Natural gas deposit in the Black Sea and the abandonment of the South Stream project

Russia has recently announced it decided to stop the South Stream project due to the opposition coming from the European Commission, as President Vladimir Putin said. The abandonment of the project is good news for Romania, as now it remains on the map of possible transit routes for Russian gas to Europe. More than that, our country could be included into a future pipeline project.

Natural Gas Transit StationRomania supported the building of the Nabucco pipeline until 2012, but the project was abandoned as it could not provide the resource suppliers. Now, as its competitor, the South Stream project, has been halted, Romania could play an important role on the gas transit market as well as gas supplier in the future, considering the reserves confirmed in the Black Sea. OMV Petrom, Exxon and Transgaz signed in May 2014 an agreement so that the natural gas extracted from the Black Sea is to be taken over by the national network for gas transportation. Transgaz has budgeted for 2013 - 2017 total investments of RON 1.72 billion (EUR 390 million), of which RON 732.7 million for pipelines. The company underscored this is a minimum investment plan that is to be adjusted once the future needs for important projects are clarified – such as the exploitation and transport of the natural gas from the significant deposits discovered in the Black Sea and the use of shale gas deposits in Dobrogea and Barlad regions, if they are confirmed. ExxonMobil Exploration and Production Romania and OMV Petrom started in July the deepwater drilling in Neptun offshore block in the Black Sea, the area where the two companied discovered natural gas in 2012. ExxonMobil Exploration and Production Romania and OMV Petrom possess 50 percent of the deep water sector of the Neptun block each.

The most important infrastructure project in the field of natural gas

Romania is to focus on the building of a EUR 230 million gas pipeline to transport gas from the Black Sea perimeters to Podisor, Giurgiu County, delegate minister for energy Razvan Nicolescu said. “The most important infrastructure project in the field of natural gas for Romania is the Dobrogea-Podisor pipeline, which is to transport the gas from the Black Sea to the Romanian national transport network (SNTGN). We are talking about a EUR 230 million project we hope to finalise with the support coming from the European Commission,” the official was stating by mid December 2014.

The Transgaz transport infrastructure for the gas in the Black Sea would cost some EUR 300 million and should be completed by 2019 when OMV Petrom anticipates it will start the commercial exploitation of the gas deposits in the Black Sea. Estimated gas reserves in the Black Sea leased perimeters by OMV Petrom and Exxon amount to approximately 84 billion cubic metres.

Transgaz losses if South Stream would have been completed

The completion of the South Stream pipeline would have led to a 20 percent drop in revenues for Transgaz and to 35 - 40 percent decrease of the operational profit, an Erste Group research report reveals. Russia’s decision means Transgaz would count on yearly incomes of over EUR 60 million (RON 269 million), incomes coming from Gazprom taxes paid to convey in transit Russian gas to the Balkan states for passing Dobrogea. Transgaz’s operational profit last year was of RON 536 million. The halt of the South Stream project “is good news for Transgaz, as South Stream was regarded as a major threat for the revenues from transit fees. Furthermore, the Russian pipeline was seen as means to transport natural gas from the Black Sea to Europe, bypassing Romanian territory and Transgaz respectively,” the Erste Group Research report reads.

OMV to focus on the Black Sea

OMV announced, right after the news about the South Stream project, that it would focus its attention on the Black Sea investments, of major importance for the company. The extension of the South Stream pipeline to Austria, agreed upon with Gazprom at the beginning of 2014, would have cost the Austrian company EUR 100 million, as compared to the USD 1 billion investments carried out together with its partner ExxonMobil in the Black Sea, the first cubic metre of gas being expected to be extracted in 2020, said OMV CEO Gerhard Roiss, as quoted by international media. Initially a supporter of the South Stream project, the manager of the Austrian group recently expressed his official position, saying that the exploration of the Black Sea continental plateau is a priority for the company.

Favourable conclusions for the AGRI project

The feasibility study for the AGRI project, aiming at bringing liquefied natural gas from the Caspian Sea region to Constanta, has been finalised and the conclusions are in its favour. The four partner states are to decide in January 2015 if they will carry on the EUR 4.5 billion project. The Azerbaijan-Georgia-Romania Interconnector (AGRI) was launched in 2010, having as shareholders the state companies SOCAR (Azerbaijan), GOGC (Georgia), Romgaz (Romania) and MVM (Hungary). The representatives of the participating states to the project met in Bucharest in December 2014 to learn about the conclusions drawn by the feasibility study carried out by the British consultancy firm Penspen.

Slovakia’s alternative to South Stream

Eustream, the company that operates the pipeline network in Slovakia, has launched the idea of a project called Eastring to build a new pipeline for transporting natural gas from Western Europe via Romania to the Balkan states, in order to reduce the region’s dependence of Russian gas. Eastring would connect the current networks in Slovakia and Ukraine to the one in Romania through a new 570 km pipeline, allowing natural gas from Western Europe to reach the Balkans, Eustream President Tomáš Mareček said, according to international media. Eastring’s potential capacity would be of 20 billion cubic metres per year and it should also be able to transport natural gas from Russia to the Balkans or from Western Europe to the Balkans. The Eustream President estimated the costs to EUR 750 million to connect Velké Kapusany in Eastern Slovakia to Romanian border, via the Soyuz pipeline out of use in Ukraine, and further down south through Romania to Bulgaria. Our country would play a key role in this project, taking into consideration that the longest part of the pipeline is to be built on Romanian territory.

Romania’s priorities for 2014 - 2017

Romania has the largest natural gas reserves in Central and Eastern Europe, the confirmed deposits amounting to approximately 1,600 TWh. 95 percent of the total conventional natural gas geological resources, 93 percent of the certain deposits, are onshore. Considering the average annual output in Romania (11 billion cubic metres of natural gas) and the five percent steady yearly decline of certain natural gas reserves, corroborated with an 80 percent replacement rate of natural gas reserves, the current natural gas reserves would drain in about 14 years, according to the new National Energy Strategy for 2015 - 2035, recently submitted for public debate by the Energy Department.

The perspectives of new confirmed resources are conditioned by the future investment volume coming from domestic producers and from international companies in the field of geological exploration, as well as by the results of the exploration works – meaning the discovery of new deposits. Just like in the case of crude oil, on short and medium term, the confirmed reserves of natural gas could be augmented by implementing new technologies meant to increase the deposits’ recovery rate, while on medium and long term by implementing projects for deep drilling (more than 3,000 metres) and by exploring the onshore areas having a more complicated geological structure and the offshore deposits in the Black Sea, especially the deepwater ones (more than 1,000 metres). Considering the decline of the conventional hydrocarbons output, Romania needs to intensify the exploration and the exploitation of new oil and natural gas deposits, both conventional and unconventional. An important part of Romania’s natural gas deposits are in an advanced depleting process and are working on low and very low pressures (under 10 bars) and consequently register low output.

According to the new energy strategy draft, the development plans to develop the natural gas infrastructure for 2014 - 2017 is targeting the following directions:

  • To finalise the interconnection project between Romania and Bulgaria and to provide the reverse flow of the natural gas at the Giurgiu - Ruse interconnector, anticipated for the end of 2016;
  • To interconnect the natural gas transit network to the natural gas national network and to provide the reverse flow at Isaccea I (Tranzit I) interconnector, finalisation estimated for 2016;
  • To set up an access corridor between the Black Sea exploitations and SNTGN;
  • To develop the export capacities through the Hungary - Romania interconnector up to a capacity of 1.75 billion cubic metres per year with a 40 bar pressure. This is a joint interest project, part of an ampler project called “the Development of national transport network on Romanian territory” estimated to be finalised in 2019;
  • The opportunity to interconnect with TAP (Trans-Adriatic pipeline) – a project aiming at the transport of natural gas from the Caspian Sea (Azerbaijan) to Greece, Albania and to the Adriatic Sea, Italy and further on to western Europe.
  • The National Energy Strategy is under public debate until January 10, 2015, its re-examination is expected to be finalised by May 2015.

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December/January 2015

June 2017