EBRD keeps supporting BRUA gas pipeline at a critical moment

EBRD keeps supporting BRUA gas pipeline at a critical moment
By Iulian Ernst in Bucharest March 5, 2018

The European Bank for Reconstruction and Development (EBRD) has extended a RON278mn (€60mn) loan to Romania’s natural gas transport company Transgaz for completing works on the Romanian section of the Bulgaria-Romania-Hungary-Austria (BRUA) pipeline. 

The deal, announced on February 23, came at a time when BRUA has increasingly been called into question. Budapest is no longer keen to extend the pipeline from Hungarian territory into Austria, while negotiations between suppliers and the governments involved appear to be deadlocked. 

The planned gas pipeline from Bulgaria to Austria is one of the two routes of the European Union's Southern Gas Corridor (SGC) that will transport a minimum of 10bn cubic metres (cm) of gas a year from the Caspian region, crossing Georgia and Turkey and ultimately reaching EU markets through two possible routes: BRUA and the Trans-Adriatic Pipeline across the Balkans and the Adriatic Sea to Italy, construction of which is already well underway.  

The 1,318km long BRUA pipeline is designed to have a throughput of 23bnm/year. The project is operated through inter-governmental agreements followed by the national power grid operators.

However, last July the Hungarian grid operator abandoned plans to develop its interconnector with Austria, which is part of BRUA. Although the four participant states renewed their commitment to go ahead with the original plans two months later, the Austrian partner in the project (Gaz Connect Austria) told Ziarul Financiar in February 2018 that its Hungarian peer has no intention of building the interconnector with Austria. Reportedly no progress has been made since the middle of last year. Instead, Hungary's FGSZ prefers diverting the gas to Slovakia and Ukraine through existing pipelines. 

Further confusion was prompted by Hungary's Prime Minister Viktor Orban announcing that some Hungarian firms have already contracted the capacity of the Romanian-Hungary interconnector for the next 15 years. Romanian daily Ziarual Financial later quoted officials from the Romanian and Austrian gas transport companies as saying that two (most likely Hungarian) companies had contracted nearly all the capacity of the Romania-Hungary interconnector in the Romania-Hungary direction.

Meanwhile, OMV Petrom CEO Mariana Gheorghe said on February 21 that the company has lost the auction for the allocation of the 4bn cm per year transfer capacity through the Arad-Szeged interconnector between Romania and Hungary, hotnews.ro reported. Instead, OMV and ExxonMobil are reportedly seeking buyers in Turkey and Ukraine, as well as Bulgaria and Moldova, for the offshore gas they will start producing at the offshore Neptun block in 2020-2021. When commercial production starts at the field, Romania will have the potential to export 8bn cm of gas from its own offshore resources. 

“BRUA is no longer BRUA,” Gheorghe also commented, an apparent reference to Hungary’s unwillingness to secure the pipeline’s continuation to Austria.

BRUA is eventually aimed at providing resources from Romania’s offshore to its neighbours at a fair price — but the negotiations between OMV-ExxonMobil as the main offshore operator, the Romanian government and neighbouring countries seem to be at a deadlock at this moment.

The EBRD’s endorsement of the project therefore comes at a critical time, The bank is a firm supporter of the Southern Gas Corridor, having also extended financing for TAP alongside other European development institutions. 

Its €60mn loan for the Romanian section of BRUA was accompanied by broader support given (in partnership with European Investment Bank) to Transgaz with a view to regional development: the EBRD recently teamed up with the Romanian company in bidding for Greece’s DESFA gas transport company (which holds a stake in the Bulgarian company developing the Gas Interconnector Greece-Bulgaria ICGB). In addition, the bank, also in partnership with the EIB, will finance Transgaz’s investments in Moldova

If successful in taking over DESFA, Transgaz would control the import of gas from TAP to Central Europe. The 1.5bn cm of gas potentially imported from TAP to Romania through Bulgaria (this is the maximum capacity of the Romania-Bulgaria reversible interconnector) would, however, be dwarfed by the amount Romania could send through BRUA. 

The EBRD throwing its weight behind the BRUA project has to some substituted for the support expected from the European Union that sometimes is not firmly expressed, or is hindered by more complex negotiations regarding the single energy market and sharing the benefits from the Black Sea offshore gas.

The European Union has taken a neutral stance vis-a-vis the ongoing negotiations. Asked about the stalemate in the BRUA project and Hungary’s obstructions on February 27, EU Commissioner for Energy Miguel Arias Canete commented in very general terms, saying that the EU supports “any project enhancing the inter-connectivity”. But “the interconnectors have always been a nightmare, because there are so many interests involved,” he added. 

The EC indeed extended a €179mn loan to Transgaz for BRUA, which gave a key impetus to the project. But the grant was negotiated as part of a broader deal involving Romania’s commitment to allow its offshore gas flow to neighbouring countries. And the deal seems to still be under negotiations, judging from Romania’s planned amendments to the gas market design.

Further vocal support from the EU for the pipeline to reach Austria’s gas hub at Baumgarten would be in line with the broad deal and serve both sides: it would help Romania sell its gas on the open market in Austria and contribute to the single energy market. However, the negotiations are complicated by the natural gas companies (specifically OMV) which would prefer to sell their Romanian offshore for export under long-term contracts negotiated bilaterally — an option in principle against the flexibility implied by the single market policies.