Pressure gauges are seen at a Romanian gas distribution station near Bucharest January 6, 2009. REUTERS/Bogdan Cristel

BUCHAREST, May 18 (Reuters) – After years of deadlock, Romanian lawmakers on Wednesday approved legislation to cut taxes on future revenue from offshore gas projects, hoping it would unlock investment in the Black Sea to extract its important reservations.

As Europe grapples with an energy crisis amid the war in Ukraine, analysts said Romania could in the long term challenge Russia’s Gazprom’s dominant role in Central and Eastern Europe, diversify gas supplies and bring in billions of euros in revenue.

OMV Petrom (ROSNP.BX), majority controlled by Austria’s OMV (OMVV.VI), and other gas producers have spent 15 years and billions of dollars preparing to exploit the roughly 200 billion cubic meters of gas from Romania in the Black Sea.

However, a prohibitive tax on incremental gas revenues introduced four years ago suspended all but one of the projects and contributed to Exxon’s (XOM.N) exit from the European Union state.

It remains to be seen whether the new legislation, which lowers the tax and removes export restrictions, will be enough to get the projects back on track.

“This whole legislative project, which has taken an unforgivable length, is finally an acceptable compromise for both parties,” said independent consultant and former energy minister Razvan Nicolescu. “Investors have more to lose by not developing the projects.”

OMV Petrom has postponed a final investment decision on its deepwater Neptun Deep project until 2023, where it has discovered 1.5 to 3 trillion cubic feet of gas. Read more In partnership with the national gas producer Romgaz (SNG.BX), the first gas could arrive at the end of 2026 at the earliest.

Black Sea Oil & Gas (BSOG), controlled by private equity firm Carlyle Group LP (CG.O), has already moved forward with plans to extract around 10 billion cubic meters of gas on government assurances that the offshore tax would be reduced. It will go into production in June. Read more

Both companies declined to comment until the law takes effect. The industry association said the law was an improvement, but could be improved.

ENERGY SECURITY

The new law imposes a progressive tax of 15% to 70% on additional income related to gas prices above 85 lei ($18.08) per MWh, with investors able to deduct costs and investments up to 40%.

It also removes gas export restrictions and declares that the tax regime will not change for the duration of the projects, seen as a guarantee of stability for investors.

However, a last-minute amendment allows the government to apply temporary price caps and sales restrictions to cover household gas and emergency heating needs, eroding stability provisions, said analysts.

“We ensure Romania’s energy security because the government can intervene at any time to redirect gas to the Romanian market in the event of an energy crisis,” Energy Minister Virgil Popescu told lawmakers.

In 2021, Romania had the highest effective tax rate on offshore gas production among the relevant European states, at 51%, around ten times higher than the average, according to a study by consultancy PwC for the industry association account.

The new law could also encourage more gas exploration, although the state’s mineral resources agency has not auctioned new concessions in 12 years and has repeatedly delayed plans to appeal. offers for 28 new perimeters, including six offshore.

The rules will also apply to land perimeters over 3,000 meters, which will help Romgaz exploit its Caragele gas field, where it announced its biggest find in three decades.

Reporting by Luiza Ilie; edited by Krisztina Than, William Maclean and Emelia Sithole-Matarise

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