London — Moldova -- the former Soviet state beholden to Russia for its gas supply for decades -- is on the verge of a new chapter in its gas history with an expanded connection linking to Romania just days from being launched.
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The 120-km (74-mile) pipeline from the Ungheni entry point on the border with Romania to the Moldovan capital Chisinau will enable up to 1.5 Bcm/year of gas to flow from Romania into Moldova, bringing much needed supply diversity.
There is already a line capable of bringing gas from the eastern Romanian city of Iasi to Ungheni that was built in 2014, but only tiny amounts of gas have flowed through the link since as it was not connected to the rest of the Moldovan grid.
The new pipeline will complete the connection of the gas transmission systems of Romania and Moldova by linking Chisinau, a major area of gas consumption, to the Iasi-Ungheni interconnector.
According to Moldovan Prime Minister Ion Chicu, the new pipeline is "one of the most important goals of the national energy infrastructure, which will further strengthen our country's independence."
Chicu, according to comments made during a cabinet briefing last week, said the pipeline would be inaugurated on Aug. 27, the day Moldova declared independence from the Soviet Union in 1991.
"Moldova has an additional reason to celebrate Independence Day," Chicu said, pointing to the launch of the Ungheni-Chisinau pipeline that in theory could see Moldova more than halve its gas imports from Russia.
In 2019, Gazprom sold a total of 2.89 Bcm of gas to Moldova, putting it on a par with the likes of Greece, Croatia and Finland as a sizeable market for Russian gas supplies.
Whether Romanian gas flows into Moldova at anywhere near capacity remains to be seen.
But crucially it gives Moldova a physical alternative to Russian gas, which in turn will give Chisinau leverage in its future price discussions with Gazprom.
"This pipeline could strengthen Moldova's position in seeking a discount on Russian gas supplies from Gazprom if it could be demonstrated that Moldova could buy other suppliers' gas via this new link," leading gas analyst Katja Yafimava from the Oxford Institute for Energy Studies told S&P Global Platts.
John Roberts from consultancy Methinks agreed that the new link had "important commercial and strategic benefits" for Moldova.
"Russian gas no longer has an automatic monopolistic price advantage," Roberts said.
Moldovan gas company Moldovagaz reached a last-minute agreement with Gazprom on Dec 31 last year to extend Moldova's Russian gas supply contract by one year to the end of 2020.
While the parties had originally envisaged a three-year extension, the final deal takes the current arrangements only to the end of 2020, Moldovagaz confirmed to Platts on Aug. 18.
The new deal was for the same contractual terms as in the previous, oil-indexed agreement, which has seen Moldova pay relatively high prices in the past few years.
However, the recent fall in oil prices has now filtered through into Moldova's oil-indexed gas price, with Moldovagaz saying Aug. 13 that the third-quarter price it paid for Russian gas was $133.56/1,000 cu m and that for Q4 the price would be lower still at about $100/1,000 cu m.
Roberts said the new line had other strategic advantages for Chisinau, including that Moldova will now be able to import gas without reliance on transit through the Russian-supported, breakaway region of Trans-Dniester in the east of the country.
The industrialized Trans-Dniester region itself consumes a lot of the gas supplied to Moldova.
Yafimava said Moldova's demand is divided roughly equally between the Moldovan territory on the right bank of the Dniester where Chisinau is located and Trans-Dniester on the left bank over which the Moldova's central government has no control.
"The new link's capacity is sufficient for covering the right bank of Moldova's demand but not that of Trans-Dniester," she said.
There is also the issue still that the Moldovan gas system is operated by Moldovagaz, in which Gazprom holds a 50% stake with lesser shares held not only by the Moldovan government but by the administration in Trans-Dniester.
"This makes it likely that the new line, which was built by Transgaz with EU financial assistance, will primarily be used to balance Moldovan consumption rather than as a substitute for Russian gas delivered via Ukraine," Roberts said.
Moldova has often been at odds with Gazprom over its supply terms and was taken to the wire at the end of 2016 when its 10-year supply and transit deal with Gazprom expired, with a new three-year deal only unveiled on Jan. 5, 2017.
Now with the Romanian link almost over the finishing line, Moldova certainly has more bargaining power than before.
Romania -- the EU's second largest gas producer -- has a gas production capacity of around 11 Bcm/year which it largely consumes domestically, but with new Black Sea projects set to come on stream in the coming years, Romania may have surplus gas to export.
However, prospects for new projects such as ExxonMobil's Neptun project are unclear after Bucharest in 2018 implemented new regulations seen as unfavorable for offshore gas developments.
"Romania currently has the ability to supply some additional volumes to Moldova, particularly on a seasonal basis," Roberts said.
"However, at present, it is not capable of meeting Moldova's full import requirements from its own sources on a regular basis. For Romania to secure such sustainable export capacity will require development of new gas supplies from its offshore fields in the Black Sea," he said.