Romania must urgently overhaul taxation, start fracking to limit gas import rise – expert

LONDON (ICIS)–Romania, one of Europe’s largest gas producing countries, could become import-dependent in the next decade if it does not urgently reform its taxation system and encourage offshore production and fracking, according to a Romanian gas market specialist.

Speaking to ICIS, Dumitru Chisalita, president of Romania-based Asociatia Energia Inteligenta, said the country’s annual demand was likely to increase by 25-30% to as much as 18 billion cubic metres (bcm) by 2030, as gas is likely to remain a transition fuel and there are increasing numbers of consumers expecting to be connected to the grid. This compares with 12bcm consumed over last year.

While demand is forecast to increase, local onshore production is predicted to fall from 9bcm/year in 2021 to 6bcm/year by the end of the decade, effectively deepening the country’s dependence on imports, which currently cover 30% of domestic consumption.

Despite the fact that there is a pressing need to attract investors to ramp up production by creating a business-friendly environment, the government continues to intervene in the market and has been slow in reforming the taxation system, Chisalita said.

The government introduced a temporary compensation package to shield end consumers from record gas prices but traders polled by ICIS said the scheme would create cashflow issues for suppliers and incentivise them to ramp up expensive imports.

Chisalita said there was a pressing need to overhaul the taxation system to encourage producers to invest in offshore Black Sea production and fracking. Romania’s offshore gas reserves are estimated at 120 bcm and unconvential shale and tight gas reserves at around 1.4 trillion cubic meters, Chisalita said.

However, despite its large resources, high-profile investors such as US-based ExxonMobil and Chevron pulled out of Romania in recent years, partially because of hefty taxation and repeated government intervention in markets, but also because of local opposition to fracking.

Chisalita pointed out that the current taxation system was so burdensome that despite last year’s record gas prices, which should have allowed companies to rake in bumper profits, Romania’s largest producer, Romgaz budgeted for 2022 a profit only 2% higher than in 2021, although it expects a doubling of revenues

This is because under a law passed in 2013, gas producers are expected to pay an 80% windfall tax on profit made if the wholesale price of natural gas is above New Lei 85.00/MWh (€17.18/MWh).

The remaining 20% not taxed by the 80% surcharge incurs a further 90% levy which is used to pay dividends to company shareholders. Romgaz is 70% owned by the Romanian government.

As partners in the critical Neptun Deep Black Sea field, Romgaz along with Austrian-Romanian OMV Petrom partners are expected to invest $4.5bn (€4bn) to produce the gas and bring it online by the end of the decade.

However, the expert raised questions about the consortium’s ability to invest the cash when most of producers’ revenues are mopped up by the government.

Chisalita said that in 2022 alone, the tax collected by the Romanian government from natural gas companies along the entire value chain would be €2.76bn, which represents 1% of the country’s expected GDP this year.