Natural gas prices liberalization divided into two phases

Under an emergency ordinance approved last year, respectively GEO 64/2016, as of April 1, 2017 the gas price from domestic production is supposed to be liberalized. The decision is denied by the distribution companies’ representatives with the Federation of Associations of Companies for Energy Utilities (ACUE). Any decision to postpone this decision would, however, require a Parliament decision, a decision subsequently to be validated by the European Commission.

The first step has already been made by the members of the Committee for Industries and Services with the Chamber of Deputies, who decided to reject the report amending the Law on electric power and natural gas so that the gas market is liberalized as of April 1, 2017. They motivated their decision by the fact that the population would be seriously affected if the price is set on the gas market. “We’ve rejected this report, otherwise it would have a particularly strong impact on consumers, particularly on household consumers. We expect a more solid argument coming from the government and from ANRE and we also want to see the energy strategy,” Deputy Sorin Bumb said.

ACUE REJECTS ABRUPT LIBERALIZATION

The parliamentary committee’s viewpoint is supported by the Federation of Associations of Companies for Energy Utilities (ACUE) announcing that the gas market is not ready for full liberalization and requested a postponement of the deadline proposed by the government, based on estimates of dramatic increases in prices especially next winter, if the deadline is maintained. “Our forecasts on the import price of natural gas - which (in the absence of a fair price for gas from domestic production, result of supply and demand on a liquid and operational market) will remain the only reference price on the gas market - indicates an extremely important increase in the cost of natural gas as commodity by year-end (about RON 100/MWh in Q3 and RON 104/MWh in Q4),” the representatives of utilities providers warned in a press release.
A federation’s survey notes that natural gas prices could double by year-end. ACUE argues that the liberalization of the gas price is too sudden this year. The survey reveals that the gas market is not ready for the full liberalization scheduled for April 1, 2017 and requires a postponement of the deadline, estimating otherwise dramatic price increases. Thus, the price of gas will increase from RON 60/MWh, as it is now, to RON 80/ MWh as of April 1, then to RON 100/MWh in Q3 and to RON 104/MWh at the end of the year. ACUE believes that in order to have a real free market of methane gas - a process during which an essential step is to establish the price of natural gas from domestic production through market mechanisms and not by administrative decision - there must be non-discriminatory access of participants to the trade in this energy product.
The competition on the gas market is too frail for liberalization. “The gradual deregulation of natural gas acquisition does not represent a barrier to boosting competition, given that at this time any client can change the supplier of natural gas. Currently, this does not happen in a meaningful manner, precisely because the natural gas market in Romania lacks the mechanisms to generate adequate liquidity and thus create to the customers the situation so that they have more options in regard to choosing the supplier,” the ACUE survey reads.

LIBERALIZATION IN STAGES

According to Energy Minister Toma Petcu, the liberalization of gas prices for the household consumers should be carried out in two stages. The first stage would target the market between manufacturers and suppliers and is scheduled to be completed this year. The second stage would cover the price liberalization between suppliers and the household customers, which will be completed in 2021. Basically, the Energy Minister hinted that liberalization will not be done abrupt, but gradual, meaning there is an agreement from Brussels on the situation of the Romanian household consumer.

OFFICIALS ANNOUNCE MODEST INCREASES

Under these conditions, the natural gas price will increase by 5-6% as of April 1 for household consumers, which will be protected during any unexpected increase of prices on the free market, said the Chairman of the National Energy Regulatory Authority (ANRE), Niculae Havrilet, in the beginning of March. “As of April 1, according to GEO 64/2016, under debate in Parliament and we believe that it will be approved, the procedure for total liberalization of the gas market in Romania begins, with precise reference to the household market. As of April 1, there will no longer be a regulated price for gas production and only the other elements of the final price will remain regulated: network tariffs, supply tariffs and elements that are considered natural monopolies,” the ANRE chairman explained. In turn, the Energy Minister announced that by year-end the final price of natural gas for the population could increase by 8.5% at the most. The only supporters of the price liberalization for households are the two largest domestic producers, Romgaz and OMV Petrom, which could sell their production at a market set price, given that the export opportunities are nil at the moment.

A NEW ORDINANCE

The decision to postpone the price liberalization now belongs to the Parliament, which would expectedly reject GEO 64/2016 on amending the Law on electric power and natural gas. The government will transmit this decision to the European Commission (EC) - which should validate it, given that it involves the modification of a liberalization schedule assumed by our country - and will issue a new ordinance to modify the application conditions of liberalizing the natural gas prices. It is speculated, however, that a postponement of this deadline could jeopardize the BRUA project (Bulgaria-Romania-Hungary-Austria). On July 29, 2016 the European Commission President, Jean-Claude Juncker, sent a letter to the Romanian government requesting the removal of physical and commercial barriers for the export of natural gas, in exchange for funding of almost EUR 180 million to build the BRUA pipeline on Romanian territory. The EC also started, in June last year, an investigation into Romgaz, Transgaz and OMV Petrom for possible arrangements in order to block the gas exports.

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