FPPG: Natural gas production in Romania, in danger

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The obligation to supply natural gas on the centralized markets in Romania according to the ANRE Order 79/2020 with subsequent amendments and completions generates a series of negative effects on the natural gas market, FPPG officials claim.

Thus, provisions such as imposing the obligation of producers to make offers at a price level below production costs and of a starting price for 2020 at a level that is well below the current market price in Romania lead to a significant decrease in contributions to the state budget, limiting the possibility of increasing the liquidity of the natural gas market and significantly reducing investments in the natural gas sector.

”FPPG has supported since 2019 the need to replace the obligation to conclude transactions on centralized markets, imposed by the Law on electricity and natural gas no. 123/2012, with subsequent amendments and completions and by Law no. 256/2018 on some measures necessary for the implementation of oil operations by the holders of oil agreements regarding offshore oil perimeters, with an obligation to supply natural gas, in order to trade on centralized markets.

The reasons why we argued for the need for these changes were determined by the negative effects on the natural gas market generated by the trading obligation, as this obligation was imposed at the level of the primary legislation mentioned above. We specify that the trading obligation that is still in force did not reach its objectives for which it was implemented, especially regarding the increase of liquidity and the generation of reference prices for the Romanian gas market,” say FPPG officials .

“Moreover, this obligation generated dysfunctions on the natural gas market, both due to the unbalanced way in which it was implemented, the sale obligation being higher than the purchase obligation, as a percentage and as a basis for applying these percentages, and due to the incorrect way in which this obligation is determined, the quantities traded on the centralized markets unjustifiably generating a new trading obligation if the time of trading is different from the year of delivery.”

ANRE launched at the beginning of March 2020 in public debate the draft order on the obligation to supply natural gas, a project which was subsequently approved by ANRE President’s Order no. 79 of 13 May 2020.

“In view of the significant repercussions that such an obligation would have on the natural gas market, the FPPG argued from the start that the provisions of the order should encourage the free formation of prices and the avoidance of any actions which impede the formation of prices depending on demand and supply or reporting to a price reference unrelated to the Romanian market (such as the external reference to the ECHR). At the same time, taking into account ANRE’s decision to impose and set a starting price, during this period discussions were held with market participants in order to identify the best solutions for the main elements that define this bidding obligation, elements that are interdependent and which, insofar as they were adopted as discussed and agreed with market participants, would have ensured, in our opinion, the premises for the implementation of a program whose positive effects on the natural gas market would have been felt since July 2020, the first month of delivery. Among the main elements of this bidding program we list: the annual level of the obligation, the period of applicability, the level of the starting price, the types of standardized products or the applicable trading mechanism,” it is also shown in the release of the Federation.

In view of ANRE’s decision to set and impose a starting price used for launching trading offers, a price which may coincide with the closing price of the auctions, the participants in the public consultation considered it appropriate to set it differently for the first period, of June – December 2020, when it should have reflected both an external reference (Vienna Gas Exchange – CEGH) and an internal reference (weighted average price of centralized transactions in Romania – PMP RO) and, respectively, for the next period January 2021 – December 2022, when the starting price should reflect the market conditions in Romania PMP RO.

According to the discussions, PMP RO should have been formed both in the first and in the second period based on the transactions concluded on the centralized markets in Romania, in the last 6 months prior to the bidding, thus ensuring a satisfactory level of reflection in the starting price of the conditions on the relevant market, respectively the Romanian market.

However, according to the approved order, for the first period June – December 2020 PMP RO is formed on the basis of transactions after 1 June 2020, which automatically leads, for the first offers of each product, to the formation of the starting price exclusively by reference to the external reference CEGH, price that does not reflect in any form the market conditions in Romania.

“We support the continuation of the dialogue between the relevant authorities and industry on this issue, and the FPPG remains open to participate constructively in such a dialogue.”

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