Thomson Reuters Apr. 2013EN

Organization: Thomson Reuters

Journalist: Ioana Patran

ROEC expert: Eugenia Gusilov

Date: April 15, 2013

Ioana Patran: What do you expect the Romanian government to do next on shale gas? Do you expect exploration to start soon (this year maybe?), in spite of the recent protests?

Eugenia Gusilov: The new Romanian government has made clear its support for unconventional exploration in official documents such as the USL Government program for 2013-2016 (“Intensifying geological research to identify new deposits”) and through repeated statements by the Prime Minister Victor Ponta and Energy Minister Constantin Niță. These are strong political signals that indicate the willingness of the new government to provide the political leadership for moving forward on the topic of Romanian shale gas. By expressing this support, the new government seems willing to take the risk of an unpopular political decision, at least, for the exploration stage. Although Romania decided the direction – assessment of its unconventional resources, this is not an indicator of the speed at which such resources will be developed. The topic continues to polarize Romanian public opinion, with environmental NGOs on one side vehemently opposing it and the business sector on the other side denying any risks associated with the use of hydraulic fracturing. A discussion about concrete next steps, actions and measures is missing, since authorities and shale gas supporters would like to wait and see what shall be the results of exploration given the current number of uncertainties around resource quantity or Romanian-specific production costs. In addition, the Romanian regulatory framework is changing (with potential new royalties from 2015 and natural gas price deregulation in progress), processes which may influence the commercial decision of developing the new-found resource. Even if the above factors are favorable, the Romanian authorities and energy companies will have to engage in an honest dialogue with the public about associated risks and take concrete and decisive actions to reassure the public that risks are being adequately addressed, that the institutions involved in monitoring compliance with environment regulations are strengthened and additional measures are taken to ensure the environmental safety of oil and gas operations. The success of these additional measures will determine the pace of unconventional development and public acceptability. I expect the Romanian competent authorities to keep an eye on what the U.S.A., Great Britain or Germany are doing and learn from their shale gas regulatory activity, to be proactive and take the lead on what needs to be done.

Chevron’s first exploration well is planned to be drilled in the second half of 2013. However, the opposition (of environmental NGOs, civil society, and local communities) should in no way be underestimated, nor its power to obstruct such developments. The green movement in Romania is well organized and has a successful track record of delaying big industrial projects (see the Roșia Montană case). If Romanian authorities seriously contemplate a future for unconventional production, they will need to approach things completely differently: show more transparency, engage in outreach to civil society, cooperate with independent experts, and professionalize the key (central and local) institutions with responsibilities in this area. Companies will have to be more outspoken too. If these conditions are met, exploration will begin this year.

Ioana Patran: Could Romania join Poland and become a shale gas advocate? Could other countries in the region (Bulgaria, Hungary) follow Romania’s lead if it starts explorations and changes its views on shale gas?

Eugenia Gusilov: Yes, it could and I do not rule out Poland and Romania acting together on this front, but that will depend largely on the outcome of exploration activities in Romania (positive results will provide more incentive for this course of action); on how the competent Romanian authorities will handle the regulatory enforcement and the environmental compliance oversight of the first unconventional projects; and on how the companies will respond to public concerns. For the moment, Romania is interested to start the geological research for unconventional resources and see the exploration results. Hungary is ahead of us in this respect. Exploration activities in Hungary started in 2005 (conducted by Falcon/TMX Oil & Gas, but without horizontal wells) while the first full unconventional exploratory well was drilled by ExxonMobil in 2008-9 at Mako Trough. However, the tests were not successful and did not lead to production there. In each country, geology has the first say in determining the future.

Bulgaria has parliamentary elections this summer, until then any major policy change on shale gas is highly unlikely. Bulgaria witnessed significant street protests in February spurred by high energy bills which brought down the government, so the price of energy is a sensitive topic. A new government could revisit the question.

Developments in Romania can play a role in the sense that they provide a regional term of reference, but we still have to see if it will be a positive or a negative one. To the extent that companies and authorities in Romania can provide a successful example of regulatory, managerial, social, technical and environmental stewardship for such type of projects, other countries could follow suit, but it will be their own decision.

Ioana Patran: Do you think any significant shale gas find in Romania during exploration would change the view of its neighbors on shale gas?

Eugenia Gusilov: Successful exploration in Romania will put even more pressure on the need to have an open public debate about national regulations, amendments, enforcement of key institutions, monitoring strict compliance with environmental standards, conducting baseline water testing, use of best technologies, etc. By any measure, such a discussion is not a simple one because it involves various specialized scientific knowledge, technical and regulatory expertise and competencies from so many different fields (geology, legal, fiscal, engineering, water treatment and safe disposal, etc). By allowing exploration, Romanian authorities are saying de facto that they will cross that bridge (rigorous review of current framework and public dialogue of opposing arguments) when they get there. Thus, if exploration results in commercially viable shale gas resources, then they will see what other amendments may be required. Of course, we have to start thinking about that now and not defer the analysis for later.

A significant Romanian shale gas find alone will not change other countries minds on their domestic shale gas policy. How Romania will handle it at a regulatory and environmental compliance level could. Aside from that, the economic argument of the American success story is compelling and has already started winning supporters in governments across Europe and in Brussels.

Ioana Patran: Could Bulgaria change its stance in a few years in case of an important gas discovery in Romania?

Eugenia Gusilov: Bulgaria will make up its own mind and the new Bulgarian government will decide what is in the best interests of Bulgarians. Bulgaria has a strong nuclear lobby, just like France. Also, let’s not forget that some of the concerns voiced by shale gas opponents do not lack legitimacy, nor in Bulgaria, nor in Romania. These are the last two countries that joined the EU and are known to have serious corruption problems, weak institutions and deficient law enforcement. It does not help having the best laws and regulations, if respect for the law is low. These are problems that affect the whole economy, and indirectly the nascent shale gas industry. If Romania is able to offer a positive example in the region by establishing a strong and independent regulator which will act decisively on environmental issues, such as wastewater management, and monitor activities on each site, Bulgaria could change its stance too. Companies have to be willing to do more than is requested by national legislation in this part of Europe in order to win public confidence.