Key View: Natural gas consumption will remain soft over the first half of the forecast period as a result of full market liberalisation bringing up prices to normalised levels. Consumption will accelerate over the second half of the forecast period as gas power generation rises and, as domestic gas production rises. Moreover, the fully liberalised market and greater availability of gas will support growth.
Gas consumption has dropped significantly during the post-Soviet era as Romania's industry has become more efficient and de-industrialised. While continued economic growth will support demand for natural gas over the forecast period, the regularisation of gas tariffs as Romania's gas sector liberalises should keep demand in check.
The bulk of natural gas is consumed in the power, industrial and residential sectors and will be supported by continued economic expansion, ongoing urbanisation and broader energy demand growth. In 2021, the urban population represented 54.4% of the total and this share will gradually increase over time, rising to 57.1% by the end of our forecast period. That said, demographics are not overly supportive of demand, given that the overall population size continues to shrink. Over 2012-2021 the population fell at an annual average rate of 0.6%. However, declines are set to soften, averaging 0.5% over 2022-2031. The economic outlook is more positive, with our Country Risks analysts forecasting real GDP growth averaging 3.4% y-o-y over the coming decade, broadly in line with the 3.5% averaged over the previous 10 years.
A key driver of growth will be the power sector. Our Power team expects gas-based electricity generation to grow at an annual average rate of 4.3% y-o-y over the 10 years to 2031, up from the 1.8% averaged over 2012-2021. Natural gas will increase its share in the total generation mix over this period, rising from 16.9% in 2021 to 22.7% in 2031. Gas is taking share away from coal, as Romania moves to phase out coal by 2032. However, it is increasingly coming into competition with renewables, which our analysts expect will grow to account for 25.3% of total generation by the end of our forecast period, up from 16.7% last year.