In 2018 the Romanian Parliament set the scene for future offshore investments in the Black Sea by passing a bill to regulate offshore legislative framework. The law entered into force late last year and includes technical and fiscal provisions for offshore oil exploration activities, including exploration permits, transportation conditions and the availability of data. The bill also adds taxes on additional revenues obtained from the offshore wells, out of which investments in the upstream segment are deducted. For existing investors, the fiscal regime applied will be the one set through already signed individual agreements.

The offshore law seeks to ensure that Romania continues to have a competitive offshore fiscal regime for investment when compared with both Europe and the rest of the world.

Royalties, new tax structure

Parliament proposed a revised royalty and additional tax structure for offshore investments, allowing 30% of upstream investments to be deducted for calculation of additional tax purposes. Parliament also proposed that almost half of the offshore production be traded on the Romanian market, allowing Romania to establish a trading hub in Eastern Europe for natural gas.

Currently, several companies operate in the Black Sea, and seven interconnected platforms extract gas and oil from offshore perimeters. According to publicly available data, 8% of Romania’s oil production is from Black Sea platforms. In addition to current production, the discovered resources waiting for development could double Romania’s gas production.

The bill has attracted strong interest from the international community due to existing large investments in the Black Sea from Exxon Mobil, OMV Petrom, Lukoil, Gas Plus SpA and Carlyle International Energy Partners. According to the Black Sea Titleholders Association, over the past 17 years more than $6.5 billion has been invested in exploration activities alone, and developing production facilities for new projects will involve additional investments of several billion dollars. The first deepwater offshore well was drilled in Romania in 2012. Offshore investors will provide funds to build the entire maritime infrastructure, underwater and onshore, to connect with the National Transportation System.

US and regional support for energy projects

The Three Seas Initiative, also known as the Baltic, Adriatic, Black Sea Initiative, is a forum of 12 EU countries in Central and Eastern Europe. In 2018 the initiative took place in Bucharest and had a special focus on energy. The initiative aims to deliver key projects in energy, transport and digital interconnections between the member states. Historically, more effort was made to link the eastern and western parts of Europe, whereas attention has now turned to establishing functional north-south connections. Among the major priorities of the initiative is the economic and strategic significance of Central and Eastern Europe to the U.S. The aim of planned and completed energy projects is to eliminate dependence on Russian gas and contribute to the diversification of gas supply in Central and Eastern Europe. A possible north-south energy corridor stretching from the Baltic states to Croatia, knitting together the region, would relieve many member states of their sole reliance on Russian gas.

U.S. Secretary of Energy Rick Perry was present in mid-September 2018 in Bucharest at the Three Seas Initiative summit and reconfirmed the support of the U.S. as a stable, reliable, energy partner for the countries of Central and Eastern Europe.

Perry noted that the commitment of the leading oiland gas-producing country in the world is driven by the understanding that energy security is tantamount to national security, and transatlantic energy security is fundamental to the national security of all nations. Since Russia’s invasion of Crimea and the threat of a cutoff of natural gas supplies in the winter of 2014, Europe’s dependence on Russian gas has only been increasing, going from a 30% share to now more than a 40% share, according to Perry. He added that the prospects for offshore oil and gas development in the Black Sea are significant. Companies are poised to make final investment decisions on projects that have taken many years to develop with millions of dollars at stake.

BRUA natural gas pipeline

Romania is working with Bulgaria, Hungary and Austria on the BRUA natural gas pipeline, which will create a new export route for future natural gas in the Black Sea. The Romanian section will include 550 km (342 miles) of pipeline, allowing Romania to transport natural gas to Eastern and Western Europe. The project has a total cost of up to €500 million, is co-financed by European funds and is meant to provide energy security for Romania.

BRUA will be constructed in two phases:

• Phase 1: construction of a transmission pipeline 479 km (279 miles) long from Podisor to Recas, which ensures interconnections and transmission routes along the region; and

• Phase 2: construction of a transmission pipeline 50 km (31 miles) long from Recas to Horia to expand the Romanian transmission toward Hungary.

According to the European Bank for Reconstruction and Development, Romania’s participation in the BRUA pipeline will allow the country to transform from the country-specific low-pressure system into a high-pressure grid. This would allow access to future major gas infrastructure projects as well as access to Central European gas hubs. It also would help to service current and future Black Sea gas sources.

The combined development of offshore gas and the BRUA pipeline have the possibility of making Romania one of the few energy-independent countries in the world, transforming the country into a net natural gas exporter while providing a diversity of supply for Eastern Europe.

Updates on the BRUA pipeline project were presented during the Three Seas Initiative summit, where the representatives of Transgaz, the operator of the national natural gas transmission system in Romania and the developer of the project stated that the work is well on track. Construction of the compressor stations began in April, while work on the pipeline corridor itself started in June 2018. Analysts are watching Hungary’s position and the recent statements to pull out of BRUA.

The Romanian section of the BRUA natural gas pipeline will create a new export route that will allow the country to transport natural gas to Eastern and Western Europe. (Source: McGuireWoods Consulting)

 

10-year energy strategy

Romania was expected to release its 10-year energy strategy by the end of 2018, aiming to maintain a balanced, technologically neutral energy mix, based on the efficient use of internal energy resources. Renewable energy, including large hydroelectric power plants, nuclear power and clean coal technologies, will play an important role in Romania’s energy mix. Given recent and forecast economic growth trends, Romania needs to avoid a potential supply deficit for gas and consider alternative and supplementary gas supplies from sources such as Azerbaijan and Russia and even potentially the use of LNG.

As a member of the EU and NATO, and strategically located at the Black Sea, Romania offers abundant international business prospects—especially related to energy—that continue to grow.