of a free market, but, in fact, is highly regulated, due to the imposed capped prices, market obligations in terms of volumes and various taxation levels of.

“We believe fundamentally in the free market principals, which are essential for investments, and in a competitive and fair taxation, while protecting the vulnerable consumers,” he says.

OMV Petrom is also a member of the Industry Advisory Group (IAG) supporting the EU Energy Platform which will focus on organising demand aggregation and joint purchasing of gas for the coming winter’s (2023-2024) gas storage filling season. Furthermore, the joint purchasing mechanism will be key to avoiding EU companies bidding for the same gas and inflating prices, as a consequence: EU countries would be obliged to aggregate demand for volumes of gas equivalent to 15 per cent of their respective storage filling obligations. Beyond 15 per cent, the aggregation will be voluntary but based on the same mechanism.

“Last year, EU countries had to outbid to secure enough LNG delivers, amid the steep drop of Russian pipeline gas,” Franck Neel explains. “Therefore, the EU Commission proposed and set up a mechanism at the EU level for joint natural gas biddings and purchases, in order to reduce market fragmentation, price volatility and to increase the EU’s Member States ability to negotiate.”

He goes on by recalling that the scope of the EU Energy platform is to find an adequate response to several main challenges.

“First of all,” he says, “EU will have to replenish its gas reserves for next winter consumption in the absence of Russian pipeline gas. Secondly, the Asia Pacific region’s demand for LNG could increase, following the resumption of China’s economic activity. All these, in the last year’s context, when the increase in LNG supply was outpaced by the rise in demand, coming especially from the EU.”

In other words, the EU Energy platform aims at ensuring an optimal utilisation level of the LNG capacities across the EU, because the EU’s regasification infrastructure is not uniformly distributed.

“In this way, supply could meet demand in a much more predictable way and might help landlocked countries to reach much easier LNG supplies,” Mr Neel highlights. “Another potential positive effect is that the EU platform might lead to a pan-European reference price. All combined will help global LNG producers and shippers, by ensuring them an increased level of predictability regarding the evolution of demand, thus, giving the EU the possibility to access a constant flow of LNG and reduce price volatility.”

What OMV Petrom can focus on in the meantime is the Neptune Deep project, expecting a final investment decision by the middle of this year.

“It is our biggest project, worth 4 billion euros,” concluded Mr Neel. “Neptun Deep is a strategic project both for the company and Romania. We became an operator in August 2022 and we made an intermediary step towards the final investment decision, by submitting the declaration of commerciality at the end of last year. Currently, we are advancing with the tendering process. Subsequently, we will go through the internal governance process. As previously announced, we plan the final investment decision for mid-2023 with the first gas beginning 2027.”

Sign up for our newsletters

    Monthly newsletter – Delivering the most important energy stories of the month selected by our Editor-in-chief
    Weekly Oil&Gas roundup - All major news about the oil and gas industry, LNG developments, the upscaling of new gases and related EU regulations arriving in your mailbox every Monday.
    Weekly Renewables&Climate roundup - All major news about investments in renewable energy sources, environment protection, green hydrogen and new innovative ways to tackle the climate crisis arriving in your mailbox every Tuesday.

    Most Popular