While other European economies are turning their natural resources into competitive edges, Romania decided to triple the price of domestic natural gas sold to major consumers in two years.
Chemical fertilizer Azomures, for instance, whose gas consumption accounts for 7% of the total consumption of the country, will have to pay $100 million more at the end of next year due to deregulation.
On the other hand, some are blaming the consumers for not having invested enough to improve their efficiency, and there is also hope that once the gas market has been liberalized, it will become as competitive as the electricity market, which has an operational energy exchange, OPCOM.
Some issues here, though: while there is a high number of producers from various sources and overcapacity on the electricity market, the gas market only has two producers, OMV Petrom (SNP.RO) and Romgaz (SNG.RO), which have similar costs, and a deficit covered by Russian imports only, now that the Nabucco gas duct project is no longer an option.
“Gas is our raw material. While fertilizer prices are going down, the gas price is going up. We are working at a cent level, we are paying attention to every cost category,” says Mirela Taban, head of Azomures’ import department.
Azomures uses some 80 million cubic meters of gas every month, she said, or one billion cubic meters a year. That means Azomures “eats up” 7% of gas used in Romania in one year.
“I don’t think we’ll see the deregulation schedule pushed back until 2015. Liberalization during a crisis is a very difficult thing to do, as difficult as continuing to invest is. We have a EUR200 million investment program for the next two years but it is hard to see it through when your profit is dwindling day by day,” Taban added.
Azomures posted growth of 12.5% of revenue to 1.82 billion lei (EUR410 million) revenue last year and its net profit dropped 33% to RON244 million.
The price of the domestic natural gas will rally to international quotes by the end of 2014 so the industry will no longer get any natural gas at the price set by the energy industry authority, ANRE.
Whereas one MWh of Romanian gas cost RON47.9 ($154 per 1,000 cubic meters) in the first half if this year, it went up 32% to RON63.4 ($204 per 1,000 cubic meters) in the second quarter.
Meanwhile, imported gas price fell slightly from RON130 to RON129 per MWh ($414 per 1,000 cubic meters). Domestic gas will cost RON119 per MWh ($382 per 1,000 cubic meters) at the end of 2014, according to the deregulation schedule Romania vowed to observe before international financial institutions.
“We are now paying about $220 for domestic gas and $380 for imported gas. The basket is 23.5%,” the Azomures representative said, meaning that imported gas accounts for 23.5% for the plant’s consumption.
Azomures therefore should pay $247 million for the natural gas is uses in one year at the moment, judging from the prices and amounts specified by the company.
Assuming the imported gas price remains unchanged and taking into account a price of $380 per 1,000 cubic meters of domestic gas as expected at the end of the deregulation schedule in 2014, Azomures will have to spend $364 million, over $100 million more for the natural gas it needs.
Azomures is not the only consumer to complain. ArcelorMittal Galati, the second largest power consumer in Romania, says gas price liberalization is causing problems, as well.
“Prices triple every two years in our country. Where else in the world have you seen such a thing? We’ll disappear and then who will be left to use natural gas?” says Corneliu Captalan, advisor to the chief executive officer of ArcelorMittal Galati.
“Why shouldn’t we profit from our reserves? Is this what Romania wants? [To] Export gas?
He says that the major power consumers in France have it supplied to them at a price close to the costs of the nuclear power plants.
“Why can’t we have the same thing?” Captalan wonders.
On the other hand, some blame major companies for not having made investments in preparation for this moment.
“Why did you not start upgrading in 2007 when you found out about the liberalization? I haven’t seen any chemical plants receive upgrades and there will be no more incentives for the industry,” said Rodin Traicu, former state secretary with the Economy Ministry.
People in this industry, too, believe that freezing the natural gas price indefinitely is not a solution, if considering the current reserves are enough to last 15 years.
“Gas reserves will be depleted and then what? Will you switch from $200 to $500 overnight?” said Dumitru Chisalita, gas industry expert.
The Department for Energy has recently announced it might consider pushing back the deadline set for industrial consumers, December 31, 2014, for up to twelve months after conducting analyses, but “no decision or agreement over a potential extension has been made.”
The same answer came from the national energy market regulator, ANRE.
“We are not in any talks concerning 2015,” said ANRE chairman Nicolae Havrilet.
(English version by Loredana Fratila-Cristescu)