On August 2, 2019 American energy company “ExxonMobil” announced hat it is leaving hydrocarbon production projects in Romania’s offshore economic zone, in particular, Romania’s “ExxonMobil” regional director Richard Tusker outlined “ExxonMobil’s” intention to sell its share in development of offshore gas field “Neptun Deep” in the Romanian Black Sea where ExxonMobil holds 50% shares. According to Richard Tusker, “ExxonMobil” has already informed the Romanian government, the National Authority for Mineral Resources (“ANRM”) and its partner “OMV Petrom” of its intentions.
Richard Tusker noted that the company invested about USD 700 million in the development of offshore gas field “Neptun Deep”. Commercial operation of the field was expected to begin at the end of 2018. However, this was postponed with the changes in Romania’s tax and energy legislation, which significantly impaired the company’s investment activity in the country. “Neptun Deep” gas reserves are estimated at 45-84 billion cubic meters of gas. “ExxonMobil” consortium and “OMV Petrom”, which jointly own 50% to 50% of “Neptun Deep” development license, has planned to produce 6.3 billion cubic meters of gas since 2020, which is now more than half of Romania’s total gas production (about 11 billion cubic meters per year).
According to Julie King, “Exxon Mobil” Spokesperson, “ExxonMobil’s” decision to exit Romania was the result of low global oil and gas prices and recent changes in Romanian legislation that made “ExxonMobil’s” investment in new hydrocarbon deposits developments in Romania unattractive. For example, Romania has legally limited the upper gas price since 2022 and imposed an additional 2% tax on energy exports from all energy companies operating in the country. In addition, 33% of gas produced is to be supplied to local thermal power stations at a fixed government price. Romanian legislation set an upper limit for gas prices in Romania at USD 16 per Megawatt since 2022, which is 15% below the current average market price in Romania. According to Anton Anton, Romania’s Energy Minister from the pro-government political party “Social Democrats”, Romania’s legislative innovations are intended to impose some restrictions on gas exports from the country and ensure low utility tariffs for the population.
Commenting on the legislative changes, Mark Beacom, CEO of Black Sea Oil & Gas or “BSOG”, noted that Romania’s populist “Social Democrats” government policy will have serious implications and lead to collapse of investor confidence and stagnation of oil and gas production and development in the country.
“OMV Petrom” also responded to new legislative changes, stating that they intend to follow the example of a US company if the country’s Parliament does not repeal the adopted tax legislation. According to Christina Verchere, “OMV Petrom” Executive Director, the European Commission has called Romania’s restrictions on energy exports and legislative regulation (intervention in formation of market price for energy by the government) a violation of European energy legislation.
In addition, one of the largest distribution companies in the EU, Italian company “Enel Spa”, which has invested around USD 1 billion in Romania’s economy, also announced its intention to exit the Romanian gas market and sell its assets, considering the difficult situation emerging in the country’s gas market.
According to the expert of the international consulting agency “Deloitte” Razvan Nicolescu, the current energy policy of Romania is wrong and will delay the development of most projects related to offshore gas production in the country and it will play into the hands of the Russian Federation, which having annexed Crimea, is trying to increase gas production in the Black Sea and is seeking to remain a monopoly gas supplier in the region. Razvan Nicolescu is convinced that the development of gas deposits in the Romanian part of the Black Sea could put an end to the dominance of Russian gas in the region and generate USD 26 billion in Romanian budget revenues by the end of 2040, and increasing the country’s GDP by USD 40 billion. However, in order to do this, the government must review its own energy regulatory policy and create attractive conditions for investors to develop new energy projects. R. Nicolescu noted that, according to recent estimates, the explored gas reserves of all offshore fields in Romania are currently around 200 billion cubic meters, which is “the opportunity to provide gas to Romania, Bulgaria, Serbia, Hungary and Moldova for six years.”
Commenting on the possible consequences of the Romanian government’s regulatory policy, R. Nicolescu noted that, in view of legislative innovations, Romania’s budget will lose about USD 540 million of taxes annually as a result of scale down of investment projects, gas production in the country will shrink, and investors will divert funds to other energy markets. As a result, the construction of the new “Bulgaria-Romania-Hungary-Austria” gas pipeline (or “BRUA”) will also be paused, as all hydrocarbon development projects in the offshore part of the Romanian Black Sea will be frozen.
At present, the Romanian gas system transportation operator “Transgas” has already built 215 km of “BRUA” gas pipeline and three gas compressor stations. The first phase of the gas interconnect project will have a length of 500 km and gas transportation capacity of 1.5 billion cubic meters of gas per year to Bulgaria and 4.4 billion cubic meters of gas per year in the direction of Hungary. The EU has already allocated EUR 560 million for the project. By 2024, “Transgaz” plans to invest EUR 930 million to complete the BRUA project.
According to Hungarian Foreign and Trade Minister Péter Szijjártó, Budapest was expected to start commercial gas production in Romania’s offshore field in 2022. Budapest has signed a preliminary agreement with “ExxonMobil” to buy Romanian gas from 2022. Hungarian energy companies concluded agreements reserving 4.4 billion cubic meters of gas per year between Romania and Hungary until 2037. Due to the situation on the Romanian gas market, further Hungarian-Romanian cooperation in the energy sector is threatened. There is a high likelihood that the Hungarian side will plan to increase gas purchases from the Russian Federation.
If the Romanian Government and Parliament do not abolish regulatory changes that significantly impair the country’s gas production companies in the short term, most of Romania’s offshore gas projects will be “frozen”. Gas production in the country will not increase but decrease. There is a threat of a shortage of raw materials to fill the Bulgaria-Romania-Hungary-Austria gas pipeline and the failure to execute concluded agreements for the sale and transportation of gas from Romania to Central and Eastern Europe.
Images of exxonmobil.com, omvpetrom.com
