The Intelligent Energy Association answered to questions asked by ICIS London on the NTS Development Plan recently approved by ANRE.

1. The budget for Transgaz investments in 2019 was set at RON 2.44bn (see the revenue and expenditure budget for 2019 – version 16-05.2019 page 16/24). In mid-2019 only approximately RON 372.67mln had been spent (see the Directors’ Report for H1/2018 page 9/269). Do you think this budget was sufficient for investments?

No. First of all we should mention that the amount of RON 2.44bn included by TRANSGAZ in the revenue and expenditure budget for 2019 had to be reflected more clearly by TRANSGAZ, in a detailed annex, so that the value be the result of clearly mentioned investments (e.g. pipelines, compressor stations, gas metering stations, SCADA, cathodic protection etc.). This is a way to transparently present to gas consumers (these are the ones who will actually bear all these costs and the ones before which TRANSGAZ must justify first of all) the areas in which it plans to invest and also there is a possibility to publicly check how the Development Plan is fulfilled. According to the NTS Development Plan for the period 2018-2027 approved by ANRE on December 7, 2018, the estimated value of „strategic” investments expenses for 2019 was EUR 734.72mln, the equivalent of RON 3.47bn (see page 68/90), to which ALL the expenses necessary to implement the projects necessary to upgrade the current national gas transmission system presented in Annex no. 10 (pages 73-77/90) must be added. The minimum amount necessary for the investment budget for upgrading the NTS and aligning it from an operational point of view to the standards of the neighboring countries (Bulgaria, Serbia, Hungary, Ukraine, Moldova) is at least equal to the value presented in the National Development Plan for 2019-2028 recently approved by ANRE, on December 11, 2019, i.e. EUR 4bn (see page 100/126). This value reflects however the quality standards similar to design and execution works used by TRANSGAZ in BRUA Phase 1 project, which are by approximately 30% below the level of quality standards used in projects such as Interconnection 32” x 182 km Greece-Bulgaria or 48” x 475 km Balkan Stream BULGARIA section or Interconnection 32” x 108 km Hungary-Slovakia.

2. If not, how much do you think it should be allocated annually to upgrade the transmission system?

The clear image, close to reality, of the budget necessary for „NTS Modernization” cannot be estimated without clearly knowing/recognizing the condition of transmission pipelines.  Lack of possibility to inspect approximately 70% of the total length of the pipelines, inspection conducted with PIG devices, and carried out after preparing and cleaning the pipelines, makes it IMPOSSIBLE to actually determine the maximum allowable operating pressure of pipelines and the implicit pressure of subsystems and in the end of the entire transmission system. An attempt to recognize this state was presented by operator TRANSGAZ in the Activity Report of Transgaz’s Manager of May 9, 2019 Annex 9 (see pages 41-47/55 „Development/Rehabilitation of the Priority System 2019-2021”) It can be noticed that the average operating pressure of 40 bar of the „priority system” has a lower value than any operating pressures in all the neighboring countries, including Serbia or Moldova. NTS modernization cannot be achieved without a detailed inventory of all items making up the current system, named the National Gas Transmission System, and their technical, legal and commercial unbundling. After making this inventory, which can clearly establish the physical wear or even the real value of assets, the analysis of the budget necessary for a NEW gas transmission system can be made. To answer the question, I believe that in order to bring the Romanian transmission system to the level of European transmission requirements an amount of over EUR 4bn is necessary. Annual distribution of this amount depends on the possibility to access funding; the fact is that any delay determines an increase in Romania’s energy vulnerability (in terms of quantity and price evolution).

3. What should be the priorities for upgrading the transmission system – meaning how should this money be invested?
4. The number one priority is administrative in nature and can take maximum one year: the clear and detailed inventory of assets within the national gas transmission system (assets given in concession by NAMR to TRANSGAZ) and of TRANSGAZ assets commissioned after the conclusion of the concession agreement and recognizing the physical condition and the risk factor in operation (buildings in the protection area, watercourse crossings with operation risk, routes with frequent landslides etc.).
5. The second priority is to actually determine the maximum allowable operating pressure of all pipelines and correlating them with the requirements of producers, to establish the usefulness of pipelines.
6. Completion of BRUA Phase 1 and of compressor stations Siliștea and Onești.
7. Redefining the NTS from a technical, legal, commercial and organizational point of view, as follows:

D.1. Technical – Reconsidering the NTS on three operating regimes

1. Operating pressure 50-63 bars;
2. Operating pressure 35-60 bars;
3. Operating pressure <35 bars.

Note: The provisions of European technical and commercial rules for gas transmission can only be applied to systems with operating pressures higher than the value of 35 bars.

D.2. Legal – reconsidering the system of concession and royalties:

1. National Transmission System – all pipeline systems operating at an operating pressure of more than 35 bars
2. Local Transmission Systems – all pipeline systems operating at an operating pressure of less than 35 bars, all transmission systems that are closed systems of source-consumer type

D.3. Commercial – reconsidering the tariff systems and the commercial rules:

1. National Transmission System – applying the European commercial rules
2. Local Transmission Systems – applying a set of rules specific to the system and not applying the European rules

D.4. Organizational – reconsidering the gas transmission company:

1. Establishing a LTSGAZ company, independent, with capital fully owned by SNTGN TRANSGAZ SA and which would take over in concession all the local gas transmission systems to operate them and for which to have a specific tariff system.
2. SNTGN TRANSGAZ SA to remain with the exclusive concession of the National Transmission System, with interconnected pipelines, with specific gas transmission systems and where the European commercial rules would apply, which can be really integrated into the European Gas Transmission System and get Romania out of the technical semi-isolation of today.

4. Reconsidering the NTS and LTS Development Plan for a 10-year period and prioritizing works depending on future gas flows, where the priority should be:

– Preparing the pipelines for cleaning and inspection with smart PIG.

– Development and modernization must be broken down by the three pressure levels mentioned above and can include both new objectives and the upgrade of the existing ones. However, the modernization of the existing ones can only start by the careful analysis and recognition of the efficiency of „rehabilitation” works carried out by the operator in the period 2005-2019, works worth EUR 250mln which unfortunately failed to increase the gas quantities transported, leading only to a higher safety in operation, in parallel with the reduction of maximum operating pressures.

5. Do you think BRUA is a priority for Romania? If yes, why? If not, why not?

Yes. Because the investment was started and must be completed. As far as I know the feasibility of the project hasn’t been made public and I assume that the investment was justified both technically and economically, when the final investment decision was made.

6. If the national transmission system is not modernized, what are the risks for the Romanian gas market in the long run?

The annual increase in operating costs (e.g. operating budget used in 2007 of EUR 174mln vs. 2018 EUR 233mln), in parallel with the reduction of the transmission capacity (e.g. 2007 volume of 15.5bcm/year vs. 2018 13bcm/year), in the safety in operation, in the volumes transported and increasing Romania’s energy vulnerability.

Last but not least, the lack of modernization of the system will lead to higher tariffs and thus to higher gas prices for end-consumers.

7. How does the Romanian transmission system compare to those in the neighboring states of Europe?

From a technical point of view the current national gas transmission system is unique in Europe. In fact it is a system of „depletion” of the current deposits. Between the domestic gas sources, mainly the production blocks of Romgaz or OMV Petrom, and the consumption areas, given the current pressure regimes, no compressor stations are currently needed (or they are necessary only rarely, in special circumstances). This fact, together with the low operating pressures (leading to a low efficiency of the transmission services, high gas flow rates), makes the current NTS be a unique system in Europe. In comparison, the entire system in Hungary is operated at pressures of 40-70 bars, the underground storage facilities being able to inject into the system at pressures of 50-63 bars, similarly to import sources.

8. It seems that Transgaz will no longer transit Russian gas as of this year. In this case, how much will Transgaz lose annually due to the lack of gas transit?

According to financial data published by TRANSGAZ in 2018 and 2019, approximately 20% of revenues (around EUR 70mln) came from the transit activity. Given the cessation of the gas transit to Bulgaria-Greece-Macedonia-Turkey as of January 1, 2020, for 2020 it is possible to witness a reduction of revenues proportional to the physical volume, except for the capacity booking tariff via 48” Transit III.

Probably TRANSGAZ revenues in the following years will decrease by around 10-15%, due to elimination of the gas transit activity as it was organized in the last 46 years.

9. How will this loss of transit revenues affect investments in the Romanian transmission system?

To offset this decrease in revenues, TRANSGAZ will increase transmission tariffs for consumers in Romania; according to data published on the website of TRANSGAZ the capacity booking tariffs will double in the following 3 years. It should be noted that the impact of this price increase can be reduced by NTS re-engineering and reconsidering the development and modernization program and bringing it in the area of reality and optimizing the operating expenses.

10. To what extent the lack of a transit corridor in Romania could lead to its regional isolation?

Romania reduces its role as gas transit country. The isolation of the country was eliminated by achieving interconnections with Bulgaria via Negru Voda and Ruse-Giurgiu, with Hungary via Csanadpalota, with Ukraine via Medieșu Aurit and Isaccea, with Moldova via Iasi-Ungheni.

11. What financial sources could Transgaz access to ensure the modernization of the system?

Even private investment funds in the case of systematization of the current NTS, reconsidering the modernization/development plan and the period of return on investment/amortization.

12. What vision should Transgaz adopt for the Romanian gas market and for its regional role?

The vision must be included in the National Energy Strategy and in the Sectoral Policies. It must be submitted to TRANSGAZ for implementation; new indicators of management performance and efficiency of the transmission services must be defined. At national level, reconsidering the NTS leads to a higher management and operational efficiency. At regional level, TRANSGAZ’s role will decrease after the commissioning of the Balkan Stream corridor, unless new gas sources become available in South-Eastern Europe.

13. To what extent do you think Transgaz would require a new management to apply a long-term vision for the Romanian gas market?

After the answers to the other questions, the tendency would be to say that a new management would be necessary IMMEDIATELY. The deficient communication and organization (see the Organizational chart 2013 vs. 2019) are elements that can be attributed to Management, but the biggest problem is found at the level of Shareholders (public and private), which, fooled by the good dividends in the recent years and lacking vision, have not ordered appropriate guidelines and validated randomly Development Plans with a political flavor.

Translation from Romanian by Romaniascout.