What Part Might Offshore Black Sea Production Play in Crimea?

By Pat Davis Szymczak, May 29, 2014

dysfunctional, and Ukrainian voters have been electing one dysfunctional government after another since 1992.

Back to those offshore resources for a moment.

The media has reported that the Ukrainian government estimates that the Skifska license block southwest of Crimea holds 8.8 trillion cubic feet of natural gas and gas condensate. Ukraine picked Shell and ExxonMobil to lead development of the block in 2012, and exploration was expected to begin in 2015. But Shell pulled out of the project in January and ExxonMobil put its involvement on hold in early March.

According to the energy news website, Rigzone, ExxonMobil expected Skifska to produce 177 billion cubic feet of gas per year, and production was intended to supply Ukrainian domestic needs. But now it seems that Gazprom may be taking over. Meanwhile, to the east of Crimea, Italy’s Eni in late March put earlier plans on hold to explore for gas in a 540-square-mile area that includes these two licensing areas: the Subbotin block and the Prikerchensky block. 

Chornomornaftogaz, a subsidiary of Ukraine’s state-owned Naftogaz oil and gas company, has stakes throughout Crimea’s offshore – which are now defacto under Russian control.

The U.S. and Canada have sanctioned Chornomornaftogaz – though only those business units of Chornomornaftogaz registered in Crimea (that is, only the legal entities formed to operate in the Crimean offshore). 

Remember that gas in these projects was intended for domestic Ukrainian consumption. In Russian hands that gas will be sold to Ukraine now at market prices or perhaps used to feed into the South Stream pipeline to Europe or supply Russia’s needs in the South Corridor. By the way, Oil&Gas Eurasia takes a look at the South Corridor in this month’s Neftegaz 2014 issue. 

Loss of Crimean offshore gas and oil, would leave Ukraine with no real access to cheap energy, and to be energy independent it would have to turn to shale gas development. Ukraine is said to have a good deal of shale. But we heard the same thing about Poland some time ago as well, and not much has happened. 

Some analysts blame Poland’s problem on government flip-flopping on whether or not to make shale a national priority. Considering that Poland has a functional government and is already a member in good standing of the European Union, where does that leave a basket case like Ukraine? 

Shale development is very costly and requires a level of technology and competency of service crews that is only found among the world’s leading service companies. Those service crews aren’t working yet in Ukraine – though they could be given the right conditions.

On the finance side, such projects require strong government support and a long-term commitment. So what kind of government has Ukraine had? Even Ukrainians admit it is a mess.

Sure, Ukraine can blame Russia in part for “Yanukovich & Company” but remember Ukraine has had 22 years to work things out since becoming independent of the Soviet Union. I actually was a journalist who reported on that