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Russia eyes Crimea’s oil and gas reserves

Tuesday, March 18th 2014 - 06:34 UTC
Full article 8 comments
Crimea with Russian flags celebrating the outcome of the referendum Crimea with Russian flags celebrating the outcome of the referendum

According to Reuters, Crimea may nationalize oil and gas assets within its borders belonging to Ukraine, and sell them off to Russia. Crimea’s Deputy Prime Minister hinted at the possibility that it would take control of Chornomorneftegaz, a Ukrainian state-owned enterprise, and then “privatize” it by selling it to Gazprom.

 “After nationalization of the company we would openly take a decision - if a large investor, like Gazprom or others emerges - to carry out (privatisation),” Deputy Prime Minister Rustam Temirgaliev said.

Crimea’s Russian-backed government decided to hold a referendum on March 16 to secede from Ukraine. At the time of this writing, Russia’s heavy involvement in the drive for Crimean secession makes it hard to believe that Sunday’s result will be anything other than an overwhelming result in favor of breaking ties with Kiev (either greater autonomy or annexation by Russia). The next steps are much less clear, however. Secretary of State John Kerry is hoping Russia will hold off on fully annexing Crimea, leaving open the possibility of some diplomatic way of resolving the crisis.

The ongoing political standoff in Crimea has already halted Ukraine’s oil and gas ambitions. Ukraine came close to inking a deal with a consortium of international oil companies that would have led to an initial 735 million dollars investment to drill two offshore wells. The consortium led by ExxonMobil – with stakes held by Shell, Romania’s OMV Petrom, and Ukraine’s Nadra Ukrainy – had been particularly interested in the Skifska field in the Black Sea, which holds an estimated 200 to 250 billion cubic meters of natural gas. If it can get the field up and running, Exxon hopes to eventually produce 5 billion cubic meters per year. Exxon’s consortium outbid Russian oil company Lukoil for the rights to the block.

Those plans were still in the early stages – the consortium and the Ukrainian government led by Viktor Yanukovych couldn’t agree on terms. Obviously, once Yanukovych was ousted, ExxonMobil had to pu those plans on hold until further notice.

Exxon’s plans for Skifska may not have a future if Russia simply takes Ukraine’s assets. The speaker of Crimea’s parliament said on March 13 that its oilfields should be under the care of Moscow. ”Russia, and Gazprom, should take care of the oil and gas production,” said Vladimir Konstantinov. The new Ukrainian government in Kiev may not have much control over the situation if Crimea’s government nationalizes Chornomorneftegaz and its assets. Ukraine had been optimistic about developing its offshore oil and gas reserves, but after Sunday’s referendum, those reserves may suddenly be in Crimean (or Russian) territory.

Exxon is in a bit of a pickle, as it has billions of dollars of investments in the Russia Arctic in a co-venture with Rosneft, its largest non-U.S. project. It is therefore staying pretty quiet about its position in Skifska, and will likely maintain a low-key position even after the referendum. Exxon likely doesn’t see much upside in getting into a tiff with Russia over the Black Sea, especially since it hadn’t even agreed on a production sharing agreement with Kiev yet. Exxon’s plans for the Russian Arctic are too important.

ExxonMobil aside, if Crimea and Russia move forward with the nationalization/privatization of Ukrainian oil and gas reserves, it will heighten the conflict between Russia on the one hand, and Ukraine and the West on the other. The U.S. has promised tougher sanctions over what it argues as an illegal annexation of Crimea. Russia’s annexation of Ukraine’s energy resources will only add fuel to the fire.

By Nicholas Cunningham of Oilprice.com

Top Comments

Disclaimer & comment rules
  • GeoffWard2

    And why not?
    The oil and gas reserves in The Crimea is Russian, in Russia:
    they voted for it, so it must be true.

    This is just like 'the educated' voting for Bolivarism, Chaves and Madura in Venezuela.

    If the authorities say the ballot boxes are 97% full of authority-supporting votes, who are we to disagree?

    Mar 18th, 2014 - 10:40 am 0
  • Conqueror

    Is anybody surprised? “Protecting Russian-speaking people” bullshit. Slight difference between this and argieland trying to steal the Falkland's gas and oil. The Falklands say no.

    Mar 18th, 2014 - 12:58 pm 0
  • paulcedron

    falklands gas and oil
    lol LOL
    two barrels of oil in the middle of the ocean do not interest anyone

    Mar 18th, 2014 - 03:02 pm 0
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