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FEATURE: New Moldovan gas link complete, but doubts remain over use

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FEATURE: New Moldovan gas link complete, but doubts remain over use

Highlights

Moldovagaz in talks over Gazprom deal renewal

Russian gas price competitiveness key factor

Solution also sought to Moldova gas debts

London — A new gas pipeline that will allow for up to 1.5 Bcm/year of gas to flow from Romania to the main demand centers in neighboring Moldova is complete, but question marks remain over the likely utilization rate of the new link.

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Moldova -- a former Soviet state that has been reliant on Russia for its gas supply for decades -- will in theory soon be able to import gas from Romania, giving it an alternative to Russian gas for the first time.

But with Moscow keen to keep a strangle-hold on supplies to Moldova and negotiations ongoing for a new supply deal with Gazprom from 2021, the Romanian line could yet turn out to be underutilized at best.

The 120-km (74-mile) pipeline from the Ungheni entry point on the border with Romania to the Moldovan capital Chisinau is complete and has now been filled with gas ahead of testing, a spokesman for the European Bank for Reconstruction and Development (EBRD) said this week.

The EBRD in late August bought a 25% stake in the operator of the pipeline, Vestmoldtransgaz, and has invested Eur20 million as part of a capital increase in the company.

At the time of the deal, the EBRD said the Ungheni-Chisinau gas pipeline would enable Moldova to diversify its energy sources.

"The project is completed, the gas pipeline is filled with gas for testing purposes," the EBRD spokesman said on Oct. 6.

"Vestmoldtransgaz is currently finalizing the connection of the gas pipeline with the Moldovan gas distribution networks," he said.

Vestmoldtransgaz -- majority owned by Romania's Transgaz -- could not be reached for additional comment.

There was 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.

Russian competition

Moldova is not an insignificant gas market -- last year Gazprom sold a total of 2.89 Bcm of gas to the country, putting it on a par with the likes of Greece, Croatia and Finland as a sizeable market for Russian gas supplies.

Moldova's demand is divided between the Moldovan territory on the right bank of the Dniester where Chisinau is located and the Russian-supported, breakaway region of Trans-Dniester on the left bank, over which the Moldova's central government has no control.

The new line brings a strategic advantage for Chisinau as Moldova will now be able to import gas without reliance on transit through the heavily industrialized Trans-Dniester region, which itself consumes a lot of the gas supplied to Moldova.

But Moldova's gas importer Moldovagaz may be in no hurry to begin imports from Romania, with its chairman Vadim Ceban quoted as saying last month that Russian gas was cheaper.

"Requests for cooperation are already received from some suppliers in Romania," Ceban said, according to local news outfit ZDG. "But today it is more convenient to buy from Gazprom," he said.

Moldovagaz -- itself majority owned by Gazprom -- secured a last-minute agreement with the Russian gas giant 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.

The 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.

Spot-indexed gas

But Moldovagaz is hoping to switch away from pure oil indexation and to reach a new deal with Gazprom having elements of spot market indexation.

That is despite the fact that the fall in oil prices since the start of the year has now filtered through into Moldova's oil-indexed gas price, with Moldovagaz saying that for Q4 the price would be around $100/1,000 cu m, bringing the average for the year to $145/1,000 cu m.

In late August, Moldovagaz said it was aiming to secure a three-year agreement in its negotiations with Gazprom and that the price formula "will probably also contain a link to the spot market."

The company told S&P Global Platts this week that it hoped to achieve an agreement "by the end of the year."

Moldova may be able to use the new pipeline with Romania as leverage to win a better gas supply deal with Gazprom, and it seems likely that the use of the Ungheni-Chisinau pipeline will depend largely on the terms of any new agreement with the Russian gas giant.

There is also still the issue of Moldovagaz's debts to Gazprom for past gas supplies, mostly to Trans-Dniester, which have been estimated at almost $7 billion.

Moldovan Prime Minister Ion Chicu agreed on Oct. 1 after a telephone conversation with his Russian counterpart Mikhail Mishustin to look to solve the debt issue.

"The parties agreed that the representatives of the relevant institutions of Moldova and Russia, together with the representatives of Moldovagaz and Gazprom, should identify a solution in this regard," the Moldovan government said in a statement.

Moldovagaz, meanwhile, has also begun to store some gas in Ukraine ahead of the upcoming winter period, it said Oct. 2.

Some 1.5-3 million cu m/d is being transported into Ukrainian storages, with an aim to have 100 million cu m of gas available for re-import into Moldova in the period December 2020 to February 2021, it said.

The gas will be sent through the Trans-Balkan gas pipeline.

Moldovagaz said around 80% of demand for gas in Moldova is consumed during the winter.