Romania Energy Report - Q2, 2014

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Romania Energy Report - Q2, 2014

The report covers the period since May 26 to July 30 –including time series up to full-Q1. At the end of the report, you can check the content of the previous similar report – issued on May 26.

LONG-TERM INDUSTRY SCENARIO. Romania’s energy sector is built on relatively abundant primary resources – moderate crude oil reserves, significant natural reserves [nearly self-sufficiency and offshore potential], abundant coal deposits and significant wind power potential. Resources are depleting, but the energy-intensive industries are also shrinking as the energy becomes more expensive. There exist a functioning power market and the potential for export of power is robust – yet not supported by sufficient transfer capacities. There exist on the other hand robust potential for the development of such connections [for power and gas] – supported and actually required by the EU directives. The government as well as other policy-makers lack any firm strategy for the sector. In the absence of such internal drive, country’s policies fully rely on the EU directives – meaning adequate but slow response to challenges and acceptance of rather global [than local] optimisation. Excessive green energy support created investment euphoria – but part if the support was already reversed prompting protests from investors.

ONGOING STORIES. The government and market regulator ANRE strives to make functional the natural gas market, including by compelling producers/suppliers to sell part of output on open market. Energy minister Nicolescu contacted EC officials to negotiate Romania’s access to TAP gas pipeline after Nabucco project collapsed last year. OMV Petrom and ExxonMobil evaluate size of the gas deposit found in Black Sea. The deposit is going to consolidate Romania’s self-sufficiency around 2020 and potentially generate exports. In the power market, the price coupling with Czech-Slovak-Hungarian DAM market is going to happen by the end of the year. The move is a step toward broader market integration that could help Romania unleash its potential in power generation. More investments in enlarging physical transfer capacities [by Transelectrica] are needed. Investments in renewable energy have stagnated after the recent amendments to the support schema. Romania already increasing substantially its green energy output also encouraged the government in cutting incentives to green energy investors – and rather help industrial consumers facing rising energy prices.

Key Points:
• Romania exceeds renewable energy target for 2013 on low consumption, strong hydropower generation.
• Market regulator cuts by 46% incentives for combined heat and power generation…
• … and approves state aid for electricity-intensive industrial consumers.
• Italy’s Enel starts sale of Romanian holdings [power distribution networks].
• KazMunaiGas to pay no more than USD 200mn to state for 26.7% residual stake in local refinery
• Romania’s Q1 gross primary energy use 3.9% up y/y in Q1 [3.9% up in Jan-May also], on more crude oil processed, while net [internal] use of energy drops by 5% y/y to 6.6mn toe.
• Car fuels sales increased robustly in Q1 on low base – by 14% y/y for petrol and by 31% y/y for diesel
• Gas imports down 9% y/y to 0.35bn m3 in Q1 – imports’ share in consumption up slightly to 11% from 8% in previous two quarters.
• Romania at no risk from Russian gas disruptions
• ExxonMobil, OMV Petrom start drilling well in Romania to assess offshore Black Sea gas deposit size.
• Romania’s net electricity exports up 11.3 times y/y to 2.8TWh in H1 2014.
• CZ-HU-SK-RO market coupling go-live in Q4/2014, with DAM coupling
• Investments in green energy capacities stagnate -- reach 20% of full-year projections in Jan-May 2014.
• Investments in conventional energy pick-up: Marubeni builds 250MW gas fired plant.


Table of Contents

Executive Summary 5
1. MACRO UPDATE 6
Romania adjusts Q1 GDP growth upwards by 0.1pps to 3.9% y/y on stronger external demand. 6
Romania's industrial output up 12.5% y/y in May 2014, posting 6.7% combined growth for Apr-May. 6
1.1 REGULATORY 7
Romania exceeds renewable energy target for 2013 on low consumption, strong hydropower generation. 7
Market regulator cuts by 46% incentives for combined heat and power generation… 7
… and approves state aid for electricity-intensive industrial consumers. 8
EC issues reasoned opinion asking Romania to open for gas exports. 8
1.2 STRUCTURAL REFORMS – PRIVATISATION 9
SOCAR still interested in Romanian petrochemical plant Oltchim. 9
KazMunaiGas to pay no more than USD 200mn for 26.7% residual stake in local refinery. 9
Government to speed up IPO of hydropower plant Hidroelectrica. 9
Electrica power distribution company completes 51% IPO at minimum requested price, EBRD buys 8.4% stake. 9
Italy’s Enel starts sale of Romanian holdings. 9
1.3 RAW ENERGY RESOURCES 9
Romania’s Q1 gross primary energy use 3.9% up y/y in Q1. 9
1.4 DOMESTIC USE OF RAW ENERGY 10
Romania’s use of primary energy down 9% y/y in 2013. 12
1.5 DOMESTIC ENERGY PRICES 14
2. OIL, PETROLEUM PRODUCTS 16
2.1 DOMESTIC FUEL PRICES 17
2.2 QUARTERLY UPDATED STATISTICS 17
2.3 REGIONAL OUTLOOK: CAR FUEL PRODUCTION/DEMAND; BY COUNTRY 19
2.4 CORPORATE ROUND-UP 24
OMV Petrom finds shallow water oil reservoir in Romania’s offshore… 24
… and completes EUR 600mn upgrade of sole refinery. 24
KazMunaiGas to pay no more than USD 200mn for 26.7% residual stake in local refinery. 25
Romanian refinery Petromidia hits record utilisation rate . 25
PETROCHEMISTRY: SOCAR still interested in Romanian petrochemical plant Oltchim. 25
3. NATURAL GAS 27
Romania at no risk from Russian gas disruptions, reiterates its support for Ukraine. 27
3.1 QUARTERLY UPDATED STATISTICS 28
A. DOMESTIC PRODUCTION VS. IMPORTS 28
3.2 CORPORATE ROUND-UP 30
Romanian gas price tends to settle below import and regulated charges. 30
Romanian fertilizers producer still presses for cheaper natural gas. 30
ExxonMobil, OMV Petrom start drilling well in Romania to assess offshore Black Sea gas deposit size. 31
Romania’s Property Fund sells 5% stake in Romgaz at 5.9% discount. 31
OMV Petrom, ExxonMobil and Transgaz sign agreement for Romanian Black Sea gas. 32
4. POWER 35
CZ-HU-SK-RO market coupling go-live in Q4/2014, with DAM coupling. 35
Romania’s net electricity exports up 11.3 times y/y to 2.8TWh in H1 2014. 35
Investments in green energy capacities reach 20% of full-year projections in Jan-May 2014. 36
4.1 QUARTERLY UPDATED STATISTICS 37
4.2 POWER MARKETS 40
4.3 USE OF ELECTRICITY IN ECONOMY 43
4.4 CORPORATE ROUND-UP 44
Hidroelectrica to exit insolvency in May-June 2015 – court appointed manager. 44
Government to speed up IPO of hydropower plant Hidroelectrica. 44
Electrica power distribution company completes 51% IPO at minimum requested price, EBRD buys 8.4% stake. 44
Italy’s Enel starts sale of Romanian holdings. 44
Romania insists exercising put option for 23.6% in power distribution firm EMS. 45
Enel might get more than EUR 2bn from sale of Romanian holdings – estimate. 45
Japan’s Marubeni to build EUR 170mn gas-fired power plant in Romania. 46
Czech investor pays EUR 17mn for Romanian thermal power plant. 46
Chinese investors ready to develop and operate new nuclear reactors – deal however lags. 46
Power transport company Transelectrica sketches EUR 1.2bn investment plan. 47
Property Fund sells 13.5% stake in Transelectrica at 8% discount. 47
Romania up one place in E&Y renewable energy country attractiveness index. 47
Project company for reverse hydropower plant Tarnita to speed up operations. 48
Appendix: Previous issue’s Content 50

Figure 1: Quarterly GDP, 2000=100 6
Figure 2: Industrial output, swda 2010=100 7
Figure 3: Raw energy resources intake; thous. tonnes oil equivalent, quarterly. 10
Figure 4: The breakdown of raw energy resources; 2013. 10
Figure 5: The breakdown of raw energy resources; 2006 10
Figure 6: Domestic energy intake of energy, thousands toe; annual, last quarterly/annual data. 11
Figure 7: Brent Europe oil price expressed in USD, EUR per barrel. 16
Figure 8: Car fuel retail prices in Romania vs. Brent Europe [USD, EUR, RON]. 17
Figure 9: Balance of crude oil and petroleum products, [tonnes, rolling 12 months]. 18
Figure 10: Inland deliveries of oil products, [tonnes, rolling 12M]. 18
Figure 11: Sales of petrol/gasoline and diesel in Romania, vs. CEE [thous tonnes]; see region’s definition. 19
Figure 12: CEE region’s petrol/gasoline sales in CEE [see definition]; structure by country. 20
Figure 13: CEE region’s diesel sales in CEE [see definition]; structure by country. 20
Figure 14: Romanian’s petroleum products balances [petrol, diesel, quarterly]; export, import, production, demand. 21
Figure 15: Production of petrol/gasoline, diesel in Romania, vs. selected CEE [thous tonnes]; see CEE definition. 23
Figure 16: CEE region’s petrol/gasoline production in CEE [see definition]; by country. 23
Figure 17: CEE region’s diesel production in CEE [see definition]; 2005-2011; structure by country. 24
Figure 18: Natural gas use, from domestic sources vs. import [qtrly, mn m3]. 29
Figure 19: Power generation, by source (mn MWh). 35
Figure 20: Dynamics of main electricity market segments [TWh]. 37
Figure 21: Electricity use in economy vs. GDP. 38
Figure 22: Use of electricity in households. 38
Figure 23: Prices, volumes on futures and DAM markets [RON] 42
Figure 24: Price in future vs. day-ahead markets [avg., EUR/MWh] 42
Figure 25: Graphic representations of the electricity use by economic sector. 43

Table 1: Q1, 2014 GDP dynamics 6
Table 2: Gross energy intake dynamics; 2013 vs 2006 10
Table 3: Gross energy intake dynamics; Q1: 2014 vs 2006 10
Table 4: Raw energy resources: consumption, production, self-sufficiency; latest annual data. 11
Table 5: Raw energy resources: consumption, production, self-sufficiency; latest quarterly data. 12
Table 6: Primary energy resources, original balance from INS adjusted for the exports of electricity and petroleum products; annually 2000-, thousand tonnes oil eq.. 13
Table 7: Consumer prices – energy, expressed in nominal terms, real terms, euros and US dollars [average for years]. 14
Table 8: Crude oil and petroleum products balance, annually and last quarterly data, thousand tonnes. 17
Table 9: Petrol, diesel sales in selected CEE countries [thous tonnes; annually, latest quarterly]. 19
Table 10: Petrol, diesel production in selected CEE countries [thous tonnes; annually, latest quarterly]. 21
Table 11: Petrol, diesel imports in selected CEE countries [thous tonnes; annually, latest quarterly]. 22
Table 12: Natural gas: inland delivery, production and imports; annually, latest quarterly. 28
Table 13: Domestic use of natural gas, latest annual data [by type of cunsumer; plus charts] 29
Table 14: Energy balance – natural gas [2007-2012, mn m3] 33
Table 15: Energy balance – natural gas [2007-2012, tonnes of oil equivalent / toe] 34
Table 16: Structure of the domestic electricity market [TWh]; by free/regulated and residential/non-residential segments. 37
Table 17: Electricity simplified balance quarterly, mn MWh. 37
Table 18: Wholesale electricity market breakdown, annual latest quarterly. 40
Table 19: Future and DAM markets; annual, latest quarterly – volumes, prices [RON] 41
Table 20: Future and DAM markets; annual, latest quarterly – volumes, prices [EUR] 41
Table 21: Use of electricity, by main economic sectors; mn KWh; annually. 43
Table 22: Energy balance – electricity [2007-2012, MWh] 49

Number of pages: 51
Release Date: Thu, 31 Jul 2014