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The Black Sea: A New Frontier for Energy Geopolitics?

The Black Sea: A New Frontier for Energy Geopolitics?

Halliburton may be interested in Romania’s offshore oil fields, but it could face a challenge from a bolstered Russian presence in the Black Sea.

Russia’s claim to the Crimean Peninsula, and collocated military assets, pose a notable security threat to the longstanding maritime division of the Black Sea. The Exclusive Economic Zones, as well as territorial and contiguous zones with oil and gas resources, are possibly vulnerable to Russian interference. Even the threat of military presence may increase investment risks in the Romanian and Ukrainian offshore oil sector. This security and geopolitical risk is likely to stifle investment interest. Russia is likely concerned chiefly with the distribution of resources in the Black and Azov Seas, as well as Turkish influence over the South Stream pipeline.

Division of the Black and Azov Seas

The United Nations Convention on the Law of the Sea established the basic stipulations for maritime boundaries, but this regulation is limited in adapting to the concave borders within the Black and Azov Seas. Usually, these boundaries are negotiated bilaterally based on a predefined concept such as equidistance or relative distribution based on length of coastline. When bilateral negotiations fail, as they did between Ukraine and Romania, often the International Court of Justice (ICJ) mediates these issues. In this instance, the ICJ delivered a decision based on equidistance.

Related: Pipeline Delays May See Moldova Return To Russia For Its Gas

However, the ICJ ruling took into account the Crimean Peninsula as a part of Ukraine and not Russia. Russian control over the Crimean Peninsula may necessitate a redistribution of maritime boundaries such as those involved in the South Stream pipeline. To avoid Ukraine, the pipeline was routed through Turkish waters, and under threat of the European Southern Corridor project, Russia did not likely get a satisfactory deal. Placing the pipeline through Crimean waters would not only cut costs by reducing time and distance, it removes undue Turkish influence from any potential expansion project. It is possible that the original route will be honored in order to help supply Turkey, but that future projects will be routed in now Russian waters.

The oil and gas reserves offshore between Ukraine and Romania were a major proponent for the expeditious settlement of a longstanding border dispute. While these resources are miniscule compared to Russian onshore conventional reserves, they were to play a significant role for Ukraine and are still a priority for Romanian energy independence. The ability for Russia to disrupt alternative sources of oil and natural gas from key import partners is likely a high priority issue.

Romania’s offshore resources could supplant their entire demand from Russia -- roughly 25 percent of total natural gas consumption. Prime Minister Victor Ponta has claimed energy security is key to the country’s economic goals, which prominently include the intent to increase military spending to support economic interests as a way to boost the overall domestic investment climate.

Halliburton, which has a history with OMV Petrom in Romania, recently expressed interest in offshore Romanian fields. OMV has explicitly stated they are interested in further developing the Neptun Bloc, which unfortunately sits at the new border with Russia. The company is likely specifically looking into the Domino-2 field with ExxonMobil.

Before the annexation of Crimea, Ukraine’s assets could have reduced their demand by nearly a third due to resources in the Black and Azov Seas. The new distribution between Russia and Ukraine of these assets will likely be in Russia’s favor. Due to security risk, it is improbable that Ukraine will acquire the needed foreign investment for their remaining offshore potential.

Related: Turkey Striving to Realize Energy Dream

The Russian pipeline system into Europe involves numerous countries, but they all have a common trend by being high dependence importers from Russia. If these countries reduce their dependency, it also reduces Russia’s ability to influence the international agenda in the region.

In the event of Romania’s, and possibly Ukraine’s, increased domestic oil and gas production, regional spot market prices may deflate due to excess supply. However, their failure may do the opposite due to limited new prospects in the region, given opposition towards shale natural gas development.

A threat to traditional Russian demand markets will likely increase Russian interest in destabilizing the surrounding security environment to deter investors in non-Russian projects.

Joe Parson for Oilprice.com

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Leave a comment
  • Alex on October 01 2014 said:
    Dear Joe,

    do you know if it was the West, who did all its best to push
    Crimea into Russian arms?
    If the West do not support military coup in Kiev in February,2014:
    1) Viktor Yanukovich would be peacefully dismissed by now, 2) there would not
    be the war in Ukraine; 3) Boeing 777 would not be shooted down; 4) Crimea would be still Ukrainian territory; 5) there would not be the risks for gas supply to Europe; 6) Russia would give to Ukraine the loan for 18 bln USD; 7) the price for the gas for Ukraine would be 285 USD/1000 m3.
    Would you tell me why do you blame Russia now? Is it for the influence in Europe via gas?! But U.S. uses its strong Finance, Economic and Military influence there!
    Is it better for Europe? As far as I understand, thanks to Ukrainian crisis European countries must increase they military budgets and to PAY MORE MONEY to U.S. defense industry to buy new weapon!
  • Natasha to your Boris on October 02 2014 said:
    Alex,

    Thanks for positioning Moscow's views. However you are blaming the victim for the incident. Much like blaming a rape victim for 'asking for it'. It was not the West who:
    1. Invaded Crimea - it was Russia
    2. Shot down the 777 you mentioned - it was Russia
    3. There is no risk of gas supply to Europe - unless Russia cuts off the supply
    4. Russia can still give Ukraine the loan - but chooses not to do so

    Do you understand? Russia is the violator in this case. You are trying to justify its behavior by blaming the victim.

    Is it better for Europe? What are you comparing against? A dictatorial Russia? Europe has already been down that road and said '???'. Get with the times Alex.
  • Andrey Palyura, leading engineer of Oil&Gas; Co, Crimea on October 02 2014 said:
    To Alex. All that you say are so obvious. But I do not understand, why EU behaves itself as deaf and blind. Moreover Crimea was not anexed. It choosed its way freely.

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