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Intellinews - Romania Energy Sector Report -June 2013

  • June 2013
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 47 pages

Romania’s economy continues to expand this year, by some x.x-x% this year and possibly more in the coming years, driven by industry, but the negative output gap remains wide. The change in the structure of economy, rather than investments technology, will however push down the energy consumption thus improving energy efficiency. Energy market liberalisation will particularly result in higher natural gas prices [hence shrinking consumption in sectors like fertilizers production that has capitalised on cheap gas so far] while the renewable energy support mechanism has already pushed up end-user electricity-related cost. Domestic consumption of energy will stabilise at a lower level in response to higher energy prices. Sectors like chemistry and metallurgy are under significant pressure. Hopefully, the less energy-intensive sectors [more value-added] will offset the predictable decline of the energy-intensive ones and furthermore support further growth.

Romania’s net energy consumption decreased sharply by xx% y/y in Q1 after a more moderate x/x% y/y decline in 2012. The definition includes all the energy inputs less the exports of electricity and petroleum products. The decline in energy consumption occurred in spite of rising GDP – x.x% y/y in 2002 [x.x% y/y filtering out the volatile impact of agriculture] and x.x% y/y in Q1 of 2013. Technically, the energy intensity decreased visibly in 2012 and rather sharply in Q1 of 2013. More in detail, the improvement in country’s energy intensity was driven by i. certain shift in the structure of industry, toward less energy intensive sectors [automobiles, compared to steelmaking, chemical industry or fertilizers production] and ii. warmer weather in Q1 of 2013. The weather plays an important role in country’s energy consumption, particularly in the winter quarters. The impact of renewable energy capacities coming online last year and in 2013 was also visible in the structure of energy inputs. Besides hydropower generation returning to normal levels, more wind power put the coal-fired plants under pressure. The government intervened in order to prevent excessive negative impact of volatile renewable energy coming into the grid – some 8.7% of the total power generation as of Q1. On a one hand, it extended limited support to coal-fired plants by allowing them better access for a guaranteed part of their capacity and on the other hand the executive trimmed down the support given to renewable energy producers under law 220/2008 [on quota and trading system of green certificates]. In fact, this latter action turned to be the key story in this first half of the year – besides the visible decrease in energy consumption.

Lower imports of energy inputs in Q1 this year [natural gas mainly, but also certain amounts of coal] notably resulted in much smaller trade deficits and a Current Account surplus in Q1.

In the upstream area, there is a visible shirt in the attitude expressed by both PM Victor Ponta and president Traian Basescu vis-à-vis the shale gas. Both of them expressed support for exploration and exploitation of shale. Nonetheless, the outlook remains moderate in spite of the EIA updated evaluation showing abundant reserves. Chevron holds licenses for two large areas in Romania and received permits for explorations already. Nonetheless, the potential for shale gas turning into a major factor for Europe’s gas market remains moderate in spite of Ukraine’s and Poland’s efforts. Other projects, like Nabucco or TAP might contribute more likely to the diversification of the gas mix in Europe – and hopefully in Romania. The consortium that operates the Shah Deniz block – the first source of gas to fill either Nabucco or TAP, was expected to make a choice between the two routes in June 2013. For Romania, Nabucco would be more beneficial – since TAP aims at bringing the gas through Turkey-Greece-Albania-Italy to Europe [compared to the route through Turkey-Bulgaria-Romania-Hungary-Austria – under Nabucco]. Another important choice in the upstream area is the one expected from OMV-Exxon that will pick a route [destination] for the gas to flow [starting 2019] from Romanian offshore. Output is expected at x.xbn cubic meters per year / compared to xx-xxbn cubic meters to flow through Nabucco or TAP in a first stage.

Domestic energy prices remain low, market reforms advance slow. Electricity and natural gas prices remain roughly the lowest in EU [except for Bulgaria in some cases] and the pressures for higher prices are visible, yet not immediate due to sluggish advance of market reforms. Hiking the regulated natural gas prices toward market levels is being pursued as a preparatory stage before full liberalisation of the market. The problem however is that since there is no functioning market in place yet, the “market level” can be only arbitrary. The two-pillar liberalisation process already endorsed by the government is however realistic and workable. Still, the executive and the market regulator lag behind plans to set up a natural gas exchange – which is critical for one of the two pillars [price hikes being the second pillar]. Gas market liberalisation depends critically on first having a market with an adequate structure [including diversified supply and trading institutions among others].

The reforming the electricity market also advances slowly, speaking of the expected market coupling prospects. Power grid operator signed a memorandum with the members of Prague-based area that includes Czech Republic, Slovakia and Hungary but no follow-up is available yet. Domestically, the market regulator ANRE has reportedly drafted plans for an OTC market and Transelectrica might waive certain fees for the electricity exported. Speaking of the market developments, more wind and hydro power pushed down the short-term prices while the medium-term future prices remain more or less steady [even though at historic low levels]. Romania’s Official Journal has published the emergency ordinance that amends the 220/2008 law on the support mechanism for energy producers that use renewable energy resources. The amendments are: temporarily withholding part of the support [the tradable green certificates] extended to investors. Licensing of new projects is restricted. Solar farms built on productive farming land are banned from support. The association of investors in wind farms announced plans to appeal in court and at the EC the ordinance. The effects of the ordinance will be better visible after the market regulator runs a first profitability evaluation [supposedly as soon as possible].But at first sight investors in wind farms and micro-hydro might be entitled to challenge the ordinance since the internal rates of return [IRR] for their projects might fall under the target set under the law 220/2008 – though final results can be provided only by market regulator ANRE. Investors in photovoltaic will probably not have their profits lowered below the target.

The country’s refining sector hit in Q1 the lowest activity level in the past decades as the crude oil under processing dropped to below x mn tonnes. This occurred however as country’s largest refinery owned by the Rompetrol group has completed upgrade works thus remaining in outage for a period of time [it processed 40% less crude oil than one year earlier].

Table Of Contents

Intellinews - Romania Energy Sector Report -June 2013
Executive Summary

1. MACRO UPDATE
Romania's Q1 GDP up x.x% y/y driven by foreign trade items.
1.1 REGULATORY
Romania enacts amendments to renewable energy law.
EC to evaluate Romania's amendments to renewable support law - association.
ANRE is supposed to play a key role after the government amended law 220/2008.
1.2 STRUCTURAL REFORMS - PRIVATISATION
Government to sell xx% stake in power distribution company Electrica in October.
1.3 RAW ENERGY RESOURCES
Romania's gross energy use drops xx.x% y/y in Q1, power intake down x.x% y/y.
Romania to cut only partly cogeneration contribution starting as of 2014 - market regulator
1.4 DOMESTIC USE OF RAW ENERGY
1.5 DOMESTIC ENERGY PRICES
Lakshmi Mittal in energy price talks for ArcelorMittal's units in Romania.

2. OIL, PETROLEUM PRODUCTS
2.1 DOMESTIC FUEL PRICES
2.2 QUARTERLY UPDATED STATISTICS
Tentative attempt to compare activity of Romania's three refineries.
2.3 REGIONAL OUTLOOK: CAR FUEL PRODUCTION/DEMAND; BY COUNTRY
2.4 CORPORATE ROUND-UP
OMV Petrom reports x% decline in Q1 revenue and profit.
OMV Petrom earmarks EUR xxx mn for redeveloping mature oil fields.
Rompetrol refinery cuts Q1 loss, nears EBITDA break-even.
Lukoil's Romanian refinery remains in loss in 2012 but rules out pulling out.
Gazprom Neft takes over bunkering operator in Romanian port Constanta

3. NATURAL GAS
EC rejects Romania's demand for 6-month delay of natural gas market liberalisation.
Romania lifts ban on natural gas exports.
Shale gas update: better estimated reserves, firm support from PM and President.
3.1 QUARTERLY UPDATED STATISTICS
A. DOMESTIC PRODUCTION VS. IMPORTS
B. STRUCTURE OF THE NATURAL GAS MARKET, BY FINAL USER
3.2 CORPORATE ROUND-UP
E.ON Romania asks xx% higher gas transport fees
Romania to help Moldova build mutual gas interconnection.
Romanian parliament endorses bill on Nabucco gas pipeline company.
Romania to set up joint venture for handling offshore natural gas
OMV Petrom estimates gas flow at Neptun deep offshore exploration at 6.5bn cu m per year.

4. POWER
4.1 QUARTERLY UPDATED STATISTICS
Romania's electricity use down x% y/y in April after sharp x.x% y/y drop in Q1.
4.2 POWER MARKETS
Prices on Romania's day-ahead-market drop below EUR 30/MWh in May.
EC investigates Romania's power market operator on alleged discrimination.
Government gives preferential grid access to coal-fired plants in exchange for ancillary services.
Romania to lower electricity export fees.
4.3 USE OF ELECTRICITY IN ECONOMY
4.4 CORPORATE ROUND-UP
Romgaz enters electricity market.
Enel Green Power operates 500MW wind farms in Romania.
Hidroelectrica to auction 25 small hydropower plants in July.
Verbund commissions 225MW wind farm.
EBRD mulls EUR 200mn loan to Romanian power producer Oltenia.
EBRD cancells plans on arranging EUR 207mn loan for Romanian power plant project.
Chinese investor to get permit for 600MW coal-fired power plant in Romania by November - daily.
China's Lightway Solar to build 50MW solar power park in Romania.
Energreen Investment Europe buys 17MW solar power project in Romania.
Power grid operator faces problems in completing supplementary connection to Serbia.
Hidroelectrica expects record profit in 2013.
Wind turbine manufacturer Vestas to open service centre in Romania.
Enel Romania to invest EUR 540mn in power distribution network in next five years.



FIGURES
Figure 1: Raw energy resources intake; thous. tonnes oil equivalent, quarterly.
Figure 2: The breakdown of raw energy resources; 2012.
Figure 3: The breakdown of raw energy resources; 2006
Figure 4: Domestic energy intake of energy, thousands toe; annual, last quarterly data.
Figure 5: End-user natural gas price in Romania vs other EU countries [EUR per kWh; latest available]
Figure 6: End-user electricity price in Romania vs. other EU countries [EUR/kWh; latest available]
Figure 7: Brent Europe oil price expressed in USD, EUR per barrel.
Figure 8: Car fuel retail prices in Romania vs. Brent Europe [USD, EUR, RON].
Figure 9: Balance of crude oil and petroleum products, [tonnes, rolling 12 months]
Figure 10: Inland deliveries of oil products, [tonnes, rolling 12M].
Figure 11: Crude oil processed by Romania's three key refineries [thousand tonnes; latest quarterly available]
Figure 12: Sales of petrol/gasoline and diesel in Romania, vs. CEE [thous tonnes]; see region's definition.
Figure 13: CEE region's petrol/gasoline sales in CEE [see definition]; structure by country.
Figure 14: CEE region's diesel sales in CEE [see definition]; structure by country.
Figure 15: Romanian's petroleum products balances [petrol, diesel, quarterly]; export, import, production, demand
Figure 16: Production of petrol/gasoline, diesel in Romania, vs. selected CEE [thous tonnes]; see CEE definition.
Figure 17: CEE region's petrol/gasoline production in CEE [see definition]; by country.
Figure 18: CEE region's diesel production in CEE [see definition]; 2005-2011; structure by country.
Figure 19: Total vs. heating/power natural gas use [mn cubic metres, monthly].
Figure 20: Natural gas use, from domestic sources vs. import [qtrly, mn m3].
Figure 21: Use of nat. gas monthly, mn m3, by sector.
Figure 22: Breakdown of nat. gas use in 12 months.
Figure 23: Use of gas by main sectors, in rolling 12 months [mn m3].
Figure 24: Use of natural gas in households, 12 months rolling average; mn m3.
Figure 25: Use of natural gas in industry, 12 months rolling average; mn m3.
Figure 26: Power generation, by source (mn MWh).
Figure 27: Dynamics of main electricity market segments [TWh].
Figure 28: Electricity use in economy vs. GDP.
Figure 29: Use of electricity in households
Figure 30: Prices, volumes on futures and DAM markets [RON]
Figure 31: Graphic representations of the electricity use by economic sector.



TABLES
Table 1: Gross energy intake dynamics.
Table 2: Raw energy resources: consumption, production, self-sufficiency; last full year.
Table 3: Raw energy resources: consumption, production, self-sufficiency; last quarter.
Table 4: Primary energy resources, original balance from INS adjusted for the exports of electricity and petroleum products; annually 2000-, thousand tonnes.
Table 5: Consumer prices - energy, expressed in nominal terms, real terms, euros and US dollars.
Table 6: Electricity and natural gas prices in EU countries, latest available
Table 7: Crude oil and petroleum products balance, annually and last quarterly data, thousand tonnes.
Table 8: Key elements of Romania's oil refining industry
Table 9: Petrol, diesel sales in selected CEE countries [thous tonnes; annually, latest quarterly].
Table 10: Petrol, diesel production in selected CEE countries [thous tonnes; annually, latest quarterly].
Table 11: Petrol, diesel imports in selected CEE countries [thous tonnes; annually, latest quarterly].
Table 12: Natural gas: inland delivery, production and imports; annually, latest quarterly.
Table 13: Use of natural gas by sector; annual, latest quarterly data.
Table 14: Structure of the domestic electricity market [TWh]; by free/regulated and residential/non-residential segments.
Table 15: Electricity simplified balance quarterly, mn MWh.
Table 16: Wholesale electricity market breakdown, annual latest quarterly.
Table 17: Future and DAM markets; annual, latest quarterly - volumes, prices [RON]
Table 18: Future and DAM markets; annual, latest quarterly - volumes, prices [EUR]
Table 19: Use of electricity, by main economic sectors; mn KWh; annually.

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