Recommendations for the industrial gas consumers in Romania, in the context of COVID-19 crisis

by Dumitru Chisalita

The Intelligent Energy Association makes a series of recommendations to industrial gas consumers, taking into account the recent developments on the domestic and international markets. The recommendations below refer to two situations. The first situation is that where the contract of the gas consumer will expire soon, and the second situation is that where the contract of the gas consumer is concluded for a long term. Currently, in Romania, there are approximately 188,000 non-household consumers, which have contracts concluded with 166 gas sellers (licensed suppliers).

The contracts that expire can be negotiated in very advantageous terms

If you are in the situation where the supply contract expires soon, it’s time to request an offer from gas suppliers based on the recent evolution of prices. It is best to address a larger number of suppliers, our recommendation being to request offers from 10 gas suppliers. To choose them, you can consult the following page: https://portal.anre.ro/PublicLists/LicenteAutorizatiiGN. Based on the offers received, there are two ways to approach negotiation. One with a higher risk, in which we recommend that you conclude a contract with a validity of only six months. In this way, you can obtain in this period a fixed price very advantageous in relation to prices that a consumer paid before April 2020. This approach has the risk that in the event where things go back to normal in the following months gas prices could start to grow from October 2020, compared to summer prices, and the negotiation in October could bring higher levels. But in the event where in autumn we face a return of the pandemic, amid the seasonality predicted by some researchers for the COVID-19 virus, you can obtain again an advantageous price, for winter, during the negotiation of the contract for the following six months.

Another approach with a lower risk is the conclusion of a contract for a 12-month period, through which you have the guarantee of deliveries for the following year and you can also obtain a fair price for this period.

Older contracts can also be renegotiated in favorable terms for consumers

If you have a contract concluded in early 2020 or previously, the recommendation of the Intelligent Energy Association is to request the existing supplier(s) the renegotiation of clauses to adapt to the current conditions. Given the current situation, according to the data of the Intelligent Energy Association, most suppliers are in general open to renegotiation. But if you don’t find an open dialogue, in accordance with the legislation in force any consumer may give up the existing supplier within 21 days, especially if under the existing contract it did not agree with commercial clauses undertaking to pay certain direct or indirect financial penalties if the contract is terminated early. The recommendation of the Intelligent Energy Association is that all consumers with contracts concluded closely monitor market evolution and whenever they consider the price under their contract is not fair to request the supplier to renegotiate it or if no understanding is shown by their supplier to request new offers from the market. However, it is very important that the analysis you make regarding the contractual price be correct, otherwise you may end up in the situation where you can irritate the supplier with unjustified claims and cause its aversion to the company you represent.  Further, this aversion may negatively reflect on the commercial relationship and can even lead to the termination of the contract. The analysis must be based on monitoring the trend of gas prices on gas exchanges and include, if possible, other analyzes conducted by the profile market.

General recommendations of the Intelligent Energy Association

In the context where the gas quantities consumed decreased and the delivery schedule in the following months has become unpredictable due to reduction of activity in various sectors, we notice the tendency of some suppliers to impose take-or-pay contracts and/or contracts with reduced daily/monthly flexibility, but with important financial penalties for consumers. The Intelligent Energy Association points out that in the previous years gas contracts for the industrial consumers were in general quite relaxed in terms of monthly flexibility and often under the stimulus of an advantageous price suppliers overlooked such obligations. Currently, in the context of the current crisis, which brings a great unpredictability on the continuation of business of consumers amid restrictions or the consumption level such contracts can become very detrimental. The industrial consumers have the tendency to prefer fixed gas prices throughout the term of the contract. In this period with unpredictable evolutions it is very difficult to determine a correct fixed price. This difficulty in identifying a correct fixed price for a period of one year makes suppliers in general to offer higher fixed prices, to cover the potential errors. The recommendation of the Intelligent Energy Association is to give up this approach this year and choose another version from those below, with the specification that these are general approaches that must be analyzed for each case and should not limit only to the situations presented:

1. An approach that brings a lower risk for consumers is to establish two fixed prices, one for summer and another for winter;

2. Another approach with a greater risk is to determine a variable price depending on the monthly evolution of the price on gas exchanges;

3. Between the two approaches various combinations can be made so that consumers ensure a fair gas price in conjunction with the accepted risk level.

The Intelligent Energy Association recommends consumers to conclude contracts with a duration of one year, with flexible clauses regarding the delivery schedule, with payment methods and terms specific to the possibilities and with a price determined depending on risk appetite (consumers with a high risk appetite – price related to the monthly price on gas exchanges; for consumers with low risk appetite – a fixed price).

Short glimpse into the future

The price of gas will follow a downward trend in the following months, a trend that will probably change within six months, when we expect to witness growths, following the increase in demand and also the sale on the hydrocarbon market from the storage facilities (this will add to gas prices the storage costs).

Clauses of a contract: price, delivery schedule, payment methods and deadlines, term of the contract etc. are elements that must be adapted for each consumer, not being able to establish unique approaches for all customers, especially in such an unpredictable period. We need to consider that no one knows exactly how long the state of emergency will last in Romania, we don’t know whether in autumn the virus will return and there will be new measures of social distancing, we don’t know exactly what the effects of the economic crisis will be and so on. If we focus on the certainties we can have in this challenging environment, everyone will definitely have more to gain.

Translation from Romanian by Romaniascout.

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