Romania Strengthens its Energy Production With Joint Black Sea Project
Black Sea Oil & Gas pipeline entering an onshore LNG plant in Romania, June 28, 2022. Photo: REUTERS/George Carlin
On Wednesday, Oct. 19, 2022, the Romanian national gas producer Romgaz signed an agreement with the Azerbaijani state gas firm SOCAR to build multiple liquefied natural gas (LNG) facilities in the Black Sea.
The agreement is notable, given the international effort to develop and capture the Black Sea LNG supply and strategic shipping lanes. While already considered valuable before the 2022 Russian invasion of Ukraine, the looming energy shortage and geopolitical dependence on Russian LNG have diverted much European attention toward the closest viable alternative in the Black Sea: Romania.
This agreement will bolster Romania’s role as a major energy player. Since its ascension to the European Union in 2007, Romania has emerged as the eastern complement to the Netherlands’ dominance in LNG production and distribution.
Since the war in Ukraine began, Romanian projects designed to strengthen its impressive energy resiliency have been fast-tracked by the EU. Located between the energy-starved Western markets and the energy-rich nations in Southeast Europe and the Caucasus, Romania is well-situated to become energy independent and a critical market distributor of energy resources.
The south-eastern European nation has begun to open new offshore gas platforms in the Black Sea in recent months, with Black Sea Oil & Gas, a firm controlled by the Carlyle Group, opening the first Romanian Black Sea natural gas development in thirty years.
This will complement the existing projects that bring energy supplies to the European market. In late September, Bulgaria, Hungary, Romania, and Slovakia committed to increasing the shipping of LNG resources across the Black Sea.
While there is potential for a strong LNG industry, the political environment has strained progress. Gas companies in Romania have complained that “punitive” offshore taxes have stifled their growth. PwC found the effective tax rate for offshore gas production in 2021 to be above 50 percent.
This restriction was amended “after years of stalling,” as Russian Gazprom’s position in the energy market became untenable with the war in Ukraine, and as Romania emerged as a realistic alternative.
The former Romanian energy minister Razvan Nicolescu reflected on the costs and benefits, telling Reuters that “this whole legislative project, which took unforgivably long, is ultimately an acceptable compromise for both parties.”
The LNG industry has cautiously welcomed the legislative reforms, stating that they “could be perfected.” The industry has had to maneuver Bucharest’s desire to maintain “energy security”, a policy goal at odds with the investors' needs for price and tax stability.
Map of Existing and Upcoming LNG Import Terminals in Europe, 2018 Photo: King & Spalding LLP
One of the last strategic needs is the construction of the first Black Sea LNG terminal on the Black Sea Coast. The SOCAR-Romgaz agreement signed this week brings Romania closer to reaching this crucial goal.
The Romanian Energy Center, a Romanian think-tank, reflected on the urgency of opening the Black Sea to the LNG market in their 2019 issue brief. Realigning Caucasian-originating LNG supplies through Central Europe rather than through the Bosporus straits and Italy would help diversify European energy imports.
Although the brief is pessimistic about the terminal's progress due to the political climate, recent developments in Bucharest give hope that Romania may alleviate European energy woes.