Principles for determining the reference price for natural gas

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The new methodology for determining the reference price for natural gas royalty calculation is based on an external hub where the Romanian gas does not have access. According to the current methodology for determining the reference price related to royalty calculation applicable for the production of natural gas in Romania, this price is based on the prices and quantities traded at the CEGH external hub from Baumgarten (Austria).

  • Compared to the reference countries analyzed from Central and Eastern Europe which have a single/dominant producer, in Romania there are 2 main producers and 6 smaller producers (at the end of 2017), and the volumes sold by them are significantly higher.
  • The characteristics of the local market are in general defined by yearly and mid-term contracts, that ensure a better predictability; the current methodology implies the calculation of the reference price based on a spot price (day-ahead market), with an increased volatility.
  • The trading price on the Romanian market is considerably lower than the price on the Austrian hub, the Romanian customers benefitting until now from the advantage of local natural resources and production − The current methodology does not consider the characteristics of the local market or the infrastructure considerations, nor it reflects the real price that Romanian producers could obtain, advancing a benchmark with high volatility that induce a considerable market risk; also, the current methodology does not imply any adjustments of the reference price with logistics costs involved by an eventual sale of natural gas on the Austrian market.

Currently, the natural gas extracted in Romania is not exported at the CEGH hub; even if in 4-5 years the Romanian production of natural gas will surpass the domestic consumption, including Black Sea investments, a great part of the domestic production will cover the national demand and exports could be done also to other markets than CEGH. The methodology discourages the development of the internal natural gas trading market, considering it irrelevant and preventing the development of the local market mechanisms.

Moreover, the current methodology does not adhere to the evaluation standards and to the principles of fiscal evaluation enforced by other national institutions – NAVR, Ministry of Public Finance through the Fiscal Code.

 

International context

Romania is the only country dependent on an external hub, according to the analysis of European reference price determination systems of natural gas production taxation.

  • For the international analysis we considered the countries with a relevant share of consumption from domestic production (domestic production share in national natural gas consumption in 2016 of minimum 20%) and the BRUA pipeline transit countries towards the CEGH hub (Bulgaria, Hungary and Austria).
  • In most of the analyzed countries the principles for determining the reference price are stipulated in primary legislation.

 

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