Crimea: the Oil, Gas Story

Russia’s annexation of the Crimea region of Ukraine is the most significant geopolitical event to occur in Europe in a generation. Not since the Kosovo crisis in the late 1990s has the North Atlantic Treaty Organization (NATO) deployed its forces in response to aggression, although this time around NATO is potentially facing a larger and far more technologically-advanced foe than Serbia.

NATO’s recent deployment of troops and materiel to Poland appears to be more a show of the organization’s strength and commitment to its members in the region rather than the beginnings of a conflict.

That Russia has been willing not only to provoke the ire of its partners in the European Union and the United States, but also take the risk (albeit a small one) of a military engagement with the West begs the question of why the Crimea region is so important to it.

Naturally, strategic analysts point to Russia wanting to maintain its sphere of influence in the Eastern Europe region – particularly over the countries that neighbor it. And, of course, every good schoolboy historian knows that Russia throughout history has always been very keen to acquire and hold onto “warm water” ports, such as Sevastapol – which is on the southern tip of Crimea and is home to the Russian navy’s Black Sea Fleet.

Yet, plenty of commentators on the current situation point to another key factor about why Crimea might be attractive to Moscow: oil and gas.

As it happens, Crimea’s oil and gas resources could be significant.

To start with, the Skifska license block – which lies to the southwest of Crimea in the Black Sea – is estimated to hold up to 8.8 trillion cubic feet in natural gas and condensate resources (source: Ukrainian Government).

Royal Dutch Shell plc and Exxon Mobil Corp. were chosen in August 2012 by the Ukrainian government to lead the development of the block, with exploration due to begin in 2015 [source: Ukrainian Government]. However, Shell pulled out of talks about developing Skifska in January while ExxonMobil said in early March it was putting its involvement in the project on hold.

The Skifska development – which Exxon Mobil believed capable of producing 177 billion cubic feet of gas per year – had been a key project that the Ukrainian government hoped would help give Ukraine some measure of energy independence from Russia.

The question now is whether Skifska remains a Ukrainian asset or if Russia could simply declare it a Crimean (i.e. Russian) asset. And there have been noises suggesting that Crimean oil and gas assets should now be managed by Russian companies, with the speaker of Crimea’s Moscow-backed parliament telling Russia’s RIA news agency in mid-March that Russian companies such as Gazprom OAO should be involved in Crimea’s oil and gas production.

Meanwhile, there is also potential to explore and develop resources off the eastern coast of Crimea. In November, Italy’s Eni S.p.A. said a 540-square mile area it had signed up to explore, located in the eastern part of the Crimean peninsula, “offers signification exploration”.

The area includes a license for the Subbotina block, where an oil discovery has already been made, as well as licenses for the Pry Kerch block, where several oil and gas prospects have been identified.

Eni had been made operator of this eastern Crimean area with a 50-percent stake, while other partners included EDF (5 percent) and Ukrainian state-owned companies Vody Ukrainy (35 percent) and Chornomornaftogaz (10 percent). However, in an interview with the Financial Times in late March, Eni CEO Paolo Scaroni said that the company’s plans to explore for gas in the Black Sea off Crimea are now on hold.

How this plays out remains to be seen, but the recent nationalization by Crimea of Choromornaftogaz (which had been a subsidiary of Ukrainian state oil firm Naftogaz), along with the arrival of a team of Gazprom executives at its head office in mid-March, could be seen as a sign that any gas found in eastern Crimea will now end up in Russian hands.

12 Comments on "Crimea: the Oil, Gas Story"

Northwest Resident on Mon, 14th Apr 2014 8:48 pm 



It looks like a lot of “maybe’s”, possibilities and “could be’s” associated with this Skifska block out in the middle of the Black Sea. It is deep water, so not easy to get to. And no crude — just condensate and NG. And the best part about it — it “offers significant exploration” — in other words, nothing is proven there yet.

Imagine, Exxon Mobil was trying to help Ukraine gain some independence from Russian oil and gas — no doubt, out of the pure kindness of their corporate heart. (snort, cough)

I’ve been reading numerous articles on the “Ukraine crisis” since it began and I’m just now reading about the Skifska block of “potential” billions of cubic feet of gas per year — I wonder why.

This whole Ukraine deal is like peeling an onion — there seems to always be another layer just under the one you’re currently looking at.

But no doubt, somewhere at the very center, oil/NG is the burning ember that drives everything else.

Arthur on Mon, 14th Apr 2014 9:30 pm 



Brief overview of western philosophy:

– Thales of Miletus (624-548 BC): “everything is water”
– Anaximenes of Miletus (585-528 BC): “everything is air”
– Rigzone (2014 AD): “everything is oil”

Seriously, the developments in the Crimea had nothing to do with oil & gas but everything with Sevastopol.

Davy, Hermann, MO on Mon, 14th Apr 2014 9:41 pm 



Agreed Art!

rockman on Mon, 14th Apr 2014 9:50 pm 



I don’t think there’s much uncertainty about the future of offshore Crimean fossil fuels. From last month: “Gazprom has requested permission from the Crimean authorities to develop oil and gas fields, Crimea’s first Deputy Prime Minister Rustam Temirgaliev said Tuesday. “Of course, Gazprom was the first to approach us with a proposal,” RIA news quotes Temirgaliev.

The Crimea is one of the largest regions in the Black Sea in terms of production of oil and gas. In 2013 production increased by 40 percent due to the opening up of the Odessa and Stormovoe fields on a shelf of the Black Sea.

“The Crimea as part of the Kerch area has one of the largest oil and gas deposits in the Black Sea region, according to geological surveys,” the first Deputy Prime Minister of the Crimea added.

Earlier the chairman of the Supreme Council of the Crimea said that the role of exploration and production of oil and gas in the Crimea should be given to Russian companies.”

As far as potential it appears some optimism is based upon successes just down the in Romania. It sounds like they may some competition from Russia right at its international boundary with the Crimea. Can’t find it now but read about a a potential huge DW Romanian discovery. BTW the Chinese are about to meet with Putin in May to discuss potential involvement in Crimean oil/NG

J-Gav on Mon, 14th Apr 2014 10:10 pm 



This article is idiotic for more reasons than I have time to explain here. Still, it touches on some important points so I’ll take a very short flying leap.

The over-riding reason for the so-called (90% favorable) “annexation” of Crimea was and is Russia’s naval presence in the Black Sea/Mediterranean, as Arthur pointed out. Which is not to say they are unaware of Skifska. Just as Western energy companies are not unaware of the fracking potential in Ukraine.

To make things clear, I’m neither a Putin-lover (yes, he’s a kleptocratic thug, but one who finally made the Yelstin-era oligarchs pay taxes to the State, which saved the country from a much deeper depression) nor a Russian-hater.

I’d say Putin has outplayed Kerry for the moment but does he think that a civil war on his southern border could be to his country’s advantage? That remains to be seen but it would be a serious gamble. The Russian economy doesn’t have the means to pull Ukraine out of its doldrums (neither does Europe or the U.S. by the way). It needs capital INcome, not OUTflow. So Putin’s options are limited in the short term. That’s why he’s been scurrying around making deals with China and India to skirt dependence on European energy purchasers. And note that Germany’s criticism of the ‘annexation’ has been less strident than that of England or France.

I’ll stop there – nobody knows how this is going to end up – there might be backroom deals being cut at this very moment somewhere, but tensions are still high and if some clear progress is not made soon to calm things down, the situation could spiral out of control.

Davy, Hermann, MO on Mon, 14th Apr 2014 11:03 pm 



Well put Gav!!

Makati1 on Mon, 14th Apr 2014 11:27 pm 



As I see it, Germany is tied at the hip to Russia. Herr Merkel may talk strong, but she will bend and twist trying to kiss both a–es, NATO and Russia. Russia supplies about 40% of the NG Germany needs to keep its barely strong economy going. Russia and Germany are also large trading partners. If Russia turns East, it will hit Germany hard and maybe end the EU. Should be an interesting year.

Arthur on Tue, 15th Apr 2014 10:51 am 



Fascinating video from within Ukraine; civilians blocking a tank:

http://vineyardsaker.blogspot.nl/2014/04/what-do-you-see-on-this-video-russian.html

Davy, Hermann, MO on Tue, 15th Apr 2014 12:49 pm 



Thanks Art, very entertaining. We of course wonder if it was staged. Looks typical of a tank that has not been maintained. Looks like the diesel engine needs injectors or maybe just fresh filters.

bobinget on Tue, 15th Apr 2014 7:04 pm 



Plenty of oil at stake here. This entire enterprise,
Crimea annexation, keeping Ukraine off balance,
all part of a three act play of which we have seen but the first act.

Knowing how tired and board American’s are of the Syrian Proxy war, one final bloody push was needed.
It looks like scattered rebel forces, fighting among themselves, have lost. Russia and Iran scored a major victory over the West and Saudi Arabia. This was and will remain the most important military victory that determines oil prices for decades to come.

While the West was distracted by missing airplanes, almost bloodless coups, Hezbollah and Syrian loyalists
consolidated an axis made in Hell. Iran will shortly
tell the US to shove their sanctions. If Israel or US
bombs they need to deal with umbrella man V. Putin.
Mark these words, Putin, from now on goes from ‘regional power’ to world. The new OPEC or what ever
Putin decides to name his cartel will most certainly not
be concerned over US welfare as KSA pretended.

Saudi Arabia, not wishing to see its oil fields, choke points in flames will fume and fuss, but do nothing.

Davy, Hermann, MO on Tue, 15th Apr 2014 7:14 pm 



Bob, is that a recount of a Putin wet dream cause it sounds fictional to me.

Arthur on Tue, 15th Apr 2014 7:54 pm 



Until the fall of the dollar, somewhere between tomorrow 8:30 and 2031, Russia remains the hunted and the US the hunter.

Syria was abandoned, mainly because the US now wants neither parties to win. It is nice to decapitate an ally of Russia, but a fundamentalist state bordering Israel is not a desired outcome. The Americans went in the panic mode once the Muslim Brotherhood took over in Cairo and started to fanatically support the Americans in their quest for regime change in Damascus, just like the Turks, Saudis and Qatari and the Americans realized that these parties loved to see the West do the dirty work for them and create the foundations for a Sunni Caliphate, just like the Americans had created the foundations of a Shi’ite empire Tehran-Baghdad after 2003. The Putin brokered deal concerning chemical weapons was a nice excuse for the Americans to withdraw from Syria, not a ‘victory for Putin’.