Analysis

The year 2022 will go down as the annus mirabilis (remarkable year) in energy history. It has brought a tsunami of events and changes which fundamentally transformed the oil and gas markets. You would never think that so much can be packed in a year, yet it did. Events that rewired the traditional oil and gas flows, which caused the highest electricity and natural gas prices ever recorded by European statistics, which have shaken governments and economies and sent aftershocks to markets as far away as India and China. Russia lost its most lucrative market: Europe. Nord Stream was blown up in September 2022 apparently by Russia itself. Europe finally got its act together and said a hard “NO” to both Russian oil and gas and issued 11 (!) sanctions packages on Russia following its invasion of Ukraine on February 24, 2022, with the 12th sanctions package currently under preparation.

Romania and Poland (the two pillars of NATO's eastern flank) should be the most visible supporters of Ukraine at the moment. However, the two countries have embraced opposing strategies: while Poland (along with the Baltic States) has asserted itself as Eastern Europe's strongest and most vocal supporter of Ukraine, Romania has opted for a muted public profile, hinting that it helps the victim of Russian aggression, without saying exactly how - a policy summarized by the phrase "Romania keeps silent and does things" („Romania tace şi face” in Romanian).

Romania is a late and unwilling implementer of energy transition. The state-owned energy companies have largely missed out on the renewable energy boom (2011-2015) and are showing interest only now, when faced with imminent disappearance from the market and when the EU legislation is forcing them to make a choice: restructure or die. The main locomotive for Romania’s energy transition is EU energy policy, specifically the Green Deal and the multiple funding opportunities available for decarbonization projects. The EU’s ambitious and transformative climate agenda is the only thing propelling Romania and its energy sector into the future, ready or not.

Romania has been slow in articulating its own strategy of supply diversification in response to Russia’s war in Ukraine. Rhetorically, Romania stands with Europe and adheres to all the sanctions imposed on Russia, including the ones that target Russian oil and natural gas imports. From the outside, it may even seem that the country is in a much better position, especially if compared to other EU states, that were much more dependent on imports of Russian oil & gas. 

The brief offers a “nuts and bolts” overview of the downstream infrastructure, i.e. main refineries in Romania, type of refined products, export vs domestic market split, main export markets as well as size of distribution channels (i.e.: number of filling stations). The main players in the downstream sector are OMV Petrom (the main player on the Romanian fuels market with a 32% market share also in the region), Rompetrol (8% market share in Romania) and Lukoil.

To date, the Black Sea has no LNG terminal. Romania and Ukraine each harbored plans to build the first LNG terminal in the Black Sea: Romania at Constanta (land based) and Ukraine at Odessa (FSRU). However, there has been little progress in practice since these plans were first announced. Romania’s project (Constanta/AGRI LNG) has a potential start-up date in 2026, at best, since Romania’s priority is to complete the BRUA corridor and kick start its own gas production in the Black Sea. Paradoxically, Romanian officials still say that AGRI is on the table, although it is all but officially declared dead. Ukraine’s project is not under any development, having been frozen five years ago with no expected date in sight for its possible start.

This Special Report offers an up-to-date assessment of Romania’s ongoing defense modernization effort. The programs analyzed here belong to all three branches of the Romanian armed forces: Land forces, Air forces and Naval forces. All these programs aim to enhance capabilities in terms of armor, mobility (transport helicopters, 4x4 vehicles), firepower (artillery, anti-tank weapons, attack helicopters and small arms), logistics, communications, aerial reconnaissance, air defense, anti-submarine warfare (ASW), anti-surface warfare (ASuW) and maritime security. The report is structured along capabilities. It weighs the pros and cons of the acquisition programs and discusses NATO interoperability. The equipment analyzed includes: battle tanks, armored personnel carriers, infantry fighting vehicles, artillery, 4x4 armored vehicles, anti-tank capabilities, small arms, command and control systems, UAVs, helicopters, multirole fighters, advanced trainer program and ground based air defense (long range and short range systems). Romania is among the top NATO countries in terms of defense spending (almost 2%), however, poor management of some acquisition programs has resulted in serious delays (corvettes, frigates, multirole fighters, coastal defense systems, 4x4 armored vehicles, and tactical drones).

The Romanian energy sector is in need of massive investments. The latest draft of Romania’s energy strategy puts the investment requirement for the period 2018-2030 between 15 and 30 Billion EUR. Both Transelectrica and Transgaz have ambitious investment projects planned, about to begin or under development. Transelectrica is a member of European Network of Transmission System Operators for Electricity (ENTSO-E) and Transgaz - a member of European Network of Transmission System Operators for Gas (ENTSO-G). Both sectors are in the process of implementing the Network Codes. Development of hard infrastructure, as well as the implementation of network codes seems more advanced in electricity than in natural gas.

Romania’s gas infrastructure development has received significant attention since the discoveries of natural gas in the Romanian sector of the Black Sea, but the missing links in gas interconnectivity with its neighboring continue to affect the region. Thanks largely to European Union support (EUR 179 million grant), in 2018 construction work has finally started on BRUA pipeline. In 2016, the Giurgiu-Ruse gas interconnector between Romania and Bulgaria was completed (3 years behind schedule). Romania’s huge delay in construction of gas infrastructure has even triggered an investigation from the European Commission in June 2017. So, how much of this is due to administrative bottlenecks, real technical issues, political interference, lack of financing, or misguided priorities?

The story of Romania’s offshore gas reserves has received significant attention since 2012, the year of the biggest discovery in the Romanian segment of the Black Sea. However, this success found Romania quite unprepared for a new hydrocarbon boon. Successive governments dragged their feet on the key issue of mineral resource taxation, time was wasted, while a coherent government policy on the stewardship of Romania’s mineral resources has yet to be formulated. The text captures in broad strokes some of the main underlying causes that lead to the situation in which Romania finds itself today, with FIDs in the Black Sea under threat of not being taken right before the Black Sea gas production should start. Who is to blame?