PwC Study: Postponing Black Sea Gas Investments Will Lead to New Challenges for Romanians

The most recent and comprehensive study on the specific taxation of offshore natural gas production in Romania, conducted by PwC Romania for the Oil & Gas Employers’ Federation (FPPG), indicates that, in the context of rising gas prices, the effective tax rate specific to offshore production in Romania reached 51% of the 2021 revenues, more than doubling it and 10 times more than the European average in 2020.

In the last year, according to the study, the state has collected half of the revenues from offshore natural gas production, only through royalties and additional income tax. Moreover, in the 4th quarter of 2021, the effective offshore gas tax rate reached 78% of revenues. Thus, the gas production sector has one of the largest contributions to the state budget, ensuring more than the country’s energy security during this period.

Between 2013 and 2021, only the additional taxes on natural gas production amounted to over RON 8 billion, taxes established in order to protect vulnerable consumers. Even so, in the absence of amendments to the Offshore Law, in order to ensure the stability and competitiveness of the fiscal regime, the decision to invest in Black Sea resources will continue to be postponed, with a major impact on the Romanian energy sector and implicitly on the economy. Moreover, based on the Black Sea projects, Romania can become the first natural gas producer in the European Union, with the closure of the Groningen field in the Netherlands and the energy transition.

“This study can be seen as an additional argument for a decision in favour of the Romanian energy sector. The downward trend in natural gas production will continue in the absence of developing reserves in the Black Sea, with an impact on increasing import dependence and on national energy security”, is the opinion of Cătălin Niţă, Executive Director of FPPG.

“We noticed, following the analysis, how the accelerated growth of natural gas prices in the last half of 2021, correlated with the specificity of taxation of natural gas production in Romania led to a significant tax burden,” added the study coordinator, Andreea Mitiriţă, PwC Romania tax services partner.

The study concludes that the postponement of investments for natural gas resources in the Black Sea will lead to a series of challenges for Romania, among which the following are worth highlighting:

• The growth dependence on natural gas imports (up to 53% in year 2030) with implications on energy security and on the deficit.
• Losing the competitive benefit associated with offshore natural gas resources ownership and implicitly the benefits of their contribution to GDP through jobs created and enabling other investments.
• The loss for the budget from revenues and taxes associate these investments, estimated at about 5 billion RON in annual average.
• Losing the opportunity to use these resources into the energy transition, especially in the context in which natural gas is considered a transition fuel.

Data on the average effective rate of taxation of natural gas production (offshore) in Europe was taken from the PwC Study on the comparative analysis of tax regimes published in 2021.

The study conducted by PwC Romania for FPPG can be found at https://www.fppg.ro/analiza-impozitarii-productiei-de-gaze-naturale-offshore-romania-2021/