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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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What the Loss of Crimea Means for Ukrainian Energy: Interview with Robert Bensh

Ukraine’s Crimean Peninsula is now Russia’s. It was done with an impressively organized non-violent military operation, and supported by the foregone conclusion of a referendum on independence from Ukraine. One Ukrainian soldier was reportedly killed on 18 March, after Russian President Vladimir Putin signed the treaty to annex the Crimea and troops moved to take over a Ukrainian military facility in Simferopol. The US has imposed largely symbolic sanctions on Russian officials who have no American assets to freeze and would be fine foregoing trips to the US, but the game is over.

Ukrainian troops have been ordered to disengage entirely, and Russia will keep its tanks from rolling into Eastern Ukraine. We’ll hear a lot of rhetoric for the next six months before Crimea is forgotten. From an energy perspective, the Crimea is not a major loss for Ukraine, and now it’s up to the new government to get real shale development in motion, and for Turkey to face up to its own strategic realities and join forces with Ukraine to harness LNG potential, according to Ukraine energy expert Robert Bensh.

Robert Bensh is an energy and energy security expert who has led oil and gas companies in Ukraine for over 13 years, and served as an advisor to former energy minister and former vice-prime minister Yuri Boyko on issues of Western capital markets and political systems.

In an exclusive interview with Oilprice.com from Kiev, Bensh discusses:

•    Why the Crimea game is over
•    What Russia isn’t likely to roll into eastern Ukraine
•    What Ukraine is losing from an energy perspective
•    How Russia’s moves are strengthening Ukrainian resolve
•    How the annexation of Crimea has heralded a new patriotism in Ukraine
•    Why a lot rests of Ukraine’s next move on shale
•    What opening the Bosporus to LNG would mean for Ukraine
•    Why Turkey should be watching very closely

James Stafford: Now that Russia has annexed Crimea, are there fears that it won’t stop there, and that we could see Russian tanks entering Eastern Ukraine?

Robert Bensh: The reality is that this game is over. The Crimea is Russia’s and everyone’s let it go. Ukrainian troops are actively disengaging with Russian troops, even with Russian speakers in general. They will not engage, and in return, Russia will not attempt to move further into Ukraine.

If Russia rolls into Eastern Ukraine--even if they don’t kill anyone--we know that Poland, Romania, possibly Hungary, possibly Slovakia and definitely the Baltic states will invoke Article 5 of the NATO agreement. And when that happens, General Martin Dempsey, chairman of the US Joint Chiefs of Staff, has already stated that if NATO were called in, the US would stand behind it and support it militarily. The rhetoric has been pretty high, but it’s just that--rhetoric.

James Stafford: So the game is over, and Crimea is gone. What does this mean for Ukraine from an energy perspective?

Robert Bensh: With Crimea, Ukraine loses some prospective offshore oil and gas territory in the Black Sea, but it doesn’t lose any shale. All the shale is in Ukraine’s east and west.

But things are going to get tricky now. One of the bigger developments is likely to be the Russian nationalization of Chornomornaftogaz, Ukraine’s state-run gas company in Crimea. This, in turn, would impact Exxon Mobil’s proposed agreement for offshore Black Sea exploration. Exxon never signed the agreement because the Maidan protest movement was blowing up and they didn’t want to give anything to [now ousted] Ukrainian President Viktor Yanukovych, and rightfully so. But what happens next with that potential deal is up in the air.

Interestingly, I think we still have Ukrainian gas prices effective in Crimea but they would fall under Russian law. This is all completely new territory. This isn’t Africa, where something like this is par for the course. High-level government officials here have not been through this before so it’s a very unique, unwanted challenge. It’s upsettingly interesting.

James Stafford: What does this mean for Ukraine’s pipeline system?

Robert Bensh: Ukraine’s pipeline system would continue to belong to Ukraine unless Russia took over all of Ukraine. To get control of the pipeline system you have to roll up to the Ukrainian borders, side to side.  And it’s hard for me to believe that NATO wouldn’t react to something like that. It’s hard for me to believe that NATO wouldn’t respond to Russia taking over the Donbass, Ukraine’s heavy industry heartland.

The Russian annexation of the Crimea isn’t going to have a major effect on pipeline gas on either side. Gazprom executives aren’t exactly losing sleep over what could add up to the gain of Crimea and the loss of Ukraine. Russia already ships almost half of its gas to Europe via pipelines that bypass Ukraine, and in 2015, if Gazprom’s South Stream pipeline comes online as planned, it will be shipping a lot more gas to Europe without Ukraine.

James Stafford: How critical, then, will Ukraine’s development of its shale assets be to forging energy independence, and what needs to happen next?

Robert Bensh: We could see some positive developments courtesy of the Russian maneuvering. There may be more impetus to invest in Ukraine’s shale development once the dust settles on the Crimea debacle. We’ll hear a lot of rhetoric for the next six months or so, but then the Crimea incident will be largely forgotten.

Ukraine is a great place to operate, and now it will be more transparent, so the sector should be opened up to more investment, which will happen as energy independence assumes a higher priority on the government’s agenda. The country has 14 per McF gas prices, which is very attractive. But Ukraine has to take the first step—and there is a lot to do.

Clearly, Ukraine cannot be happy with the progress made by Shell and Chevron in the shale development process. The process has been open and transparent, but only on two enormous blocks. To truly get shale development in the country, Ukraine needs to auction off multiple blocks of shale acreage, and the best way to do that would not be through a data-room process in Kiev, but in Houston or Denver, where a majority of the shale industry is located. Ukraine needs about 15-20 oil and gas companies developing shale, not just Shell and Chevron.

James Stafford: What are the prospects for getting liquefied natural gas (LNG) to Ukraine?

Robert Bensh: If you can get it through the Turkish-controlled Bosphorus Strait, you would have an endless supply of LNG going to Ukraine. The US now is pushing very hard to open up new LNG facilities in the US to get US shale gas/LNG shipped to Ukraine--but that won’t happen for five years, if it happens at all. Ukraine can’t wait for that.

But the moment you have access to the Bosphorus you have LNG delivery in Ukraine approximately a year after that. There has been a lot of conversation between the Ukrainian and Turkish governments. It’s all rhetoric on both sides, from my point of view. Until the Turks are shown that LNG is a safe commodity to pass through the Bosphorus, which it is; until they’re shown undeniably from a third party, that’s when they will sign off.

LNG is safe and we have a study to show that. At present, LPG [liquid petroleum gas] passes through the Bosphorus, and LPG is significantly more dangerous. From an environmental standpoint, oil is significantly more dangerous than gas. Let’s not forget that naval warships also pass through the Bosphorus, which is by far the most dangerous thing that is ever going to pass through this strait.

One thing the study shows is that LNG passes through the Houston ship channel, Rotterdam port, Chesapeake bay, ports of New Jersey--all without incident. I’m very respectful of those who are wary of LNG passing through the Bosphorus, but this fear is not based on fact. It’s based on what they believe, and we have facts that prove otherwise; and at that point we would hope that the larger potential here for all involved would outweigh these erroneous beliefs.

James Stafford: How would Ukraine receive gas coming through the Bosphorus?

Robert Bensh: Given that Crimea no longer exists—at least from a Ukrainian perspective—an FSRU [floating storage and regasification unit] would sit off the coast of Odessa, most likely, or around that region, which would still remain in the Ukrainian Black Sea. That’s where you would gasify the LNG and put it into the Ukrainian pipeline system.

James Stafford: Does Ukraine have this capability yet?

Robert Bensh: Ukraine already has an FSRU, for all intents and purposes. The only thing we are waiting on is access to the Turkish-controlled Bosphorus. At that moment, Ukraine’s purchases the FSRU and then we’re only about a year away from LNG gas sales. It’s that close. This was all done under former energy minister and former vice-prime minister Yuri Boyko. The only thing Boyko was missing was access to the Bosphorus. The barge is ready. The facility exists and is waiting to be purchased from a Houston-based company. There are traders with LNG just waiting for an order.

James Stafford: Should Turkey be taking notes here on what is happening in Ukraine with Russia?

Robert Bensh: Ultimately, I think Turkey has to look at Ukraine and realize that it is in the same strategic position with regard to energy independence. Turkey should be using Ukraine as a very real example as to why they need energy independence. They should focus on crude oil from Iraqi Kurdistan, development of Turkish shale assets, a complete break-up of the state-run oil company, TPAO, and transshipment of LNG through the Bosphorus.

James Stafford: You’ve talked before about the possibility of Russia’s actions actually facilitating Ukraine’s move toward signing a trade agreement with the European Union. Is there any room for more optimism over this, and possibly other internal political matters for Ukraine?

Robert Bensh: Yes. Russia’s actions have given Ukraine significant resolve to sign the trade agreement with Europe. Prior to Russia’s occupation of Ukraine, there were a lot of Ukrainians in government and business who were willing to sit on the fence, or even gear themselves more toward Russia, with whom they felt  more comfortable, especially in eastern Ukraine. However, the violation of Ukraine’s sovereignty, the threat of recession, and the complete halt of work being done in the country has pushed even the most cynical businessperson or politician toward signing an association agreement.

I don’t meet many Ukrainians who think Ukraine should be part of NATO, but that could change with the annexation of Crimea. The Maidan protest movement was effective in giving the public a voice toward removing what they believed to be a corrupt and unjust government. What’s happening now is that the Russian move is further escalating Ukrainian patriotism. Indeed, it is creating fervent Ukrainian patriotism. I’ve been here for some 15 years, and I’ve never seen anything like it. I’ve never seen the country so united before. For me, this seems to be the birth of a new Ukrainian nation at this point.

I’ve never seen so many 22-40-year-olds completely charged and excited about their country and wanting to be a part of their government. I’m an American—we’re extremely patriotic. Canadians are patriotic, Russians are patriotic. Ukrainians weren’t,  and I’ve never seen Ukrainian patriotism higher than right now. And as a visitor to this country I find it quite heartening.

James Stafford: How would you measure the Obama administration’s response to this crisis?

Robert Bensh: Well, I’m not a politician. I’m a businessman on the ground. For 14 years, I’ve been very critical of how the US has handled relations with Ukraine. We’ve had good ambassadors here, some better than others. While I think the US was slow to respond to the Maidan protest movement, and at points in time did not approve of how the administration was handling the situation in Maidan, I am exceedingly proud of this current US ambassador, Geoffrey Pyatt, and how he is handling himself. Even the Ukrainians on both sides of the fence respect him, which is really hard.

I believe that Obama has been quite measured in his response; maybe not the way I would have responded, but I am very proud of how my country is dealing with the situation. I think we all have to recognize that Putin is a very unique world leader. Even other world leaders, such as German Chancellor Angela Merkel, are having a hard time discussing this current situation with Putin. I respect that.

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  • wyn harter on March 20 2014 said:
    I agree with all said, but one notion! This is the response by the US. Yes it was measured, but it also was a realization they could do nothing and willingly gave Crimea to Russia...a gesture! As for sanctions, it is like spitting in Putin's eye. He should not be pushed by Obama, Merkel or anyone else, as he will surely respond in economic ways more harmful to the west...afterall, Russia has oil, gold, China and more than a few markets willing to trade with them.

    "simply said"
    wyn harter
  • Arius on March 20 2014 said:
    We'll see how much fun Western interests, especially Western oil interests have in Ukraine with a government there that has a fascist/nazi backbone.

    The US, and to a lessor degree the EU, are hypocrites. The US activated its Svoboda and Right Sector forces to bring down the government right after the EU successfully negotiated the opposition and elected government to an agreement.

    In WW2 we expended immense treasure and blood to defeat the fascist/nazi vermin. To use those forces in Ukraine is beyond unacceptable. The blood they spill will be on the hands of the West and its oil interests.
  • Thaddeus Thurston Thistlethwaite III on March 20 2014 said:
    So Western energy corporations will be fracking in the Ukraine. And contaminating their water table just like in the US. This is not progress.
  • Bud Wood on March 20 2014 said:
    The response was meaurd because the USA government has more to lose than has Russia. Specifically, the "petro dollar" could be destroyed. The USA would go to war to protect the "petro dollar"!
  • Mt. Math on March 22 2014 said:
    First of all, deep reservoir fracking for tight gas and tight oil production does not and has not contaminated near surface aquifers in the U.S. or elsewhere in North America.

    Secondly, if the U.S. President thought strategically about Europe and the Ukraine longer term, instead of only about near term Democratic Party election politics and fund-raising, President Obama would immediately approve the stalled (for 5 years of politically-slowed regulatory rigor mortis) Keystone - XL pipeline which would put an additional 850,000 Barrels/day of crude oil to the U.S. gulf coast which could be refined in America and exported to Europe within one year. This would effectively help to remove the oil & gas gun that Putin has to Europe's head that is inhibiting the EU from implementing meaningful economic sanctions against Putin's Russia in retaliation for Putin's Russian invasion of and annexing Crimea, in violation of the nuclear- disarmament Agreement, U.N. obligations and civilized international norms.
  • Denis Kurchenko on March 27 2014 said:
    The Western media seems to be stuck (surprise) on the "Cold War" aspect of this story, simply because it's endlessly interesting to Americans. It think it's clear that Russia isn't moving past Crimea, and wouldn't dare, and that the Crimea debacle is over. So what happens next on the Ukrainian political scene is more important, and how Ukraine makes it possible to develop its energy resources. That said, what about the fracking issues? Why should Ukraine embrace fracking and what makes fracking in Ukraine different than in much of the rest of Europe where it is banned or strongly opposed? Perhaps Mr. Bensh could address this issue?
  • JuniorOil Watch on March 27 2014 said:
    Everyone knows that Putin HATEs fracking (except in Russia), and that Gazprom has been behind much of the "environmental protests" in Europe. As the Economist has noted: Beginning around 2011, Putin deployed a “holy alliance” of politicians and oligarchs, “trendy environmentalists and Kremlin police-spies” to fight the fracking threat. Since then, the Russians have been moving on several fronts either to block shale gas production, or compete with it.
  • E Levy on March 31 2014 said:
    Regardng Robert Bensh's interview and the ensuing comments: This makes one wonder if Russia got what it wanted in Crimea, and whether even if Russian tanks aren't going to be rolling into Eastern Ukraine, Kiev will actually be able to develop its shale. There are plenty of weapons in the Russian armory that don't involve tanks. Will potential investors be scared off by the prospects here? Maybe the answer is to get Gazprom in on the shale development, as impossible as that sounds right now? In a later article, Bensh seems to be suggesting that Ukraine and Russia need to cooperate if Ukraine is to go anywhere. “At the end of the day, the best person for Ukraine is a 35-year-old who isn’t running for president—who isn’t part of the system yet and hasn’t been involved in over 20 years of poor political leadership and corruption. We’re a generation away—hopefully—from a true leader who can turn Ukraine into a strong, independent country that sits between Russia and Europe,” Bensh said.

  • JuniorOil Watch on April 16 2014 said:
    Now that the east is in chaos, with pro-Russian activists occupying government buildings and the new Ukrainian leadership threatening military action if they do not cease and desist ... what next? How worried are foreign investors right now? How worried should they be? So far it would appear that there's no general panic, even for the mining industry in the east, but it could just as easily be that no one knows what to think.
  • Denis Kurchenko on April 16 2014 said:
    As Mr. Bensh pointed out in a later article:

    "Russia can realistically argue that the Maidan protest movement drove the political section process, and that the current government is not representative of the country as a whole. The current administration was interested in placating the Maidan and moving towards Europe, not necessarily in united the country.

    And what have they accomplished? Nothing. There are still people protesting in the Maidan; Crimea is gone; and eastern Ukraine is under threat of attack from Russia."

  • JuniorOil Watch on April 22 2014 said:
    If one of Ukraine's biggest hopes lies in its ability to take advantage of liquified natural gas trade through the Black Sea, if Turkey allows the passage of LNG tankers through the Bosphorus, how should we interpet Russia's recent moves? This week, Turkey paid lip service to an increased capacity for Russia's Blue Stream pipeline through the Black Sea. It would seem that the Turks are selling themselves out to the Russians, which is bad for Ukraine, but will also be bad for Turkey. This is short-sighted thinking.
  • Denis Kurchenko on April 22 2014 said:
    An interesting take on this from Atimes.com

    Once again, for all the hysteria propagated by the US Ministry of Truth and its franchises across the Western corporate media, the Kremlin does not need to "invade" anything. If Gazprom does not get paid all it needs to do is to shut down the Ukrainian stretch of Pipelineistan. Kiev will then have no option but to use part of the gas supply destined for some EU countries so Ukrainians won't run out of fuel to keep themselves and the country's industries alive. And the EU - whose "energy policy" overall is already a joke - will find itself with yet another self-inflicted problem.

    The EU will be mired in a perennial lose-lose situation if Brussels does not talk seriously with Moscow. There's only one explanation for the refusal: hardcore Washington pressure, mounted via the North Atlantic Treaty Organization (NATO).

    Again, to counterpunch the current hysteria - the EU remains Gazprom's top client, with 61% of its overall exports. It's a complex relationship based on interdependence. The capitalization of Nord Stream, Blue Stream and the to-be-completed South Stream includes German, Dutch, French and Italian companies.

  • Denis Kurchenko on April 23 2014 said:
    The situation seems to be heating up decisively as of last night. According to Germany's DW:

    "A Ukrainian politician has been found dead after being "brutually tortured," says Ukraine's interim president. The move has prompted a relaunch of operations to uprooting pro-Russian separatists from eastern Ukraine.

    Interim Ukrainian President Oleksandr Turchynov announced the resumption of a military operation in the country's east aimed at retaking occupied government buildings from pro-Russia separatists. The decision came after a local politician's body had been found "brutually tortured" in the same region.
    The anti-terrorism measures would be carried in order to "protect Ukrainian citizens in the east," Turchynov said, according to a statement released by his office.
    Reuters news agency identified the politician as Volodymyr Rybak, a member of the Ukrainian president's Batkivshchyna party. He had been kidnapped prior to his murder.
    A second individual had also been found dead. It was not immediately clear if the second victim was also a poiltican.
    "These crimes are being carried out with the full support and indulgence of the Russian Federation," Turchynov said."

  • Denis Kurchenko on May 01 2014 said:
    I'm wondering what Mr. Bensh thinks Turkey will do in the coming months, now that the AKP has ensured it can remain fairly powerful thanks to an expectedly good turnout in March local elections. Will they agree to a deal with Ukraine to allow liquified natural gas (LNG) to pass through the Bosphorus? Or will they bow to Russia and focus on the Blue Stream pipeline instead? My understanding is that the US is pushing for the Ukraine option quite heavily. What are they offering Turkey in return ... how do the US carrots and sticks compare to the Russian?
  • Denis Kurchenko on May 02 2014 said:
    Ukrainian state gas company Naftogaz has initiated court proceedings against the Russian energy giant Gazprom over the price it charges Kiev for gas.

    Ukraine's interim Prime Minister Arseniy Yatseniuk told reporters that Naftogaz had taken steps to fight Gazprom at an arbitration panel in Stockholm over inflated gas prices.

    "If within 30 days no agreement is reached... we will turn to the court to resolve the dispute with Russian monopoly Gazprom," he said.

    Yatseniuk stressed that Kiev is willing to quickly pay Gazprom $2.2bn in outstanding payments, but the payments would be at the rate of $268 per 1,000 cubic metres.

    Gazprom almost doubled the price it charges Ukraine's government for gas this month, after pro-Russian president Viktor Yanukovych was replaced by an EU-friendly interim government.

    Meanwhile Ukraine signed a deal with Slovakia on Monday that allows the European Union to send some gas to Kiev, should Russia carry out its threat to cut off gas supplies to its neighbour, if it does not pay Gazprom's higher price.
  • Nevil Chambers on May 03 2014 said:
    What will this mean for the refinery in Odessa, which is also where Ukraine would have it's LNG facility, a key to its energy indepenence ...

    More than 30 people were killed in violent and chaotic clashes in the southern Ukrainian city of Odessa on Friday as pro-Ukraine activists stormed a building defended by protesters opposed to the current government in Kiev and in favour of closer ties with Russia.

    The violence continued on Saturday as Ukraine said its forces had attacked pro-Russian separatists in the industrial east of the country at dawn near the town of Kramatorsk.

    Interior minister Arsen Avakov said Ukrainian forces had seized control of a television tower in Kramatorsk, near the rebel stronghold of Slavyansk where there was heavy fighting on Friday. "We are not stopping," Avakov wrote on his Facebook page, but gave no information on casualties.
  • Nevil Chambers on May 03 2014 said:
    I'd be interested to hear what Robert Bensh thinks the implications of Odessa will be for Ukraine, and what his recommendations are.
  • Andrey Palyura on June 06 2014 said:
    It is pragmatic answers with which I agree mostly. He is not a politician and provides answers close to reality. I am crimeanian and see the true situation from inside. From my side I would like to add that Crimea was not annexed by Russia. It was just a return to Motherland. As a result of referendum on 16th March 2014. Nobody was pushed to vote for Russia. It was free choice. Do not forget that Crimea was russian before 1954. When it was gifted by USSR without any vote to Ukraine. Crimea is historically Russia's territory. Good luck to Robert Bensh and everybody. Sevastopol. Crimea. Russia.

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