Romania is among the European Union member states with the highest real costs of natural gas when prices are adjusted for purchasing power, although at nominal level the prices do not seem high, according to an analysis by Dumitru Chisalita, chairman of the Smart Energy Association (AEI).
The economic effort borne by consumers is amplified by the low liquidity of the market, the low degree of infrastructure use and the high fixed costs throughout the chain, from transmission and distribution to storage and supply.
"Romania has among the highest costs on all components of the price of natural gas in relation to km of network, volumes transmitted and people's purchasing power. In the public debate on the price of natural gas, comparisons almost always stop at the nominal level, how many euros it costs to transmit, distribute or commercial margin. It is a convenient approach, but deeply misleading. Because the real price of energy is not measured in euros, but in the economic effort of the people. When we adjust data for the purchasing power (PPP), established hierarchies are reversed. And the conclusion becomes uncomfortable: Eastern Europe is not cheap, it is disproportionately expensive in relation to the ability of consumers and industry to pay", explains the AEI president in the analysis "Why cheap' natural gas becomes 'expensive.'"
In his opinion, commodity gas is the place where the myth of the "low price" disappears.
"In order to eliminate any distortion, the analysis must start from the cleanest element, the price for the commodity gas, without taxes, without excise duties, without transmission, distribution or storage prices. Only the actual cost of gas, adjusted for PPP. The result is perhaps the most inconvenient in the entire chain. In Western Europe, the price of commodity gas adjusted for the purchasing power is closely grouped around the range of 0.03-0.035 euros/kWh PPP. Germany, the Netherlands, France, Austria or the Nordic states are all in this area. The differences are minor, and the real cost of energy is relatively stable and predictable," according to the analysis.
On the other hand, in Eastern and South-Eastern Europe, the picture is completely broken, as Bulgaria, Hungary, Poland, the Baltic States and even Romania (the largest gas producer in the EU) climb to 0.055-0.063 euros/kWh PPP, i.e. almost double that of the West in terms of purchasing power.
Thus, Romania reaches approximately 0.055 euros/kWh (PPP), one of the highest in the European Union.
The essential question arises: how can gas be "cheap" in a country where the commodity, the peak of domestic production, is, in fact, so economically expensive? Why is commodity gas expensive in the East, even without taxes? The answer does not lie with suppliers or "speculation", but with the structure of the market, Chisalita emphasises.
"Lower people's incomes. The adjustment for the PPP inevitably penalises savings with low wages. The same import price, expressed in euros, weighs much harder on the Eastern European consumer. Weaker bargaining power. Smaller volumes and fragmented markets lead to higher costs per unit of income, even when the nominal price seems fair. Structural dependence on gas storage. Energy security, which is absolutely necessary, introduces fixed costs that are difficult to dilute economically in the absence of the large volume," he says.
At the level of natural gas transmission (euro/kWh-km adjusted PPP), Western states remain at or below the European average, despite higher nominal tariffs, the analysis shows.
"The explanation is structural: large volume, dense networks, efficient investments (not made for commissions), high incomes of the population," says the specialist.
On the other hand, in Eastern Europe, the situation is different, with Romania reaching an index of 135, the highest in the analysed sample.
He explained this situation "not because transmission would be expensive in euros, but because the infrastructure has a low degree of use, large capacities - small volumes and high waste - low income of the population, which amplifies the real economic effort at the level of the consumer."
As far as gas distribution is concerned, the analysis shows that this component represents the paradox of the "cheap" that weighs the hardest. Although, at the nominal level, Romania, Bulgaria or Hungary are often invoked as examples of low costs, the adjustment to purchasing power radically changes the perspective.
Thus, Romania reaches an index of 145, the highest in the European Union.
"The cause is not the unit price, but the oversizing of the network (made by political pressures, poor regulatory considerations, commissions, the greed of designers and builders) and the underutilisation of the network, the low density of consumption and the geographical dispersion of the infrastructure. Romanian consumers pay little" in euros, but a lot of his real income."
In the case of storage, the differences between the West and the East remain, according to the document. Western countries, with large facilities and intensive use, remain around the EU average after adjusting for PPPs, while in the East the infrastructure is mainly strategically sized, for energy security.
Romania reaches an index of 148, which indicates an economic effort almost 50% above the EU average. The nominal costs are not high, but the relatively low degree of use, combined with low revenues, makes storage a disproportionate economic burden.
The analysis shows that even the commercial margin does not explain the high level of the real cost. Romania reaches an index of 150, the highest in the EU.
"It is essential to emphasise that the euro/kWh margin is not high. On the contrary, it is modest in nominal terms. The pressure arises from the combination of: long networks, decreasing volume, low purchasing power. Thus, even a "small" margin becomes oppressive for consumers."
Data on VAT and excise duties also confirm the paradox highlighted by the analysis: Romania does not have exceptional taxes in nominal terms, but the adjustment for the purchasing power places the economic effort at some of the highest levels in the European Union.
Therefore, Romania is expensive not because of the market, but because of systemic inefficiency. A central conclusion of the AEI analysis is that Romania is constantly placed in the European top of real gas costs not because of the absolute level of prices, but because of the structural inefficiency of the entire gas business.
According to the analysis, the Romanian model is characterised simultaneously by: low market liquidity (small volumes, few transactions), low degree of infrastructure utilisation (transmission, distribution, storage), as a result of oversized investments due to bonuses for companies, bonuses for managers and administrators, commissions for intermediaries, as well as high prices per economic unit as an effect of high fixed costs due to low consumption and harmful investments.
On the list there are: apparently high trade margins in relative terms, not due to greed, but due to lack of volume and especially due to lack of transactions, high cumulative taxation, applied over an already inefficient system and chronic operational inefficiency, masked for years in a row by nominal comparisons.
"The result is a clearly identifiable vicious circle: inefficiency, low liquidity, high unit costs, high final price, decrease in consumption and less liquidity, higher unit costs, higher final price, greater decrease in consumption, etc.," the document also shows.
Chisalita argues that, in Romania, the high prices for natural gas is the direct consequence of the market structure, not its cause.
"A market with a small volume cannot amortise efficient infrastructure (high tariffs), cannot sustain real competition (high commodity prices), cannot reduce margins through rapid capital turnover (high margins) and cannot absorb taxation without full price transfer (high taxes)," the document states.
Thus, each component of the chain - transmission, distribution, storage, supply - becomes more expensive per unit of energy delivered, even if each component is "reasonable" taken separately and nominally.
Energy policies in Romania have treated the problem as one of: "too high price", "unfair tariff", "excessive size", "too harsh regulation". In reality, the problem is the lack of liquidity in a capital-intensive system. No volume: there is no efficiency, there is no sustainable low price, there is no real competition. Any administrative intervention that does not directly deal with economic efficiency and increase the use of networks only redistributes losses, does not eliminate them, but certainly increases costs and prices, according to the analysis.
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