Romania Sees an Opening to Become an Energy Power in Europe

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CERNAVODA, Romania — A series of massive concrete domes tower along the Danube-Black Sea Canal in Cernavoda, about two hours east of Bucharest. Two of the buildings house nuclear reactors that feed into Romania’s electricity grid. Two more were started decades ago and are still awaiting completion – though perhaps not for much longer.

“We have big plans,” said site manager Valentin Nae.

The nuclear complex was conceived during the regime of Nicolae Ceausescu, the communist dictator who ruled Romania for a quarter of a century before being overthrown and executed in 1989. Ceausescu’s strategy was to isolate Romania from Soviet influence by having its own electricity generated.

More than 30 years later, while much of Europe is trying to sever ties with Russia’s energy, Romania is benefiting from Mr. Ceausescu’s thinking. The two reactors supply around 20 percent of Romania’s electricity very cheaply.

Russia’s invasion of Ukraine, which shares a nearly 400-mile border with Romania, has strengthened Romania’s quest for energy independence. Its ambitious energy plans include completing two of the Cernavoda plants and introducing a new type of nuclear technology called small modular reactors. It also wants to fully exploit the extensive offshore gas fields in the deep waters of the Black Sea.

Some see Romania, a nation about the size of Oregon, as having the potential to become a regional energy powerhouse that could help free its eastern and southern European neighbors from dependence on Moscow. It’s a common goal in Washington and among some investors, who see business and strategic opportunity in a corner of the world that has been hot in recent months.

The owner of the Cernavoda nuclear complex, a state-controlled company called Nuclearelectrica, plans to spend up to €9 billion ($9.5 billion) on nuclear initiatives this decade.

“For Romania, I can definitely tell you that these projects are extremely important,” said Cosmin Ghita, CEO of Nuclearelectrica. Mr Ghita said nuclear energy could help Romania meet a wide range of goals, from reducing carbon emissions to “fighting Russian aggression in the region” on energy issues.

The war in Ukraine has helped break years of stalemate and ramped up drilling in the Black Sea to unleash potentially rich deposits of natural gas that Romania could export.

“We will provide energy security for the neighborhood,” Virgil-Daniel Popescu, Romania’s energy minister, said in an interview after lawmakers passed legislation designed to encourage investment in gas production.

However, working in Romania is likely to prove challenging for companies from the United States and other Western countries. The government has a reputation for welcoming outside investors with cumbersome taxes and strict regulations. That policy, perhaps the result of fears that Romanian consumers would end up overpaying as energy giants take hefty profits home, likely drove out outside companies.

Last month, for example, Exxon Mobil sold its 50 percent stake in Neptun Deep, a Black Sea project that had been heralded as potentially the largest new natural gas field in the European Union. A brief announcement from Exxon said the company wants to focus on projects with “low delivery costs.” Romania’s tax system is considered the toughest in Europe.

Romania’s petroleum industry is one of the oldest in the world, dating back to well drilling in the 1860s and centered in the vibrant center of Ploiesti, some 35 miles north of Bucharest. While the venerable oil fields are in retreat, industry leaders say drilling in the Black Sea could produce enough natural gas to make Romania, now a modest importer, the largest producer in the European Union.

“The opportunity is offshore,” said Christina Verchere, CEO of OMV Petrom, Romania’s largest oil and gas company.

Romania also has dams that provide almost 30 percent of the country’s electricity. And the nuclear industry, which employs around 11,000 people, gets high marks from the global industry.

“You are an excellent operator; They know what they’re doing,” said Carl Marcotte, senior vice president of marketing and business development at SNC-Lavalin, a Canadian company that owns the Cernavoda reactor technology and is involved in the upgrade.

This potential has caught the interest of the United States. In 2020, with encouragement from the Trump administration, Romania broke off negotiations with China to complete the Cernavoda reactors and turned to Washington as the main source of nuclear support.

As plans for Cernavoda move forward, the Romanian government and Biden administration announced in May a tentative agreement to build a so-called small modular reactor on the site of a disused coal-fired power plant.

The bidder would be an Oregon company, NuScale Power, which has received more than $450 million in support from Washington to develop new technology that the nuclear industry hopes will revitalize reactor construction.

The idea is to build components for the plants in factories and then assemble them on site, hoping to reduce the huge costs and long construction times that have hampered the nuclear industry. In time, these reactors could offer European countries an alternative to polluting coal and imported gas from Russia.

“Europe needs to find trusted sources of clean and reliable energy, sources free from coercion and malicious political interference,” said David Muniz, chargé d’affaires at the US Embassy in Bucharest, at a news conference announcing the NuScale deal.

For a country like Romania with a well-trained, low-cost workforce, manufacturing equipment for this new type of reactor could become an export industry, not to mention the chance to export excess electricity.

“I think it’s a tremendous opportunity,” said Ted Jones, senior director for strategic and international programs at the Nuclear Energy Institute, an industry group in Washington.

Still, the Romanian government is likely to keep a close eye on investors and try to isolate Romanians from global economic forces. Leaving aside the faded elegance of some of Bucharest’s districts, Romania is a relatively poor country, with average incomes ranked at the lower end of the European Union.

“There is a deep-rooted distrust in the private market,” said Radu Dudau, director of the Energy Policy Group, a non-profit organization in Bucharest. “There is an underlying understanding and expectation that the people and the nation are safer when the state controls them.”

Such principles appear to have been at work in 2018, when the government increased taxes and imposed export restrictions on offshore oil production. Exxon followed suit by putting up for sale its interest in the Neptune field, which is believed to contain tens of billions of dollars worth of gas. On May 3, Exxon announced it would sell its stake in Romgaz, a state-controlled company, for approximately $1 billion.

If development of the project had accelerated in 2018, Romania might be on the verge of almost doubling its current gas production. Instead, the project should at best only go into operation in five years. The government’s moves “significantly undermined the competitiveness of Romania’s offshore region for investors,” said Ashley Sherman, research director for Caspian Sea and Europe at Wood Mackenzie, an energy consultancy.

Mr. Popescu, the energy minister, said the sponsors of the 2018 legislation misjudged themselves, assuming Exxon would go ahead with the project anyway and had been proven wrong in “real life”. Recently, with energy security much higher on the agenda, lawmakers have passed legislation to repair the damage and relax some of the rules. Soaring natural gas prices and the war in Ukraine convinced lawmakers they needed to “start exploiting the Black Sea,” he said.

And soon a smaller gas field in the Black Sea is to go into operation. The project is owned by a group that includes a unit of Carlyle, the US investment management firm, and is located near onshore fuel pipelines near Constanta, Romania’s main port and offshore drilling hub. It will produce about 10 percent of Romania’s gas needs.

Developing Neptune, valued at $4 billion, is likely to be more difficult and expensive than if work had started a few years ago. With high oil and gas prices, the cost of drilling and steel and other inputs have turned sour. The Black Sea is now a risky area, with mines floating around and the dangers of Russian military activity driving up insurance rates. Exxon also has far greater expertise in deep-water operations than Romgaz or OMV Petrom, which Exxon took on as operator of the project.

Despite these issues, energy security concerns are so great that the project is likely to go ahead even with Exxon gone, analysts say. It may even help that two Romanian companies are in charge.

“I think it definitely has the right context now,” said Ms. Verchere, CEO of OMV Petrom.

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