Loading page...

Romanian Business News - ACTMedia :: Services|About us|Contact|RSS RSS

Subscribe|Login

Romania-Hungary gas link failure augurs ill for new Black Sea projects

200423112159BRUA_foto.jpg

* No appetite for expanded cross-border gas capacity

* BRUA-2 failure 'undermines' Romania confidence: BSOG CEO

* ExxonMobil moving ahead with Neptun preparation: source

The failure this week of the process to attract interest in expanded gas export capacity from Romania to Hungary was a bad sign for new developments in the Black Sea, industry officials and sources said for www.spglobal.com.

The final round of the open season procedure for the ROHU gas link -- which would have expanded cross-border capacity to 4.4 Bcm/year from the planned 1.75 Bcm/year -- was declared unsuccessful and the procedure terminated.

The failure of the ROHU process -- the second phase of the Bulgaria-Romania-Hungary-Austria (BRUA) pipeline project -- was seemingly triggered by a classic 'Catch 22' situation.

No shippers would want to commit to using the capacity without guarantees of new Romanian gas production from the Black Sea, while upstream developers are not likely to move forward with projects without a guarantee of future export capacity.

The biggest project under development in the Black Sea is the ExxonMobil-operated Neptun discovery, which remains on hold due to regulatory changes in Romania and now the industry downturn which has seen corporate spending slashed.

A final investment decision on Neptun -- which could hold up to 84 Bcm of gas -- has been repeatedly delayed.

"By definition, there is no need for that [export] capacity without Neptun, but Neptun does not work without that pipeline," an industry source said.

ExxonMobil -- which has put its 50% operating stake in Neptun up for sale -- told S&P Global Platts it had "nothing further to share on Romania right now".

Its 50% partner in the project, Austrian-owned OMV Petrom, also declined to comment.

Industry setback

Other upstream players in Romania see the failure of the ROHU/BRUA phase 2 capacity process as a setback for the industry.

Mark Beacom, CEO of Black Sea Oil & Gas (BSOG), said his Midia project offshore Romania would not be impacted, but it did not bode well for new projects.

"The inability to have a successful process for BRUA-2 does not directly impact our Midia project as we are connected to the T1 transit line which allows for capacity access for our gas to both domestic and export markets," Beacom told Platts.

But, he said, "the lack of a free and transparent market as a result of poor connectivity to outside markets undermines the investor confidence in developing any gas in Romania."

"New developments in the Black Sea will need BRUA-2 just as BRUA-2 needs new Black Sea developments. They are intrinsically linked," Beacom said.

Private equity-backed BSOG and Romanian gas grid operator Transgaz last September signed the order to begin development work to bring gas from the $400 million Midia project into the national grid.

Gas from Midia -- estimated to hold some 10 Bcm of gas -- was expected to flow in Q1 2021.

Romania's total gas output last year totaled 108 TWh (10.2 Bcm), according to data from Romanian energy regulator ANRE, with only negligible gas exports and imports from Russia to help meet demand.

Way back?

Despite the setback, an industry source said the ROHU capacity process could be relaunched in the future once there was more clarity around Neptun.

"My assumption is that the open season will be revised at some point next year, and OMV Petrom will bid for the capacity. Hungary is very keen to get that gas flowing its way," the source said.

Despite no current movement on the Neptun FID, another industry source said preparations for the project were continuing.

"ExxonMobil is proceeding with preparations for the design notification to the relevant authority," the source said.

While not a big engagement for the US major as its commitment to Neptun is not yet binding, it showed that the project was "still on", the source said.

In the meantime, the sales process for ExxonMobil's stake will likely continue.

The company confirmed in November it was providing information to third parties that may have an interest in its share.

Romania's state-controlled gas producer Romgaz has said it wanted to take a stake of 15%-20% in Neptun, while other companies reportedly interested include Russia's Lukoil and Poland's PGNiG.

"I suspect that the deal will be revived later in the year when we have better visibility on macro and price trends," a source said.

More