Southeast Europe to get more competitive gas market

By bne IntelliNews May 14, 2015

Clare Nuttall in Bucharest -


Even before the conflict between Russia and Ukraine raised fears about energy security in Southeast Europe, the 2012 Domino gas discovery in the Romanian sector of the Black Sea caused a scramble to explore the region’s gas resources. Now Romania is poised to become a gas exporter, while Bulgaria and Turkey are looking to develop their own offshore areas, which if successful could lead to a sharp increase in competition.

Bulgaria, which is almost totally dependent on imports of Russian gas, launched a new licensing round for two blocks – Teres 1-22 and Silistar 1-14 – on April 20. A statement from the energy ministry said the launch of the tenders was “an important expression of the government’s commitment to reduce dependence on imports and develop their own sources of energy.” Bulgarian officials attended an energy conference in Houston in early May to promote the fields, reporting interest from firms including Anadarko, Noble Energy and Texas, Hunt Oil Co, according to statements published on the ruling Citizens for European Development of Bulgaria (GERB) website.

Three days later, Bulgarian Deputy Energy Minister Jecho Stankov speculated that in addition to a reliable supply of gas for the Bulgarian market, using domestic gas should be around 35% cheaper than the gas currently consumed in the country.

Sofia’s new drive to tap into its offshore resources started shortly after the February 2012 Domino discovery by ExxonMobil and OMV Petrom in the offshore Neptune block. In August the same year, the Bulgarian government signed an agreement with a Total-led consortium on a deepwater exploration license for the Khan Asparuh offshore area, where the first well is expected to be drilled in 2016.

Also in the western Black Sea, Turkey’s TPAO and Shell started drilling in Turkish waters in January. “At the moment, the Black Sea is a very exciting part of the world, where some of the biggest names in the industry are actively investing,” Chris Meredith, senior analyst for continental and Mediterranean Europe upstream research at energy consultancy Wood Mackenzie, tells bne IntelliNews.

To date, however, the 2.5 trillion cubic feet (cf) Domino field is the only recent major discovery, and will being the transformation of Romania from a net importer to a net exporter of gas when production starts towards the end of this decade. The country currently produces around 10bn cubic metres (cm) of gas a year – just short of the 12bn cm it consumes – importing the remainder from Russia. However, when the field reaches peak production of 6bn cm a year, even with production declining at some of Romania’s more mature fields, Wood Mackenzie forecasts that 4bn-5bn cm a year will available for export.

Helping the neighbours

Romania’s neighbours, most of whom are highly dependent on Russian gas, are already keen to secure supplies. Bucharest has pledged to supply Moldova with gas following the opening of the Iasi-Ungheni pipeline in 2014, but the Moldovan market is small. Bulgaria could potentially absorb around 1bn cm of Romanian gas a year, though this would depend on the flexibility of its existing contracts with Russia. Serbia too is already lining up for Romanian gas, with the prime ministers of the two countries holding talks on the issue in January.

However, according to Meredith, the “big prize” for Romania will be to export gas to the Hungarian market, where according to an April 2015 report from Wood Mackenzie uncontracted demand is forecast to increase over the next decade to around 300mn cf (8.5mn cm) per day. “Much of Eastern Europe relies on mature declining domestic production from Romania, Hungary and Croatia, as well as expensive gas imports from Russia,” the report says. “However, with the development of Domino, new infrastructure and imported Azerbaijani gas via Turkey, many Eastern European countries will have more choice about where they source their gas.”

The Domino discovery took place two years before the outbreak of the conflict in Ukraine. However following the start of the conflict, and Moscow’s decision to cancel the planned South Stream pipeline that would have transported Russian gas across the Black Sea to Southeast Europe, the impetus for finding alternative gas suppliers has grown sharply.

Romanian offshore gas will not immediately be in competition with gas from Azerbaijan that is due to reach Europe in 2019 via the Trans-Anatolian Natural Gas Pipeline (TANAP), as much of the gas from this pipeline will be carried westwards via Greece and Albania to Italy through the Trans Adriatic Pipeline (TAP).

Meredith forecasts this will change in the longer term. “In the short term, gas from Azerbaijan via TANAP and gas from the Romanian Black Sea will serve different markets,” he says. “However, in 10 to 15 years, we expect head-to-head competition between Russian gas, domestic gas from Romania and Bulgaria, and Azerbaijani gas. Southeast Europe could be in a similar situation to northern Europe where suppliers of British, Dutch and Norwegian gas are competing.”

For this to be possible construction of new interconnectors will be required, but some are already underway. A feasibility study on the extension of the Iasi-Ungheni to Chisinau, funded by the European Bank for Reconstruction and Development (EBRD) is due to be completed in July. Romania and Bulgaria are already working on an interconnector, and immediately after Russia’s decision to scrap South Stream the two countries together with Greece agreed to construct the Vertical Gas Corridor to link their grids. The existing pipeline between Romania and Hungary is not yet fully reversible, but there is time to address this before Domino comes online. “At present connectivity is an issue in the region, but several new interconnectors are planned,” says Meredith. “Any connection is a benefit as it contributes to a more liquid market.”

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