PreturiCorecteLaGaze: How is the gas price formed?

by Dumitru Chisalita, Energy Expert

www.dumitruchisalita.ro 

In Romania, there are several price categories in the gas market, this aspect creating confusions. It is necessary to acknowledge the difference between the commodity price (gas at import points or at the entry into the transmission system from production fields) and tariffs related to services needed to carry gas from production fields and/or import points to end-customers. They include gas transmission tariffs, gas distribution tariffs and gas storage tariffs (in the warm period, demand is lower than production, gas being used in the cold season, when demand is higher than production). Tariffs of transmission, storage and distribution services are regulated by ANRE, being applicable similarly to all market participants.

We will further present the main categories of prices and their formation:

1. Gas price at the entry into the transmission system from production fields.

1.1.  Price freely traded in the market between gas producers and suppliers or consumers of gas. Setting these prices is possible under bilateral contracts, following direct negotiations or through gas exchanges (BRM and OPCOM). Most contracts in this market are concluded through bilateral contracts. This situation required, as of last summer, the legal obligation to trade at least 35% of the amount produced on the centralized platforms.

1.2.The price of gas from domestic production approved by Government Decision, for the period of gradual market liberalization (2015-2021), set under Law 123/2012, at which producers are required to sell gas for household consumption of gas or thermal energy.

1. Import gas price.

Price freely traded in the market between gas producers or their subsidiaries and suppliers or consumers of gas. Setting these prices is made under bilateral contracts, following direct negotiations.

Note: These prices (sections 1 and 2) don’t include services, the gas buyer being required to contract these services by itself from the transmission operator (TRANSGAZ), distribution operators (one of the 38 distribution operators) and storage operators (2 operators in Romania).

1. Gas price at the end-customer

3.1.Price freely traded in the market between suppliers and end-consumers. Setting these prices is possible under bilateral contracts, following direct negotiations or through gas exchanges (BRM and OPCOM). Most contracts are concluded through bilateral contracts. This situation required, as of January 1st 2015, the legal obligation to trade at least 35% of the amount sold on the centralized platforms.

Gas in the free market is formed by summing up the acquisition price of gas from domestic production, the acquisition price of imported gas, transmission tariffs, distribution tariffs, tariffs for storage services and the trade markup of sellers. The share of gas from domestic production and import is set as of January 1st 2015 by each supplier.

3.2.Regulated price, set under ANRE Orders, exclusively for household gas consumers and thermal energy producers that deliver heat to households. This price is determined separately for each company selling gas in the regulated market.

The regulated price is formed by summing up the acquisition price of gas from domestic production with a share of 98% in the amount of gas sold, the acquisition price of imported gas with a share of 2% in the amount of gas sold, transmission tariffs, distribution tariffs, tariffs for storage services and the trade markup of sellers set by ANRE.

3.3.The transition price for non-household customers (kindergartens, hospitals, schools, retirement homes, bakeries, shops etc.), which will be applied for the transition period January 1st 2015 – June 30th 2015 and which was determined (imposed) by the gas supplier for non-household customers that did not want or did not have the time to negotiate the price of gas as of January 1st 2015. On July 1st 2015, non-household customers are required to buy gas from the free market, but at negotiated price.

Gas in the free market is formed by summing up the acquisition price of gas from domestic production, the acquisition price of imported gas, transmission tariffs, distribution tariffs, tariffs for storage services and the trade markup of sellers. The share of gas from domestic production and import is set by each supplier.

Image courtesy of John Kasawa at FreeDigitalPhotos.net