The latest study on the specific taxation of offshore natural gas production in Romania, conducted by PwC Romania for the Federation of Employers of Oil and Gas (FPPG), indicates that, in the context of rising gas prices, the effective tax rate specific to offshore production in Romania reached 51% of revenues in 2021, more than doubling it and being 10 times more than the European average of 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. Therefore, the gas production sector has one of the largest contributions to the state budget, thus 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 to 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 favor of the Romanian energy sector. The tendency to reduce natural gas production will continue in the absence of the development of Black Sea reserves, with an impact on increasing import dependency and on the national energy security,” says Cătălin Niţă, Executive Director of FPPG.

“We observed, 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 fiscal burden,” added the study coordinator, Andreea Mitiriţă, PwC Romania tax services partner.

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

• Increasing dependence on natural gas imports (up to 53% in 2030) with implications for energy security and the current account deficit.
• Loss of the competitive advantage associated with owning offshore natural gas resources and, implicitly, of the benefits determined by their exploitation: contribution to GDP through created jobs and entrainment of other investments.
• The loss of budget revenues from taxes and duties associated with these investments, estimated at about RON 5 billion on average annually.
• Losing the opportunity to use this resource in the process of energy transition. In the context in which natural gas will be considered a transition fuel.

Data on the average effective rate of taxation of offshore gas production in Europe were taken from the PwC Survey on the Comparative Analysis of Tax Regimes published in 2021.