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GAS 30 July, 2018 11:00 am   
Editorial staff

OSW: Controversies over the extraction of Black Sea gas in Romania

On 9 July, the Romanian parliament passed an act regulating oil and gas extraction from offshore fields in the Black Sea. The leader of the government coalition, Liviu Dragnea, is arguing that the new regulations will make Romania self-sufficient in terms of gas production and will end its dependence on imports from Russia. The new law opens up the way to the extraction of natural resources from offshore fields on the Black Sea and imposes a tax on extraordinary incomes generated by oil and gas producers ranging from 15% to 50% (depending on the raw material price) – writes Kamil Całus, analyst at OSW.

In addition to this, they will pay royalties standard for this sector equivalent to 3–13.5% of the production value. The primary sector has criticised the amendment and has warned that excessively high and unstable taxes may block the plans to launch production at the Black Sea fields. Natural gas deposits estimated at approximately 170 billion m3 (the equivalent of around 17 years’ worth of Romanian consumption) have been confirmed on the Black Sea bed over the past decade. The licences to explore more than half of these fields have been granted to ExxonMobil based in the USA, and OMV Petrom (a company co-owned by Austria’s OMV and the Romanian state). According to announcements made, production is set to begin in 2020–2022. Romanian gas production may even reach double the present level as a result of the launch of natural gas production from the offshore Black Sea fields. At present, the annual output of Romania’s onshore gas fields is around 10–11 billion m3.

Since the beginning of the political system’s transformation, Romania has managed to reduce its gas consumption to one-third, from 32 billion m3 in 1990 to around 10 billion m3 in the past few years. As consumption fell, the level of gas imports from Russia was also reduced (from 6.5 billion m3 in 1990 to 0.5 billion m3 in 2014). In 2015, 97% of natural gas consumed in Romania originated from local sources. This trend was reversed in 2016 when imports rose to the level of 1.48 billion m3. The increase in the share of Russian gas in Romania’s energy balance was linked to the Romanian government’s imposition of additional taxation on local production companies.

Commentary

It was necessary to pass an act setting the fiscal framework for oil and gas extraction from the offshore fields in the Black Sea in order to launch the operation of the new fields. The regulation passed by the parliament imposes higher taxes on this sector as compared to the initial version of the act. The final version most likely had not been consulted with companies from the primary sector and came as a big surprise to them. One of the reasons for imposing higher fiscal levies on companies was most likely the centre-left coalition’s desire to improve its perception by the electorate. The government started a bitter dispute with the president and the opposition involving controversial reforms of the judiciary system and prosecution authorities being set on a faster track; this has adversely affected the popularity rankings of the coalition parties.

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