August 2020

GAS PRE-MARKET ENTRY REPORT:

1

Table of Contents

GAS WHOLESALE TRADING - COUNTRY OVERVIEW TABLE ...... 5 1. Introduction ...... 7 2. Overview of the market ...... 7 2.1 Domestic Gas Production ...... 7 2.2 Structure of gas consumption, imports & exports ...... 9 2.3 Transmission network ...... 11 2.3 Distribution network ...... 13 2.4 LNG ...... 13 3. Legal framework ...... 14 3.1 Table of ANRE secondary legislation: ...... 14 3.2 Gas Market Liberalisation and Gas release programme ...... 14 3.3 Structure of the market and entry procedures ...... 15 Trading license and supply license - application procedure and requirements ...... 15 Additional requirements for supplying natural gas to end consumers are found in: .. 18 4. Access to network services ...... 18 4.1 Transport agreement with Gas TSO ...... 18 Creditworthiness requirements ...... 19 Connection tariff ...... 20 IT / technical requirements ...... 20 4.2 Capacity booking – primary capacity market ...... 20 4.3 Secondary capacity market...... 21 4.4 Information provisions ...... 22 5. Admission to hub services ...... 22 5.1 Virtual Trading Point ...... 22 5.2 Balancing market / products ...... 23 Balancing sessions ...... 24 5.3 ‘Bidding obligation’ ...... 25 5.4 Trading platforms ...... 27 OPCOM S.A...... 27 Romanian Commodities Exchange (RCE) – (Bursa Română de Mărfuri) ...... 29 6 Access to storage services / Security of Supply aspects ...... 30 7. Fees and tariffs...... 32

2

7.1 Licenses ...... 32 7.2 Annual contribution to ANRE – due by all license holders in the gas sector ...... 32 7.3 Fees for natural gas transmission ...... 32 7.4 Fees for trading platforms ...... 33 OPCOM ...... 33 7.5 Fees for natural gas storage ...... 34 8 REMIT reporting obligations ...... 35 9 Relevant platforms ...... 36

3

DISCLAIMER

This document has been prepared by Correggio Consulting Limited, exercising all reasonable care and to the best knowledge of Correggio Consulting contributors and subject to the information available at the time of its preparation. However, neither Correggio Consulting nor its retained consultants, involved in its preparation, shall be liable or otherwise responsible for its use, or reliance upon, and any damages, direct, or, indirect, or consequential losses resulting out of its use in any individual case. Correggio Consulting is not responsible for the users’ decisions based on this report. This report is intended for general guidance and information purposes only. This document or any information provided by it, or derived from it, does not constitute any legal, business, investment or tax advice.

The material contained in this document is obtained from various sources and is complete on the date of its issuance. The CorreggioNET user acknowledges that the regulatory environment is subject to frequent and sometimes unexpected change. This document may not reflect any events, changes or circumstances which occur after the date of its issuance. While all reasonable care has been taken to ensure that all material is up-to-date, true and correctly interpreted, Correggio Consulting does not guarantee its accuracy or completeness.

Correggio Consulting suggestions and recommendations should be analyzed by the user in this informatory context only. Any decisions or corporate strategies taken shall be attributable only to the CorreggioNET user.

This report is only intended for the CorreggioNET users and should not be copied or otherwise distributed, in whole or in part, to any third person. Any infringement of this basic license obligation shall constitute a reason to immediately terminate the CorreggioNET subscription in line with the GTC.

4

GAS WHOLESALE TRADING - COUNTRY OVERVIEW TABLE

GENERAL ASPECTS OF LICENSING PARTICIPATING IN THE GAS BALANCING CAPACITY VTP GAS TRADE MARKET

The transmission system Trading of natural gas in Romania may be In order to have access to the The Romanian NTS is a Capacity at IPs is allocated A Virtual Trading Point has first operator is performed either by obtaining a natural transport system, a Gas single balancing zone via the Regional Booking been introduced in Romania in S.A, which not only gas supply license or a trading license. Transmission Agreement must be (including the distribution Platform (RBP) – platform fall 2016. operates the transmission concluded with TRANSGAZ. All the system) – with the operated by the Hungarian system but also performs Entities from an EU Member State which provisions related to the exception of the Trans- TSO (FGSZ Ltd), a company As per ANRE Order 167/2018, in network balancing. hold a license or other similar document conditions applicable to the gas Balkan international transit of the MOL Group. order to trade a Contract for TRANSGAZ communicates issued by the competent authority from transport service are defined in pipeline. Balancing an Access to the VTP initial and final daily the respective Member State for gas the NTS network code which In order to have access to has to be entered into with imbalance to network supply or trading activities may carry out constitutes an integral part of gas The TSO is in charge of the Romanian NTS, the TRANSGAZ (same as in the users vi a the such activities in Romania without being Transmission Agreement. network balancing. The holder of a trading or supply Balancing section). multifunctional GMOIS required to obtain a license from ANRE – principles and procedures license must conclude an platform. after acknowledgement/confirmation of Certain conditions precedent of the balancing market are agreement with TRANSGAZ The requests for the conclusion their licence by ANRE. must be fulfilled by the holder of found in the NTS Network in order to ensure the of the Balancing and VTP Access The performance of a license in order to conclude the Code. Registration to the booking of capacity within Agreement has to be submitted natural gas supply Foreign legal entities (not based in the EU) agreement, e.g. the holder of a balancing market is done by the transport system. prior to the date on which the activities, the trading of can obtain a supply or trading licence only license must provide a financial signing the Balancing and trading participant intends to gas, storage of natural by having a local presence in Romania. guarantee (collateral deposit, Access to VTP contract. TRANSGAZ has a dedicated notify the VTP trade. gas, the operation of the Such entities must set up and maintain, letter of bank guarantee etc.) as portal for capacity booking upstream pipelines stated in the contract. The for the entire duration of the trading Market participants are – GMOIS, for which set up Network users have the (related to the network user is exempted from license, a secondary headquarters in obliged to financially cover and registration is needed. obligation to provide a financial production, transport and the obligation to provide a Romania, including therefore a their balancing obligation. payment guarantee in favour of distribution systems), as financial guarantee in favour of representative office or a branch. Capacity booking is done on TRANSGAZ, that covers the risk well as the management the TSO if it provides a credit The Romanian Commodities the basis of the principle of non-payment of the invoices of the natural gas rating, issued by one of the rating Whether the licence is granted is subject Exchange (RCE) is the third “first-come, first-served” issued by the TSO, representing centralised markets – all agencies approved by TSO, of at to several technical, organisational and party designated by among all entities the negative imbalance value. require licenses issued by least the same credit rating level financial criteria the company has to TRANSGAZ for the requesting reservation of the Romanian Energy as that granted to TRANSGAZ comply with. For example, licences will organization of the Natural capacity, however with Regulatory Authority itself, or if the payment for the The network user has to present not be granted to entities which are Gas Balancing Market. priority for capacity (ANRE). transport of natural gas is done in to TRANSGAZ the proof of the subject to insolvency procedures or to Registration on the requested in order to meet rating / financial guarantee advance. applicants from whom the Romanian Balancing Market is done by public service obligations. related to the Balancing and Energy Regulatory Authority (ANRE) signing a Balancing Market The capacity booking Access to the VTP contract by at Participation Agreement requests are mandatorily least 3 working days before the 5

withdrew a licence within the last 5 years In order to trade gas, the trader with RCE. The balancing sent directly on the online date of the first notification in before the new application. must register on the trading platform is available at transmission capacity the VTP. The network user has platforms administered by echilibrare.brm.ro booking platform operated the right to access to the VTP Licenses for natural gas trading may be OPCOM or by the Romanian by the TRANSGAZ (GMOIS). transfer of ownership rights granted for a maximum term of 25 years, Commodities Exchange, where Provisions on balancing All transactions between offered by TRANSGAZ during but generally ANRE issues licenses for a such trading may be performed. (and imbalance charges) are TRANSGAZ and the shipper the validity of the Balancing and period of 2-3 years. Gas traders may choose to included in the Network will take place through the Access to VTP contract register with both centralised gas Code, thus they are a part of capacity portal provided by concluded with TSO. markets or to just participate in the Gas Transmission TRANSGAZ The procedural fee for obtaining the either of them. At the moment, Framework Agreement. licence is RON 2,500 (approx. 500 EUR). In Users also have to register for the vast majority of gas trades are addition to that, an ‘annual contribution’ TRANSGAZ offers capacity access to the IT platform serving performed on the platform of the to the NRA amounting to a certain booking services for each the VTP (the GMOIS platform), Romanian Commodities percentage (0,1%) of the turnover virtual NTS entry/exit point by following the registration Exchange. generated by the owner is to be paid to separately. procedure and form published the NRA. on the TRANSGAZ website. The platform is available in English.

6

1. Introduction

This chapter provides an overview of the Romanian natural gas market, including the structure of the natural gas network, recent supply and demand trends, legal framework, provisions and procedures applicable for access to the natural gas network and natural gas trading platforms, as well as a description of the required authorisations to trade natural gas in Romania. It will also provide an overview of the requirements for accessing natural gas storage facilities, an overview of the tariffs for the transport and storage of natural gas, and the fees for accessing the related platforms. The information is aimed at allowing shippers and traders to have practical and operational information available to support their trading activities. Normative references will be provided as needed.

The Ministry of Economy & Energy of Romania is in charge of elaborating Romania’s National Energy Strategy. The latest update to the Energy Strategy was published in 2019, available only in the Romanian language.1 The Ministry, together with the Environment Ministry, was in charge of drafting the 2021 – 2030 Integrated National Energy and Climate Plan (NECP) – available in English on the European Commission’s website.2

The National Energy Regulatory Authority of Romania (Autoritatea Națională de Reglementare în domeniul Energiei – ANRE) is an autonomous administrative entity, with legal personality, under parliamentary control, fully financed from own revenues, with independent decision-making, as well as organizational and functional, tasked with elaborating, approving and monitoring the set of compulsory regulations applicable at national level, for the functioning of the electricity, natural gas and district heating sectors, as per EU energy legislation. The raison d’être ANRE is to ensure the efficient, competitive and transparent functioning of energy markets, as well as a high degree of consumer protection.3

2. Overview of the natural gas market

2.1 Domestic Gas Production

Romania has over 150 years of experience in the crude oil extraction industry and over 110 years in the natural gas industry, with a maximum annual production of oil reached in 1977 (14.65 million tons of crude) and of natural gas in 1986 (36.3 billion cubic meters). Primarily due to the natural decline of oil and gas fields, but also due to a reduction in exploration works and investments, the annual production of oil and gas gradually decreased, today reaching approximately 10 bcm natural gas / year and less than 3 million tons of oil / year. The production of oil & gas is expected to stabilize at this level in the 2020 -2030 decade and possibly beyond.

1 http://energie.gov.ro/transparenta-decizionala/strategia-energetica-a-romaniei-2019-2030-cu-perspectiva-anului-2050/ 2 https://ec.europa.eu/energy/sites/ener/files/documents/ro_final_necp_main_en.pdf 3 Government Emergency Ordinance no. 33 of May 4, 2007 on the organization and functioning of the National Energy Regulatory Authority

7

Romania has over 400 oil and gas deposits in commercial operation today, with over 12.000 (twelve thousand) oil / gas derricks.4 Proven oil and gas reserves are still ample, and production can be increased in the short and medium term by implementing new technologies, such as the exploitation of deep geological reserves (> 3.000m). In addition, with an estimated 200bcm of natural gas reserves in the EEZ, Romania is poised to become a new diversification source for natural gas in . The Black Sea reserves will be developed in the 2020 – 2030 decade, with an estimated annual production reaching 9 – 10 bcm, which will be additional to the 10 bcm of natural gas produced onshore in Romania annually. Black Sea gas will thus become an important competitor to pipeline gas in Central and Eastern Europe.

The particularity of the Romanian gas market is that most of the gas consumed in the country is produced domestically. In fact, Romania was the third largest producer of gas in the EU in 2019 – the first being the UK and the second being the . After Brexit and taking into account the rapidly decreasing production in the Netherlands, it is to be expected that Romania will re-become the largest gas producer in the . Before the Groningen field ramped up production in the 1960s, Romania was the largest European gas producer, and the first European state to export natural gas (to in 1959).

The two most important gas producers are S.A. and OMV S.A. Together, the two companies are responsible for approximately 95% of total domestic gas production, split roughly in half between the two producers. There are about a dozen other small producers.

Both Romgaz and OMV Petrom are traded on the Stock Exchange with the symbols SNG5 and SNP6 respectively, and are key components of the BET® index (BUCHAREST EXCHANGE TRADING index). The Romanian State holds a controlling stake in Romgaz (70%) and has a share of 21% of OMV Petrom, which is majority owned by ’s OMV AG.

Romgaz, the largest gas producer in Romania, is seeking to diversify its gas business and has recently entered the power business (Iernut 400MW CCGT powerplant – to be completed this year; and Mintia 400MW CCGT powerplant – planned). Romgaz is already an important gas supplier to electricity generators and large industrial consumers, but the company is also seeking to enter the competitive supply market (both for residential and non-residential customers). The Ministry of Economy and Energy has plans for Romgaz to compete with the two large, traditional suppliers: E.ON and Engie.

The second largest producer, OMV Petrom, produces yearly almost as much natural gas as Romgaz. Owned by Austria’s OMV since 2004, the Petrom group is the largest company in Romania. It is active in the natural gas extraction business, oil extraction (including offshore), refining, downstream retail, as well as power production – operating the Brazi 860MW CCGT powerplant (commissioned in 2012).

4 http://energie.gov.ro/wp-content/uploads/2016/03/Actualizare-Analiza-sistem_draft-final_19-feb-2016-1.pdf 5 http://www.bvb.ro/FinancialInstruments/Details/FinancialInstrumentsDetails.aspx?s=SNG 6 http://www.bvb.ro/FinancialInstruments/Details/FinancialInstrumentsDetails.aspx?s=snp

8

Petrom is also active on the supply market, being one of the most important suppliers for large industrial consumers. It is also active on the non-residential supply market (businesses, small industrial consumers), having one of the best supply offers on the market. It is not currently seeking to enter the residential supply market.

Natural gas has the highest overall share in the country’s primary energy consumption – at around 30 – 35%. The important share of natural gas is explained by the relatively high availability of domestic resources, the low impact on the environment and its ability to balance the electricity produced from intermittent renewable energy sources (RES). Natural gas is also widely used in major cities for district heating in the cold season, most notably in Bucharest – which has the largest district heating system in Europe by network length. The infrastructure for extraction, transport, storage and distribution of natural agas is present throughout the country. Most urban and densely populated areas have access to natural gas. 2.2 Structure of gas consumption, imports & exports

Total gas consumption in Romania in 2018 was approx. 130 TWh. The graph shows total gas consumption in Romania between 2010 and 2018 (in TWh)

Natural gas imports - Total quantities of gas imported in the period 2010 – 2018 (in TWh)

9

Natural gas exports – Total quantities of natural gas exported are low. In 2018, total gas exports were 0,03 bcm, as seen in the table below.

Month (year 2018) Exported quantities (MWh) January 0 February 0 March 0 April 75.962,318 May 78.494,396 June 75.962,318 July 78.494,396 August 0 September 0 October 7.447,851 November 8.714,670 December 7.447,851 TOTAL GAS EXPORTS 2018 332.524 MWh

It is clear from the tables and graphs above that most domestic consumption is covered by domestic production – this is an important particularity of the Romanian gas market. As a percentage of total domestic consumption, imports typically represent between 10 and 15%. In 2016, this figure was less than 5%7, while in 2018 it was 12,6%.8 Total natural gas import capacity in Romania is well over 16 bcm / year – considerably more than total domestic consumption today.

With demand for natural gas being highest in the cold season, the peak demand cannot be fully met by domestic sources and gas extracted from underground storage facilities, and this is the period when most physical imports are performed.

The structure of the gas consumption is as follows:

Household (3.6 million residential – 28,48% (34 TWh) consumers) Non-residential consumers including – 71,52% (85,25 TWh) district heating, electricity production, industrial users, chemical industry (approx. 200.000 customers)

The two dominant suppliers on the household market are ENGIE and E.ON, between them covering over 90% of this supply market. Starting on the 1st of July 2020, the Romanian gas market was liberalised once again, the price of gas for household customers no longer being set by ANRE. There is an expectation that the market position of the traditional suppliers will erode, as customers will gradually switch to different suppliers.

7 http://energie.gov.ro/wp-content/uploads/2016/03/Actualizare-Analiza-sistem_draft-final_19-feb-2016-1.pdf 8 https://www.anre.ro/en/about-anre/annual-reports-archive

10