Fuel Prices: Major Increases and the Romanian Oil Sector Crisis

Summary

Romania’s fuel costs rise amid COVID-19, Ukraine war, and 78% import dependence.
Government hesitates; price caps risk shortages and long-term damage.
A.E.I. urges urgent steps: cut VAT/excise, cap margins, diversify oil sources.
Romania’s refining capacity totals 12.9 Mt; consumption 13.8 Mt signals vulnerability.

An unfavorable economic situation caused by the COVID-19 pandemic and the military conflict in Ukraine has a direct consequence: the rise in crude oil prices, the cost of goods and services, and consequently the cost of living worldwide. The effects are devastating globally, and even more so in less developed countries. Romania feels these effects keenly, as they appear to stretch over an increasingly long period.

Daily life is affected, goods and services already priced at high levels. Protests across various counties in the country are increasingly organized. According to data provided by INS, Romania used 13,853.1 thousand tonnes of petroleum products in 2021, with a 78% dependence on imports.

Government Response to the Crisis

The governing coalition hesitates to make concrete decisions to manage the crisis. Initially, price caps were discussed, a decision that more often has adverse effects, especially in the long term.

According to the Intelligent Energy Association (A.E.I.), what must be done in urgent mode includes:

Lowering VAT and excise duties
Limiting commercial margins for suppliers
Initiating an energy diplomacy campaign to identify new routes and sources for oil
Elaborating an urgent plan for protected consumers

The association warns that ‘the populist price cap option equates to introducing a fuel shortage in Romania within a few months.’

Structure of Petroleum Product Imports

Petroleum product imports in 2021 were carried out by three companies with refineries in Romania:

Rompetrol — recognized as the importer of Kazakh crude oil, it imported 3,482 thousand tonnes via Russian pipelines to Constanța.

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Lukoil — importer of crude oil from Russia, it imported 2,298 thousand tonnes.

OMV Petrom — importer of crude oil from both the Russian Federation and outside it, it imported 1,044 thousand tonnes.

Romania’s Refining Capacity

If we consider our country’s refining capacity, there were three large refineries reporting in 2021 as follows:

Lukoil — capacity of 2.4 million tonnes with a utilization rate of 96% in 2021.

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Petrobrazi OMV Petrom — capacity of 4.5 million tonnes with a utilization rate of 97% in 2021.

Rompetrol — capacity of 6 million tonnes with a utilization rate of 58% in 2021.

Romania’s total refining capacity is 12.9 million tonnes, while consumption stands at 13.8 million tonnes. This situation creates another vulnerability to Romania’s energy security.

Experts’ Warnings

Energia Inteligentă Association (A.E.I.) issued a statement, through its President, Dumitru Chirită, noting that ‘six months ago we warned that in 2022 there would be a trend of rising gasoline/diesel prices, which will be an infinitely bigger problem for Romanians than increases in gas and electricity prices, and the lack of timely measures by authorities to mitigate them, as happened with electricity and gas, will create big problems.’

Conclusions and Risks Identified by A.E.I.

Energia Inteligentă Association concludes the following:

Stopping deliveries through the CPC pipeline from Russia (for technical or any other reasons) which brings 85% of the crude oil refined in Romania could create a fuel crisis in Romania (after stockpiles are exhausted), effectively removing 42% of the need for petroleum products from the market.
If we add to this the stopping of imports of petroleum products arriving in Romania from other EU countries that process embargoed Russian crude, we would remove an additional 7% of the petroleum products. Thus, there is a risk that Romania, following the embargo on Russia, could be left without half of its gasoline/diesel needs.
The alternative for Kazakh crude to reach Romania if Russian CPC deliveries are cut is to transport it by ship from Tengiz (Kazakhstan) to Baku (Azerbaijan) and then via pipelines to Batumi (Georgia) and later through the Black Sea to Constanța. This route has the drawback of limited transport capacity and insufficient logistics at Batumi. It is worth noting that a month ago KazTransOil began transporting crude oil across the Caspian Sea, departing from the Kazakh Tengiz port, probably anticipating the CPC closure possibility. This route requires time to develop and comes with additional risks and higher transport costs.

Consequences of the Armed Conflict and Price Caps

Sanctions imposed on the Russian Federation as a result of the armed conflict in Ukraine, and the war’s consequences, raise major fears of supply disruptions; EU logistics and Romania stand to suffer. More concretely, the future may bring significant problems related to purchasing petroleum products, with price caps on fuels limiting the actions of crude oil importers in the market.

Gasoline and Diesel Price Trends in 2022

Gasoline prices in 2022 rose by 75%, double the increases observed in Romania. The state benefited from this rise, with VAT revenues from gasoline sales in that year being 40% higher.

As for diesel, prices rose by 80% in 2022, double the increase in our country. Regarding the profits of the Romanian state, VAT revenues from diesel sales in 2022 are 40% higher.