Romania to host inaugural natural gas transit line capacity auction

Romania is to hold next month its first ever capacity auction on a key natural gas transit pipeline, as a legacy contract held by Russia’s Gazprom expires.

In one fell swoop, Turkish and Balkan shippers will be able to obtain capacity from Ukraine directly to Bulgaria for the full duration of Gas Year 2016, commencing this October.

A total of 169GWh/day of annual unbundled firm and interruptible capacity will be offered in both directions at the Romanian-Bulgarian (Negru Voda I–Kardam) interconnection point, according to Romanian grid operator Transgaz on Wednesday.

The auction will be held on regional capacity platform RBP on 5 September and winning companies will gain access to the section of the Western Line from 1 October.

The pipeline has been historically used by Gazprom to transit volumes to Turkey and southern Europe via Romania and Bulgaria.

Romania’s capacity auction is a significant step in the opening up of regional gas markets, which have been almost exclusively supplied by Gazprom. The old transit contract at the Negru Voda 1–Kardam interconnecton point expired last year, but had been extended until 30 September.

The counterparties that next month obtain the annual Negru Voda I–Kardam capacity, for either north or southbound flow, will then be implicitly awarded the associated capacity for the Romania-Ukraine border point of Isaccea I, giving them the full use of the transit pipe.

Challenges

Despite the significance of the auction, which could elicit market opening in the region, there are a number of challenges that participates will still face.

Firstly, there is a need for greater cooperation among the grid operators along the Western Line, to ensure that gas can flow smoothly both in physical and virtual mode along a north-south corridor.

Romania, Bulgaria and Ukraine signed landmark interconnection agreements at the end of July aiming to provide shippers with firm and interruptible transportation capacity from Ukraine to Bulgaria, and interruptible reverse flow capacity from 1 October. In theory, the deals will allow bidirectional virtual flows spanning the region from Ukraine to Greece.

Wednesday’s announcement from Transgaz appears to be the first key milestone in fulfilling those agreements since the declarations were made.

Nevertheless, Romania and Ukraine said they were going to offer capacity separately as unbundled products until Ukraine chose a platform for bundled capacity auctions.

Under European regulations capacity at an internal border should ideally be bundled by transmission system operators on both sides. This means that both Transgaz and its Bulgarian equivalent Bulgartransgaz should jointly auction their capacity Negru Voda I–Kardam.

It became clear this was not going to happen earlier this year, however, when Bulgartransgaz said it would also use the Hungary-based RBP auction platform for unbundled capacity auctions at the Negru Voda I, II and III-Kardam interconnection points as well as the Kulata-Sidirokastro Bulgarian-Greek border (see ESGM/TEHD 16 May 2016).

A second challenge that winning shippers will encounter relates to the source of gas that would flow regionally.

To date, volumes down the Western Line are exclusively exported by Gazprom. It is unclear whether once the new transit capacity becomes available if traders would be able to source volumes from elsewhere, or would have to sign new supply contracts with Gazprom too.

Following the expiry of another long-term transit contract between Bulgaria and Greece this year, Greek independent gas company M&M has started to export volumes to Bulgarian in backhaul.

A total of 105MWh was exported in July and volumes are set to triple in August (see ESGM/TEHD 9 August 2016). aura.sabadus@icis.com