CASPIAN GAS TO RAISE COMPETITIVE ABILITY AND SECURITY OF GAS SUPPLIES TO EUROPE, GENERAL DIRECTOR OF ROMANIA'S TRANSGAZ S.A

 

Caspian Energy (CE): How is the situation with elaboration of the financial model of the project, involvement of investors, marketing coordination and the negotiation process aimed at concluding transport agreements with potential companies-exporters proceeding?

Florin Muntean, General Director, TRANSGAZ S.A.: The financial model of the Nabucco project has been elaborated by the financial consultant ABN Amro and is being updated constantly.

Currently, five investors forming the Nabucco consortium are backing this project and they are in an ongoing process to select additional shareholders to enhance the credit rating of the consortium in order to have access to financing under better conditions.

At the early phases of the project the contacts with gas producers from the Caspian region, Middle East, North Africa and even from Russia have already been concluded. These contacts are maintained during the development phase of the project.

Regarding the negotiation process for transport agreements Nabucco Company has received Letter of Intent and already signed List of Terms for the Transport Agreements and Confidentiality Agreements with some potential shippers. In the first half of this year an "open season" procedure will take place regarding booking of capacities by the potential shippers.

 

CE: What perspectives does Caspian gas have in the European market? Will it be able to become an alternative to Russian supplies?

Florin Muntean: Growth of the gas demand of EU 30 is expected to continue through the next 25 years. Gas consumption will grow from 550 billion m3 in 2004, to 655 billion m3 by 2010, 815 billion m3 by 2020 and 1036 billion m3 by 2030 representing a growth rate of an average 2.1%-2.5% per annum until 2030. As indigenous production trends to decline, growing demand will mainly be supplied from import.

As to Romania, by 2010 gas production in the country will decline by 7 billion m3 and reach slightly over 8 billion m3.

At the moment Romania consumes approximately 17.5 billion m3 of gas where nearly 12 billion m3 accounts for domestic production, whereas the remaining volumes are imported from Russia and Ukraine. Following the forecasts of the Romania's government, by 2015 the country's economy will consume about 15 billion m3 of imported gas due to declining gas production in the country and enhanced gas demand in the industrial sector.

One of the main sources identified in order to meet the growing demand is the Caspian region. Currently, the main problem is that there is no infrastructure in place to make use of these gas sources.

Therefore, Nabucco is a viable solution for solving this problem because this pipeline will connect the vast gas reserves of the Caspian region and Middle East to the European gas markets.

Currently, Russia is the main gas supplier in Europe but Caspian gas transported trough the Nabucco pipeline could reduce the dependence on a single import source and therefore will increase competition and security of gas supply in Europe. Natural gas transported trough Nabucco pipeline should not only be regarded as an alternative to Russian gas but also as necessary additional volumes taking into consideration that in the future Russia will not be able to cover 100% of the increased gas demand in Europe.

 

CE: Does the Nabucco Consortium carry on talks with Egypt about its joining the Nabucco project? How expectative is Iran's participation in the given project?   

Florin Muntean: According to our information, up to now no direct discussion took place with potential partners from Egypt in order to join the Nabucco project. However, there were some bilateral discussion between members of Nabucco consortium and Egypt regarding Egyptian gas export trough Arab Gas Pipeline up to Turkey and from there to the European markets via Nabucco pipeline.

Iran could be involved in Nabucco project, but most probably as gas supplier/shipper.

 

CE: Do  the plans of Gazprom about construction of the South European Gas Pipeline jeopardize the implementation of this project? How well-grounded are some expert opinions about the probable Gazprom's joining the Nabucco project?

Florin Muntean: Theoretically, the South European Gas Pipeline could represent a competition due to the fact that in principle this pipeline will have more or less the same potential gas sources and will target the same gas markets.  Nabucco pipeline has actually two competitive advantages compared to the South European Gas Pipeline:

a) Nabucco project has the full support of the European Union being included as a priority project in the energy sector in the "Priority Interconnection Plan".

b) Compared to South European Gas Pipeline, the Nabucco pipeline has the advantage to cross important gas markets along the corridor to Western Europe.

 

But even in this case, we do not exclude the possibility to have both pipelines at the same time or even the possibility that the two pipelines could merge in the future.

Currently, neither Nabucco consortium, nor Gazprom have declared official intentions to start discussions regarding Gazprom's association in the Nabucco project.

 

CE: Why does Romania, which meets 60% of domestic energy needs at the expense of its own hydrocarbons, have the most expensive gas in Europe? Why did gas supplies from Russia to Romania decrease? What is the level of gas production in the country? How much gas does the Romanian market need? Which companies are the major gas suppliers to the Romanian market? 

Florin Muntean: Regarding the fact that Romania has the most expensive gas in Europe, probably you make reference to gas import prices and to SEE. One possible reason for this is the fact that gas import from Russia is implemented by some trading companies, i.e. not directly by licensed gas supplying companies from Romania.

As I have already said, gas consumption in Romania makes approximately 17-18 billion m3 a year. Romania possesses own natural gas resources. The country's proved gas recourses amount to approximately 305 billion m3. Romania enjoys minor but available advantages over its neighbours as 60% of natural gas consumption is provided due to domestic production.

The main Romanian gas production companies are ROMGAZ and PETROM. Our Company operates the National Transport Natural Gas System (NTNGS). NTNGS includes 11,000 km of trunk pipelines and is linked to the Ukraine's transport system, which provides required capacities for import and transit of gas to Bulgaria, Macedonia, Turkey, and Greece.

 

CE: As is known, Gazexport Ltd signed the agreements with the three Romanian gas companies - Romgaz, Transgaz и Conef. Is Romania interested in providing Gazprom with the long-term access to Romanian gas transport facilities to be used by the Russian company for enhancement of gas supplies to Turkey and the start of export to Israel?

Florin Muntean: Transgaz has long term transit contracts in order to provide gas transit from Russia to Turkey, Greece, Macedonia and Bulgaria. These contracts are "ship or pay"; the entire capacity is booked by the Russian and Bulgarian partners, respectively. What happens with Russian gas in Turkey, if some volumes are directed to Israel, is beyond Transgaz's control.

 

CE: How are the works going regarding establishment of a JV for construction of a gas pipeline from Romania to Austria proceeding?

Florin Muntean: Transgaz is not involved in the construction of a gas transmission pipeline between Romania and Austria. However, there is an interconnection project of the gas networks from Romania and Hungary. This project will allow to either transport gas from Hungary to Romania (in this regard we can view the option to transport gas that arrives in Baumgarten-Austria from various sources to the Hungarian gas transmission system via HAG pipeline and from there, using the above mentioned interconnection, to Romania), or we may speak about the reversed flow (gas from various sources in Romania could be transported towards Hungary and from there to Baumgarten gas hub).  This project aims to diversify Romania's gas supply sources.