The Federation of Oil and Gas Employers (FPPG) disapproves ANRM's decision to set the reference price for natural gas calculated on the basis of trading prices on the CEGH hub in Vienna, based on a study conducted by the University of Oil and Gas Ploiești, which does not reflect the realities of the Romanian market.
Given that Romania does not export natural gas and no molecule reaches the Baumgarten hub, the determination of the reference price on the basis of the CEGH index does not correctly reflect the value of natural gas extracted in Romania and consequently contravenes Oil Law no. 238/2004, which provides in Article 49 para. (2), that ”the petroleum royalty is established as a percentage share of the value of the gross production extracted”.
The economic theory and professional standards applicable in Romania and internationally require the determination of the market value on the basis of sale-purchase transactions relating to the goods in question. Thus, the value of natural gas in Romania is the value obtained through the transactions realized by producers, not an artificially set price.
Romania thus becomes an isolated case in the world, where the reference price of natural gas is calculated on the basis of transactions realized in another country where there are no deliveries of natural gas extracted in Romania. Not even in European countries where there are important natural gas trading hubs (e.g. the United Kingdom, the Netherlands) hub price indices are used to calculate specific royalties/taxes, but the prices actually realized by natural gas producers are taken into account. This is also the case in producing countries without hubs (e.g. Norway, Denmark). Alternatively, in other European countries (e.g. Germany, Austria) a reference price is calculated on the basis of actual transactions realized in those countries. In addition, the use of the Next Day Market („LDM”) price as a benchmark is not relevant for long-term contracts which are subject to other terms and price formation mechanism.
The current formula uses the CEGH index without deducting transportation costs. Even if in the future there will be deliveries of natural gas extracted in Romania at the Baumgarten hub, the value of the natural gas realized by the producers will be the CEGH price minus the cost of transportation from Romania to Austria.
Thus, producers are paying royalties reported at an incorrect value, a formula that contradicts international practice and even previous ANRM regulations for determining the reference price for crude oil that took transportation costs into account (e.g. Order 98/1998).
Producers in Romania will thus end up paying royalties reported at an unrealized price, at an administrative price unrelated to the realities of the value of gas traded on the local market.
The FPPG strongly rejects ANRM's allegations regarding the absence of data from licensees. All data requested by ANRM has been provided and in addition producers provide ANRE with monthly reports on realized gas transactions. These reports could provide credible information for determining the weighted average value of natural gas in Romania. The prices realized on the basis of sale and purchase contracts are also those accepted by the tax authority for the determination of taxes and duties.
The FPPG points out that producers have so far paid the royalty at the maximum between the realized price and the reference price, the State thus collecting the fair contribution in relation to the value of the exploited resources, in accordance with the applicable legal provisions. Producers in the oil and gas industry are among the largest contributors to the state budget, with a significant positive impact on the economy through the investments made and the number of direct and indirect jobs created and maintained over time.
All these views were expressed by the entire industry during the public consultation organized by ANRM on February 7, 2018 without the Agency having any solid counter-arguments against fundamental economic principles.
The Federation of Oil and Gas Employers remains available for a real dialogue with ANRM, other authorities involved and specialists in this field to analyze and modify this new methodology for determining the reference price, so that the royalties are calculated correctly based on the value realized by producers from the sale of natural gas.
