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    Romania's Gas Price Cap Angers Producers

Summary

Non-state producers have rounded on the Romanian finance ministry's surprise plans to cap gas prices, tax producers, and force industry to buy imported gas.

by: Mark Smedley

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Romania's Gas Price Cap Angers Producers

Romania's independent gas producers and developers have rounded on a planned price cap on gas sales, and other proposals announced December 18 by the country's finance ministry, which they say could have a strongly detrimental impact on Romania's energy supply, jobs and investment if implemented - which some fear they may be this week.  

OMV Petrom produces 5.12bn m3, about 40% of Romania's gas demand or half its production, mostly onshore. In addition, alongside US partner ExxonMobil, it plans to develop the Neptun gas project. But two months ago both firms deferred their planned final investment decision (FID) on Neptun until 1Q 2019 because of planned Romanian legislative changes.

Commenting December 19, OMV Petrom said of the proposals announced the day earlier: "if implemented… will throw the Romanian gas market back at least 10 years in time, to a regulated market and away from liberalisation," adding that it is "deeply concerned about measures being imposed without impact studies and without any prior consultation".

The proposals, in the form of a draft ordinance issued December 18 by the finance ministry, are understood to include: a draft windfall tax on gas and power companies; a draft price cap on gas produced; and a draft obligation from regulator ANRE to oblige industry to buy more imported gas, this being typically more expensive than gas produced in Romania.

OMV Petrom said: "One of the proposed measures is capping the natural gas price at lei 68/megawatt-hour of gas, for three years." That converts to a cap of $16.60/MWh-gas, or about $4.87/mn Btu - so far lower than current prices. The company continues: "We draw attention to the fact that artificially setting the price at which producers are forced to sell gas is against EU free market rules, it distorts competition, discriminates Romanian producers against importers and can have serious consequences for gas supply."

According to the Romanian Commodities Exchange (BRM) at Dec.19, this month's weighted average price per MWh-gas is 95.97 lei for Romanian gas, and 112.40 lei for all gas including imports.

OMV Petrom also said that gas production in Romania would fall in the coming years because of lower investment as "the artificially established price of lei 68/MWh-gas threatens important investment projects in the sector. Gas imports would increase, severely impacting security of energy supply in Romania and increasing gas prices in the future".

OMV Petrom estimated that, without new upstream investments, Romanian gas imports could increase to 40%-50% of consumption by 2030, from the current 10%. It also said this would impact jobs, noting how OMV directly employs 13,000 staff and works with Romanian companies that employ a further 40,000. The company is 51.01% owned by Austrian OMV, while the Romanian state directly, and indirectly, holds a 30.6385% stake.

Another independent, Black Sea Oil & Gas (BSOG), is looking to green-light its Midia offshore gas development soon and had signed three key contracts, subject to its Final Investment Decision (FID). But its CEO, Mark Beacom, also criticised the ordinance: "The draft ... has the effect of further undermining investor willingness to move forward in Romania. With respect to BSOG's [Midia] offshore development, the ability to obtain FID was already threatened by a new fiscal structure that imposed a hugely onerous increased taxation burden that was contrary to provisions in law, by a centralised market obligation that undermined the ability to finance the project and now by a proposed gas price cap that is not only in contravention to EU Directives but also removes investor confidence that being a Romanian producer will not result in being economically disadvantaged versus investing in other countries."

Beacom added: "All these actions, the new taxation, the centralised platform obligation and the proposed gas price cap only applies to Romanian local producers and not to gas importers from foreign countries, thereby discriminating against the very entities trying to invest in Romania, create jobs in Romania and pay taxes in Romania."  BSOG is backed by US private equity fund Carlyle.

Romania consumed 11.9bn m3 in 2017 and was one of the most self-sufficient EU states, producing 10.3bn m3 according to the most recent BP Statistical Review of World Energy. State Romgaz is the country's largest gas producer, closely followed by OMV Petrom.