Moldova in regional gas role, sector overhaul bid after Russian transit loss

Author: Aura Sabadus

2020/01/20

LONDON (ICIS)--Moldova is working to overhaul its gas sector to deepen trading links with Romania and Ukraine and increase the share of natural gas in the wider economy, an official at state company Moldovagaz told ICIS.

Vadim Ceban, president of the board of directors at Moldovagaz, said the country was in the process of making radical changes this year after a steep decrease in transit volumes following the rerouting of Russian gas from the Trans-Balkan line to the newly-commissioned TurkStream corridor.

Moldova has been a key transit country, raking in a net annual income of up to Moldovan Lei 150m (€8m) for gas transported through Moldova. This is excluding the adjacent so-called Transnistrian region.

However, with close to 18 billion cubic metres (bcm)/year of gas now diverted from the traditional route across Ukraine and Moldova to TurkStream, which links Turkey to Russia, Moldova is forced to make an eight-fold increase in local transmission tariffs to recoup costs and to ensure the viability of the gas sector.

REGIONAL ROLE

As a first step, Moldovagaz, a vertically-integrated company that is partly owned by Russia’s Gazprom, is looking to boost its position regionally by encouraging trading opportunities with Romania and Ukraine.

The country was exclusively dependent on Russian gas exported via Ukraine, but with the opening up of the TurkStream project and recent upgrades to regional infrastructure it can import gas both from Ukraine and in reverse from Turkey via Bulgaria and Romania, Ceban said.

Since the beginning of the year, Moldova has been receiving an average 12 million cubic metres (mcm)/day from Russia via Ukraine, but it may also receive similar volumes in reverse.

“We had to open this [south to north] route because we did not know in December whether gas would still be delivered from Ukraine or diverted to TurkStream. Of course, both routes are dominated by Gazprom, which owns the gas, but in the future the south-to-north route could establish some competition.

“Right now we are in talks with a Ukrainian company that would like to use this route,” he said.

Ceban said any exports would have to be done in physical mode because there is still no concept of backhaul in the Moldovan legislation.

He added that Moldova’s interconnection with Romania may be enhanced this year if Romanian grid operator Transgaz completes the construction of the Ungheni-Chisinau line, a piece of infrastructure that links the Romanian-Moldovan border to the capital.

Although there is an interconnector between the two countries, it is currently not used because of the missing internal link to the capital Chisinau.

“I expect this link to be ready this year with some Romanian Black Sea gas potentially reaching Moldova by 2022-2023,” he said.

EXPANDING POWER GENERATION

Romanian imports would help Moldova increase its sources of supply at a time when it is looking to boost consumption by encouraging the building of new electricity generation and the switch to compressed natural gas in transport.

The country’s annual gas demand hovers around 3bcm, all of which are being supplied by Gazprom.

However, Moldova is looking to build gas-fired power plants and rehabilitate cogeneration units as well as encourage the uptake of gas in public transport and the development of the fertilisers sector.

Ceban said Moldovagaz is also exploring the possibility of storing natural gas in neighbouring Ukraine, as the country boasts Europe’s largest facilities and offers attractive terms.

To optimise costs, the company - which also includes two transmission system operators, Moldovatransgaz operating in Moldova itself and Tiraspoltransgaz - is undergoing a complete overhaul.

RESTRUCTURING

Ceban said Moldovatransgaz may be completely unbundled in line with the requirements of the EU’s third energy package in the upcoming months.

He said a plan was currently under discussion and would be followed through before the end of the year. The plan was drafted by regulator ANRE in 2019 together with the Energy Community, of which Moldova is a contracting party.

Ceban insisted that although Moldovagaz was partially owned by Gazprom, it would abide by the rules and European treaties to which Moldova adheres.

He pointed out that the main obstacles that Moldovagaz was facing were not related to Gazprom opposing the unbundling, but to a $7bn debt owed to the Russian producer for delivered gas which has been accruing since 2005, and sorting out the status of Tiraspoltransgaz.

The grid operator operates in Transnistria, a region that is wedged between the River Dniester and Ukraine and which is not internationally recognised. Recognising an independent grid operator would legitimise the status of the region.

Ceban said the plan was to divest Moldovatransgaz as well as merge 12 distribution companies into a single entity.

“We aim to have one retail company and one trading company under the Moldovagaz umbrella. There will also be a department on compressed natural gas affiliated to the trading department. We also plan to get involved in electricity generation.”

Ceban added that although the country was a contracting member of the Energy Community, an institution designed to extend the EU’s free market principles to non-member states, and is on track to transpose the EU’s network code rules by the 28 February deadline, there were no plants to deregulate the market for now.

“We remain a single-source market for now,” he said.