E.On Romania head cautious over gas price liberalization

Frank Hajdinjak, CEO of E.On Romania, part of the German utility firm E.On, has warned the market that the price of domestic gas traded on the energy exchange OPCOM could spike if the country faces a gas crisis that coincides with peak consumption period and the continued liberalization of gas prices for industry.

He suggested the government prolong the liberalization calendar for big industry, as it has done for households.

“Nor do I think it is a good time for continued liberalization in January, which is in the middle of winter. Potentially in the middle of a gas crisis, I think there is too high a risk of an explosion in gas prices in general,” said Hajdinjak, who is also president of the Association of Energy Utility Companies (ACUE).

The government decided last week to suspend the increase of domestic gas prices for households, with Parliament delaying the liberalization of gas prices for the same segment through to 2021. Gas price liberalization was included in a stand-by agreement with the International Monetary Fund (IMF) and the European Commission, the executive arm of the EU, signed in 2012.

The liberalization of gas prices for industry should have been completed over the course of two years starting 2012, but was halted in June. The Department of Energy said that Romania had reached the same prices as other countries in the region, maintaining them at the level registered in April, namely RON 89.4/MWh, which is roughly EUR 190 for 1,000 cbm. Meanwhile, the liberalization of prices for households should have been concluded, under the initial calendar, at the end of 2018.

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“I think it was an absolutely great and correct decision by the Romanian government to first of all postpone the liberalization process and also not to increase the gas prices for the public because this is an issue of affordability and we all know that the burden for our customers and Romanian citizens is not necessarily small – on the contrary,” E.On’s CEO told BR.

Asked if Romania would be able to manage this winter potentially without any gas imports from Russia, he said he was “confident” that the situation would be managed, especially because consumption has fallen since 2009, when Russian oil major Gazprom cut gas supplies to Europe for around two weeks.

“There might be some small problems coming up in peak periods – because the extraction from storage and the daily production of natural gas might not be enough for peak periods – but that can all be managed either by switching some of the consumers to other fuel sources or by reducing (e.n. consumption) of certain customers,” said the CEO.

Romania’s total gas consumption in 2013 stood at around 12.4 bcm, out of which the industry had a 75 percent share and households the rest, according to energy regulator ANRE. Domestic gas production amounted to 10.5 bcm, while imports reached 1.9 bcm Last year the price of imported gas hovered around USD 400 for 1,000 bcm, with most of it coming from Gazprom, according to analysts.

The Department of Energy predicted the average weighted price for gas imports would stay at around EUR 282 per 1,000 cbm for contracts covering the September-December period.