The most recent comparative study on the specific taxation of offshore natural gas production in Europe, conducted by PwC Romania for the The Oil and Gas Employers’ Federation (FPPG), reveals that the revenues of natural gas (and oil) production operators have been steadily dropping.
This trend is due to the high pressure exerted by falling oil prices, as well as declining production from operating fields. However, the development of offshore production would make a significant contribution in covering future gas demand, according to the study. The costs and risks associated with such projects, especially those of great depth, are high and the investments are made in the long run. Therefore, the study finds, very few companies globally have the know-how, technology and financial resources needed for such projects.
“The results of the comparative analysis show significant differences between the effective tax rates of natural gas production (offshore). Both in 2020 and in 2019, Romania has the highest effective tax rate, of 23%, a level of over 4 times higher than the average of the European states taken into account in the study,” says the coordinator of the study, Andreea Mitiriţă, partner of Fiscal Services, PwC Romania.
The study concludes that the predictability and stability of the legislative and regulatory framework is a major precondition for investment decisions that require high initial costs, high risks and a long payback period, such as those in offshore gas production. The tax regime must also be stable and competitive, in order to retain and attract investors. In this sense, in order to restore the balance and competitiveness of the fiscal regime applicable to natural gas projects in the Black Sea, it is necessary to amend the Offshore Law.
“The dialogue between public policy makers and representatives of the sector is essential in order to develop an optimal framework for investments in offshore natural gas production, on the basis of which benefit the state, citizens and investors,” said Cătălin Niţă, FPPG Executive Director .
The FPPG stresses once again that the current opportunity to develop the Black Sea gas reserves must now be exploited in the context in which natural gas has a chance to represent the transition fuel. Otherwise, there is a risk that Romania’s development potential from the perspective of having this competitive advantage will be lost.
The study comparatively analyzed the effective tax rates specific to offshore natural gas production in European countries considered relevant, available on 31 May 2021, in order to identify an updated picture of the tax “burden”. The effective tax rate for each state was calculated by relating the amount of royalties and specific taxes paid by the main players in the industry to the revenues obtained from the production and sale of natural gas.
