What Part Might Offshore Black Sea Production Play in Crimea?

By Pat Davis Szymczak, May 29, 2014

When I was a kid, there was this worry in the air that the world would soon run out of oil and gas. As I grew older – and particularly since I started writing about the oil and gas industry – I started to understand that for all the oil we use, we are always finding more. The problem is that oil and gas exploration all too often occurs in places where government is dysfunctional and when that happens, international conflict usually accompanies the search for oil and gas.

Dare I mention Crimea? The nightly news might be focusing on colorful patriotic displays of Ukrainians and Russians waving flags and chanting slogans. And, of course, there is the military component – tanks and Мolotov cocktails always grab attention, especially at night when they create spectacular lighting effects!

But it seems that Crimea has oil and gas resources too. Imagine that? Maybe I’m naive but I was amazed at how quickly events moved this spring. Over a single weekend, a relatively peaceful camp-out in the city square by common folk morphed into a mob of masked gunmen storming the Ukrainian parliament.  Then, just as quickly, Russia annexed Crimea.

OK, I get it – the Black Sea fleet and access to warm water ports. Anyone who has read any Russian history knows that. But what else could be going on? What, besides the interest in maintaining etiquette in how nations conduct themselves internationally, could get the EU and the United States so upset? 

Yea, I know nuclear proliferation and Iran are lurking in the background. But could it also be, in part, the fact that Russia may now lay claim to offshore reserves of gas, gas condensate and oil that was being explored by Ukraine in partnership with the likes of Shell, ExxonMobil, Eni and, at one point, Chevron?

We all know the gas export to Europe story. But I’ve never understood why Russia is portrayed all the time as the bad guy who is shutting off the gas and wants to freeze Europe. Russia needs to sell gas to Europe to earn money. Selling gas to Europe is a business for Russia and it’s big business considering that energy exports fund more than half of the Russian budget.

To sell directly to Europe and bypass Ukraine is why Russia built the Nord Stream pipeline and why it is building the South Stream pipeline. Essentially, Ukraine was a royal pain in the (you know what) for Russia. Sure, Russia does pressure Ukraine to remain in Moscow’s orbit but Russia was also selling gas at below market prices to Ukraine. When Russia raised prices to seemingly punish Ukraine for moving towards the EU, the west cried foul. Why foul? If Ukraine wants to be part of the EU it needs to behave accordingly: get its house in order, rein in corruption and pay its way. Ukraine in this respect has “made its bed” but doesn’t want “to lie in it.” Its government is