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Romania: A New Energy Power

Romania: A New Energy Power After a slowly diminishing status, brighter days to come?

While contemporary interest in energy questions focus on the Middle East, Romania has an impressive record in petroleum production which can be traced to 1517. Romania has a history of more than 150 years in oil extraction and in 1838 became the first country in the world with the production of 275 barrels of oil. It was followed by the United States in 1859 and Italy in 1862. By the 19th century, Romania had become one of the largest petroleum producers in Europe and Ploiești was among the best-known centers and was the site of the first Romanian refinery. Bucharest was the first city in the world illuminated with 1000 kerosene lamps, using kerosene which was produced in Ploiești.

As a grim tribute to the importance of Ploiești, it became one of the Allies’ main Romanian targets during World War 2. Known as Operation Tidal Wave, this attack was undertaken by the US Army Air Forces and targeted nine oil refineries in the Ploiești area in August 1943. It was the USAAF’s second worst loss in Europe, did little to reduce petroleum production for the Axis, and took out only Astra, the city’s American built refinery.

After the war, Romania’s industrialization let to the development of a more advanced petroleum production system. In order to achieve this status, the Petroleum & Gas University of Ploieşti was founded in 1948.

As domestic gas production in the European Union has been declining, Romania enjoys an increasingly enviable position. By 2017, Romania’s natural gas reserves were among the largest within the European Union with more being discovered on a regular basis. Not surprisingly, speculation is now focused on the prospect of Romania emerging as a major player in the European gas market.

Today, the three most important functioning refineries in Ploiesti are Petrobrazi, also known as OMV Petrom, which is the Romanian state oil and gas company whose majority stock package was sold to the Austrian investor, Petrotel, run by the Russian group LUKOIL, and Rompetrol Rafinare which is a subsidiary of the KazMunayGas Group. The Kazakhstan’s group runs two refineries in Romania, Vega in Ploiești and the second most important refinery in Romania, Petromidia, which has a strategic position at the Black Sea.

In 2017, Lukoil’s Ploiești-based refinery processed over 10% of its oil, the equivalent of over 2.5 million tons of crude oil, contributing to an increase of the overall global amount of oil processed by Lukoil, by 1.8%, with an efficiency of 99%, which means that nothing remains untapped. In comparison, the Russian Federation processes annually over 43 million tons of crude oil.

At present, the main dispute on the oil market is the differences between the prices of Ural oil, Brent and WTI (West Texas Intermediate) oil prices. Political interests in different strategic zones play a key role in the markets where the three types of oil are processed, all over the world.

It a world in which the environmental impact of energy sources is increasingly important, Romania faces a challenge in connection with its petroleum industry. Compared to Kirkuk oil, Ural oil, as well as all those from the region, it has a high sulfur content, which results in a refining process with a high degree of pollution. The only possibility is to process it in areas of the world where legislation against pollution is not very stringent. Because of the obvious disparity caused by the many years of Communist rule endured by Romania as well as an extremely slow evolution in many fields after the 1989 Revolution, Romania does not benefit from a system of environmental laws that could protect local communities from extensive pollution of urban areas.

That is why Ploiești, which is just 60 kilometers away from Bucharest, is one of the most polluted cities in Romania, well above the maximum accepted limits for benzene and toluene in terms of the air which residents breathe. The smell of hydrogen sulfide sulfur oxides, nitrogen and aromatic hydrocarbons, which increase the risk of respiratory diseases, allergies and even more serious complications, can be observed particularly during the night, when refineries do not face the risk of being carefully monitored by local authorities. At the same time, the fines imposed on oil producers that do not comply with the local government regulations are so small that sometimes they prefer to pay the fines rather than instituting the best measures to protect the environment.

While the position of Romania’s petroleum industry is strong and even enviable, it still faces vulnerabilities. The most significant is that while Romania produces some of its own crude oil, like most of Eastern Europe, it is dependent on Russia for most of its crude oil. Equally troubling is the decline in number of active refineries in Romania. In 2004, there were ten, a number that had declined to four by 2017.

The relationship between Russian petroleum interests and Romanian refineries has been affected by changing Russian interests. The political climate has been a factor and Russia has charged that there are attempts to "sabotage" many of its energy projects in Europe.

Actions of the US Department of State may have encouraged this perception as it set out to minimize Russian influence over Eastern Europe. In 2017, a Kazakh state oil company, KasMunayGaz, joined this effort when it announced plans to replace the more expensive Urals crude oil with cheaper Mediterranean grades for its refineries in Romania.

Romania was within the Russian sphere of influence for decades after World War Two and until 1989. Even after the 1989 Revolution, Romania’s petroleum industry was still tied to the former USSR and Ural oil is processed around the Black Sea coast countries. This arrangement is partly a consequence of the relative ease of transporting Ural oil from the extraction areas to the refineries for processing.

KMG Group transports the entire production of Ural oil from the Russian harbor of Novorossiysk to refineries that it owns in Romania and through the Midia oil terminal that they own on the Black Sea. The terminal, built by the Kazakh group in 2008, has an annual capacity of around 170 million barrels and can host Suezmax tankers that have a capacity of up to 160,000 DWT. At present the company only transfers around 30 billion barrels annually, but from an infrastructure perspective Romania is well prepared to receive large amounts of crude oil and has the facilities for processing those amounts.

Russian interests are focused elsewhere and Romania is a relatively minor factor for the Russians. Other countries such as North Korea are more important to them. As of 2018, North Korea will not be allowed to import more than 2 million barrels annually from the Russian Federation, which would be a decrease of 10-50% of overall imports. However, former North Korean officials living in the USA suggest that North Korea annually imports around 200,000-300,000 barrels of oil from Russia an exchange accomplished with Chinese assistance.

According to a press release by Helima Croft, Managing Director of Commodity Strategy, Global Research Division, “Putin is turning into the new tsar of energy on world level”. At stake is the economic and political power of Kazakhstan and Azerbaijan, nations now part of OPEC in part due to Putin’s influence and which together count for 60% of the worldwide oil industry. This development also greatly affects the relative power of Romania’s petroleum industry.

This development is driven not only by economics and politics but also impinges on environmental politics. Because Ural crude oil is the most expensive, KasMunayGaz is trying to refine other types of crude oi such as BTC (Azeri), Siberian Light or CPC Blend crude oil and thus benefit from the high prices of Ural crude oil on the spot market. In June, 2017, local Romanian journals, citing Reuters and stock market sources, suggest that Rompetrol Rafinare purchased Kirkuk oil which has a lower concentration of sulfur and is more environmentally acceptable.

In spite of a promising environment for Romania’s energy sector, its growth has not yet lived up to expectations. One factor inhibiting expansion of the nation’s fossil fuel market has been difficulties in connecting with gas grids elsewhere in Europe. Romania’s lack of interconnectivity with other nations has limited the growth of its petroleum industry. While there may be a tremendous amount of Russian national gas in Romania, the Russians are simply using Romania as a transit country.

Developments since the mid-1980s have underscored the significance of Romania’s petroleum sector. At that time, the nation began to experience a major depletion of its once extensive reserves of fossil fuels, especially coal. By 2013, Romanian production had fallen to about 25% of what it was producing in the 1980s.

Yet, Romania has the fifth largest natural gas reserves in Europe and, with its refinery capacity, Romania is positioned to rely more heavily on petroleum. In addition, through cooperative relationships, it has enhanced its reputation in petroleum production and could well become a global energy power. 

Photo credit: The New York Times. (New York, NY), Nov. 25 1917. https://www.loc.gov/item/sn78004456/1917-11-25/ed-1/. [Kaiser William II (German Emperor) with members of his staff and of the Imperial Party, visiting the oil wells of Romania, November 1917]

 
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OEconomica No. 1, 2016