|  08.11.2012

Can Romania's electricity exchange serve as model for the natural gas market?

For those planning to skip to the final conclusion, the answer is: not really and definitely not now. And in any case, a copy/paste transfer of the power market model is simplistic. Gas and electricity markets have inherently different characteristics

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EU’s plan to establish functioning internal electricity and gas markets by end-2014 is ambitious and will probably not result in liquid markets in periphery countries. Particularly in the case of Romania, price convergence would lead to major upward price adjustments that are hardly socially and politically acceptable but inevitable on long term.

Key pre-requisites for even a thin gas exchange, including at least reasonable supply diversification, are necessary but not sufficient. While the development of national electricity markets is generally followed by the coupling [aggregation] of national markets, the emergence of an integrated gas market at European level is complicated by natural obstacles – partly the uneven and scarce endowment with resources, broadly seen as owned by nations rather than by Europe, but also limitations of inter-connection capacities that hinder the access to non-European resources and the sharing of European resources. The prevailing views expressed by the European Commission officials against the shale gas provides that the broad picture would not improve in the future – rather on the opposite: the dependence on non-European gas is expected [and admitted] and will probably increase in the past decades. The shale gas glut seen these years in the US is unlikely to replicate in Europe, the Commission believes at this moment.

Higher dependence of external resources enhances the key importance of inter-connection capacities for the functioning of an integrated gas market at continental level. It is not by chance that EC started infringement procedures against Romania in regard to the regime of country’s inter-connection capacities – and not to the deregulation of the gas market. But the exports of natural gas is a politically delicate issue at a time when the local gas prices for residential users is less than half of the EU averages and well below the prices in neighbouring countries.

The price discrimination operated by Gazprom against different European partners further complicates the establishment of a pan-European market. But all these obstacles ought to be removed in order to let the natural gas prices converge across Europe. This means joint use of natural resources, which is a target that requires broader integration at European level. Issues apparently not related to the energy markets, such as labour market liberalisation or even sovereign debt crisis, do have real impact on the mood for energy market integration.


The architecture of Romania’s electricity market reached a reasonable degree of sophistication and liquidity, even if the range of instruments should be further broadened to increase the market opening, decrease price volatility and provide hedging opportunities to market players. The coupling of the national market with regional markets or clusters of markets is a predictable and even necessary step, under the EU’s directives. Encouraged by the progress and by the fact that the electricity exchange can now support electricity market liberalisation, the IFIs recommended Romania to replicate it for the natural gas sector. The power market operator OPCOM is expected to host the first natural gas deals. Under the stand-by agreement with the IMF, the bilateral deals on the gas market should be operated by a special floor of OPCOM. But this is a very modest step for the establishment of a vibrant gas market. It is the day-ahead market that functions best within the electricity market. But it is a long way ahead before a similar spot market for natural gas would be eventually set up and gain sufficient depth. The natural gas market liberalisation indeed sets a calendar under which the suppliers of natural gas on the regulated segment ought to purchase an increasing share of the gas from the free market. But the bilateral contracts will not contribute significantly to the overall functioning of a flexible gas market. The diversification of supply is needed, in the form of LNG supplies and, when possible, Caspian gas from one of the multiple pipeline projects.


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