Black Sea offshore gas will add billions to Romania’s economy, says Deloitte

04 June 2018 5 min. read

According to a new report by Deloitte, exploiting natural gas in Romania’s continental platform of the Black Sea could bring up to 30,000 jobs to the local labour market. The report, commissioned by the Romanian Black Sea Titleholders Association (RBSTA), aims to identify the explorations impact on the Romanian economy. 

Known natural oil and gas reserves in two reserves in the Black Sea, Doina and Ana, are predicted to yield 4.85 bcm of gas and 11.7 million barrels of oil between 2020 and 2040. The exploration of these current reserves will begin before 2020, adding billions to Romania’s national economy. The project is expected to have a direct impact on state revenues through tax contributions amounting to around $11.9 billion.

Consultants from Deloitte have been working with the RBSTA to detail the benefits exploring the Romanian continental platform on the national economy. The consulting firm employed the use of the ‘Input-Output’ model to analyse the impact on the economy as a whole. The methodology considers the flows of different variables on multiple industries to determine knock-on effects of the project in terms of direct impact, indirect impact and induced impact. 

The projects are estimated by Deloitte to have a cumulated additional national output of $71.3 billion over the 2018 – 2040 period. Of this figure, $10.8 billion is set to be a direct impact on the national output, $46.1 billion will be indirectly generated by suppliers and subcontractors and $14.4 billion will be generated by employees and supplier’s employees. In addition, the spillover effect from the projects will add approximately $99 billion to the national output in midstream and downstream and across a range of other industries.

State revenues paid in the period 2018-2040

Government benefits

In terms of public revenue, these ventures will substantially add to the Romanian economy’s bottom line over the next 22 years. In total, $26 billion in taxes will result from Black Sea developments including $11.9 billion in direct taxes and $10.4 billion in indirect taxes including social security contributions and corporate income tax. A further $3.7 billion will be brought in via expenditures of the title holders’ and suppliers’ employees with a focus on taxes on products and social benefits. 

“The resulting estimates therefore show that each $1 billion invested in offshore oil and gas upstream activities in Romania generates $3.0 billion in the Romanian GDP over the upcoming 23 years of production. Moreover, it contributes with $1.9 billion direct and indirect revenues for the Romanian state, as well as creates and/or maintains, in average, an annual number of 2,198 jobs in Romania over the entire period,” the study estimates.

Beyond national revenue, offshore projects will generate 30,605 jobs for Romania, a total of 43 times the direct jobs which the projects will bring. The project will increase an annual number of 2,200 jobs to the Romanian private sector throughout the entire period, including a number of high wage positions. Of these, 705 will be directly working within the industry. A further 22,644 and 7,254 will be added to the Romanian labour market through indirect and induced effects respectively through suppliers and employee’s expenses. 

“These investments, in turn, would lead to the creation of approximately 42,000 jobs and maintenance of them up to 2040 and an estimated cumulated impact of $18.3 billion to state revenues, as well as almost $99 billion cumulated national output between 2020 and 2040,” said the report. 

Impact of offshore projects on the Romanian labour market, 2018 – 2040

Back to the economy

The energy project will further bring social benefits to citizens. Sorin Elisei, a Manager at Deloitte Consulting said, “at least one million household consumers could be connected to gas distribution networks over the next 10 years. Currently there are over 3 million households not connected to gas networks.” 

The country will also consume the majority of the gas produced, replacing the declining levels of onshore production. The level of consumption in the country has however increased leading to up to 65% of the gas to remain in the country. However the report estimates that up to 35% of hydrocarbons may potentially be exported. 

Razvan Nicolescu, a former minister of energy and currently head of energy & resources industry leader at Deloitte Consulting said, “we estimate that Romania will export around 1 billion metric cubes of natural gas each year to the Republic of Moldova, as a strategic decision.” 

The report concludes: “Investment and development of large-scale projects in the Black Sea will lead to sustainable economic growth, with subsequent direct, indirect and induced effects on jobs, taxes and national output, thus significantly contributing to the economic welfare of the country, but also to its energy security and transition towards a low-carbon economy.”

The report was authored by Deloitte Central Europe, under the direction of the firm’s Romanian arm. Deloitte Romania is led Alexandru Reff, Country Managing Partner, while the consulting wing is headed by Dinu Bumbăcea.