BRUA TO FORGE AHEAD: Transgaz getting ready to take over the Black Sea gas

The technical operator of the National Gas Transmission System Transgaz Medias has requested the National Environment Protection Agency (ANPM) the environmental agreement for the construction of the Tuzla-Podisor natural gas pipeline, which will ensure the connection between the Black Sea shore and the BRUA gas pipeline. Once achieved, the transport of the Black Sea offshore production by the Transgaz transmission system will become possible.

TrgThe BRUA gas pipeline will connect Bulgaria, Romania, Hungary and Austria and is part of the European Union strategy to ensure energy independence. Last year, the European Commission approved for Transgaz a grant of about EUR 180 million to build the BRUA section that crosses Romania from Giurgiu to Nadlac, and in September 2016 the Parliament adopted the bill that would allow the construction of natural gas pipelines in the Black Sea coastal zone.
The Tuzla-Podisor pipeline will have a length of 308 kilometres and should become operational in 2020. It will cross the counties of Constanta, Giurgiu and Calarasi. The BRUA project involves the construction of a new natural gas pipeline in Romania, which will make the connection between Podisor Technological Node and the Horia Gas Metering Station (SMG), in the direction Podisor-Corbu-Hurezani-Hateg-Recas-Horia, and of three compression stations. The pipeline, with a total length of about 528 km, is designed to carry natural gas at a pressure of up to 63 bars, according to the Transgaz representatives.

ON THE MAP OF EUROPEAN GAS MARKET

The Tuzla-Podisor pipeline will place Romania on the map of European gas market through the BRUA gas pipeline, which will facilitate the access to the gas coming from the Caspian region through the Trans-Adriatic Pipeline (TAP) and the Trans-Anatolian Pipeline (TANAP). The estimated value of the BRUA project amounts to EUR 560 million, to which it is to be added the investment for the connection between the technology nodes Tuzla and Podisor worth EUR 278 million. BRUA will ensure a maximum natural gas transmission capacity of 1.5 billion cubic meters per year to Bulgaria and 4.4 billion cubic meters per year to Hungary.
According to estimates, Romania’s gas output will be relatively constant until 2019, of about 10 billion cubic meters per year, after which Romania will become a net exporter of gas, in only four years the production will double to 19 billion cubic meters annually. However, the gas consumption will remain constant at 12-13 billion cubic meters per year.

RECOVERING THE INVESTMENT WITHOUT INCREASING THE TARIFFS

The European Commission adopted in March a Regulation according to which potential gas producers and suppliers of mainstream pipeline projects must guarantee the transport operators that they will recover their investments from the increase in quantities of transported gas and that they will not be obliged to increase the transmission fees as a result of insufficient demand.
According to the national legislation in force, any investment by the operator of the national gas transmission system - Transgaz - to extend the national gas pipeline system must be recovered from the receipts. Given that the volumes of the transported gas are growing, the amortisation of the investments can be done without increasing the regulated tariffs approved by the National Regulatory Authority for Energy (ANRE), but only from the additional amounts resulting from the application of the same tariffs to larger quantities. Otherwise, the tariffs need to be increased. The transport fees are found in the final price of gas paid by the consumers. Last year they had a share of about 17-18% in the total cost of purchasing natural gas for household customers and for heat producers for the population. The share in the final price paid by consumers is lower, as it includes the margin for suppliers, plus the VAT and the excise duty.

ANRE DRAFT FOR TRANSPOSING THE LEGISLATION

Recently, ANRE has completed a draft order to transpose the new European Regulation into the Romanian legislation. The draft also includes a framework contract model to be concluded by Transgaz and the network users which request additional transmission capacity. The draft law introduces the notion of ‘incremental capacity’ of natural gas transport, defined as “a possible future growth through market-based procedures, through the existing technical capacity or through a potential new capacity created where currently there is none, that can be offered on the basis of investments in the physical transport network and which can then be subsequently allocated, subject to positive economic test results, to the existing entry/exit points to and from the national transmission system or by setting up new entry/exit points to and from the national transmission system.”
According to the draft order, a certain minimum threshold will be calculated and set out for the total binding commitments on the additional transport capacity contracted by applicants, up from which the development of a gas transmission infrastructure project is considered to be viable from the economic point of view. “The obligation of the TSO (the Transmission and System Operator - Transgaz) to make the reserved transport capacity available and to provide the transport service is conditional on meeting the minimum capacity threshold,” the project reads. Transgaz will also be able to request a certain minimum capacity allocation over several years and/or a final investment decision for projects that have led to additional transport capacity requests.

FINANCIAL GUARANTEES AND PENALTIES

The natural gas producers and suppliers will be required to provide a financial guarantee to Transgaz in case they decide to unilaterally terminate the incremental capacity contract with the carrier, before confirming the additional transport capacity that would justify the investment in expanding the pipelines network. The guarantee is in the form of a letter of guarantee, collateral deposit or escrow account. The exact amount of the guarantee will be determined on case-by-case basis, through the documentation for each incremental capacity allocation. “The financial guarantee for payment (...) may be executed by the TSO up to the amount determined in accordance with the provisions of the specific procedure for carrying out the incremental capacity process. The non-executed part of the guarantee will be refunded by the TSO within 15 calendar days from the confirmation date,” the ANRE draft order reads. Accordingly, Transgaz will also be bound over to pay a late payment penalty to the network users if it fails to meet the agreed deadlines for completion and commissioning of the transport capacity enhancement projects it is committed to. “This penalty shall be equal to the capacity booking fee for long-term firm transport services applicable in that month, multiplied by the booked transport capacity per day and the number of days in that month in which the reserved transport capacity was not ensured,” the document reads.
Transgaz intends to borrow EUR 150 million from the international capital markets to finance the works on the Romanian section of the BRUA international pipeline, after the state has imposed on the companies where it is majority shareholder to give dividends to the shareholders in a share of 90% of the profit in 2016.

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