Friday, June 8, 2012

FT: Fracking: easier said than done in Romania

There is always a danger in using the word “inevitable”. Take the development of shale gas in central and eastern Europe.

It’s all very well KPMG describing it in such terms. Of course almost all of the countries in the region want affordable energy, but that’s not how some of the locals see it. The ‘Nimby’* contingent, aided by modern technology, are very active in the region. And politicians are taking note.

That’s part of the reason why the new government in Romania, under the new government led by Victor Ponta, the centre-left prime minister, imposed a moratorium on shale gas exploration and extraction towards the end of last month.

There was a series of vociferous protests, including in the job-starved east of Romania, where a campaign was waged against the former government’s decision to grant Chevron, the US oil company, licence to explore potential shale gas deposits in the Barlad Block, near the border with Moldova.

Chevron on its website says it has won several exploration licences over a total of just over 9,000 sq km, in the north-east and south-east Dobrogea region, near the border with Bulgaria.

Asked to explain it’s current position in Romania, the company replied with a statement:

Chevron is committed to working with the government to address any concerns in the development of natural gas in Romania. The development and production of natural gas from shale formations has a proven record of being done in a safe and environmentally responsible manner.

Unsurprisingly, confusion levels are high. It is unclear as to whether the moratorium on exploration (and extraction/production) is now in force, and what exactly that covers if it is.

The idea of a moratorium on environmental grounds is not big surprise – Ponta has a green-friendly track record – though some close observers wonder if it is not more down to simple political realignments by the new leadership.

One Romanian analyst told beyondbrics: “The new government put all contracts on hold, probably because they were the pet projects of president Basescu. Closer ties to Russia and local oil-producing companies mean long delays to fracking projects. A lot will depend on the approach used by Chevron and other interested parties. All potential [shale gas] fields are located in regions dominated by the current coalition, so public reception will also be important”.

Ponta’s government has certainly not ruled out developments, saying it will lift the moratorium if investigations into fracking prove it to be environmentally safe.

The latest Romanian moves came too late for inclusion in the KPMG regional study; the country currently imports less than 20 per cent of gas consumed, although demand is rising.

However, Seve Butler, director at KPMG in Hungary’s energy & utilities advisory practice, and co-author of the report, says such developments are just par for the course of any modern energy-harnessing process. “One of our key findings is that the regulatory environment with regard to shale gas is very much an unfolding story in the region, as several countries (including Romania) have yet to define how they will regulate (and tax) shale gas extraction,” he said.

In addition, the fact that there have been several changes to governments in the region this spring, with new political parties taking power, inevitably means a country’s position on shale gas may change. That may have an impact upon an individual investor’s approach – and level of investment in – any given country.

“Clearly, the recent change of government in Romania has led to this shift in policy. It remains to be seen for how long this moratorium will last, and whether it might be changed again as a result of further study, or via another possible change in government,” Butler argued.

We’ll wait and see.

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