The Black Sea: Uncertainty versus Opportunity
Most people know Romania as the Carpathian-Danubian-Pontic space. But not everyone understands what it really means. Apart from the obvious geographical sense the true meaning of this denomination is that we pretty much have it all in terms of diversity. And this diversity brings along a certain social and economic development. The subject of discussion for today is this economical side of things, an economy that is certainly boosted by the ‘Pontic’ perspective. Yes, the Black Sea, a newfound regional hub for oil and gas. We use the word newfound because this region has a lot of potential for growth, and the wheels have been put in motion, but the outcome is still unclear. For Romania it is both a blessing and a curse that it has access to such a resource. We have a history of mishandling our resources and this moment seems to be crucial. Yes, there is a lot of uncertainty in the area, what with the war and countries vying for control, but we should be grateful that we at least have a seat at the table. The opportunity is ours; we just have to make the best of it. How exactly, this remains to be seen.
Now, we have a tendency to rush headfirst into the matter without knowing all the details or who are all the players involved in the business. We are not the major factor here, just think about Russia and its influence. We have to accept that we only hold a piece of the pie and in order to get the best out of this affair we have to cooperate. Before starting to question our position and course of action let’s refresh our memory a little. A lot has changed since the Crimea debacle, interest shifted, power as well, and the dynamic changed considerably. There are completely new challenges waiting ahead and new threats to face. Let’s see how energy factors into this.
We should start with the party that was affected the most, and that is Ukraine. As of 2013 and according to the EITI report, Ukraine had 410 oil and gas deposits, and produced 3 Million tons of oil and gas condensate and 21.5 Bcm of natural gas. These reserves were separated between East, West and South with the Eastern region having the most important resources. It goes without saying that after the annexation some of these assets changed hands, albeit rather controversially. Going back to the matter at hand, it is the resources that lie in the Ukrainian Black Sea shelf that hold large oil and gas reserves that have yet to be explored. Steps are being taken in order to attract future investment through better policymaking, all this in the common goal of obtaining energy independency from Russia. Speaking about the devil, it is essential to observe that Russia is constantly protecting its rights to continue to explore and develop the resources on their Continental Shelf, also in Crimea. We have to realize that conflict is not the best background for investments and exploration and since it is far from over we should just be on standby for the time being.
Russia isn’t in the best position either, with Gazprom’s market capitalization going down, the continuation of the low oil price environment and EU’s sanctions. We don’t even have to mention that it lost one of its important customers, Ukraine, a country that intends to become energy independent and to start exporting rather than importing gas in a matter of 10 years. Another country in the mix is Bulgaria, but due to its rather small economy and lack of geopolitical power it still remains in the shadow of big players like Russia and Turkey.
Of course, recent events have shaken up the SEE countries, as they realized that war and peace might be notions easily reshaped when the conflict happens right at your doorstep. Luckily there is an upside. All this has led to enhanced cooperation between European nations and long awaited discussions about energy security in the area are becoming somewhat of a trend nowadays. There is a trace of a consensus: the EU must create better understanding between its members in order to counter Russia’s influence. Development of countries like Romania, Georgia, Bulgaria and Ukraine should be helped, all the while opposing the construction of Gazprom’s TurkStream gas pipeline. To this end the region would require a network of gas interconnectors, a favourable tax regime and exploration and production of nonconventional resources (shale gas and LNG). If the TurkStream is realized this will mean a loss of diversification of natural gas suppliers as Russia will manage to keep its share of the gas market. The preferable alternative would be the Southern Gas Corridor. Another interesting option is the Greece-Bulgaria interconnector which will increase the energy security in the west of the Black Sea and help struggling Bulgaria. But one of the best ways to counter Russia’s influence is developing domestic resources in the Black Sea basin. Georgia, for example, could become a hydrocarbon source for Europe. Massive resources of gas were discovered in eastern Georgia and this could mean a new age where it becomes a gas exporter rather than an importer. Romania could also be a target for offshore exploitation with the Pelican 1 and Domino proved to be large hydrocarbon resources. It is safe to say that the Black Sea region is envisioned to be an important hub for developing new oil and gas deposits, with the potential of reducing Europe’s dependence on Russian gas by 50% by 2030.
Seeing as oil and gas are primed to remain important in the EU energy scheme and security of supply is of utmost importance, the Black Sea region will remain a top opportunity for the world energy strategy. It seems that this region could be the heart of the energy union as it provides competitive gas markets which will also produce changes in the economy, financial markets and provide more jobs. But the Black Sea region will also have to respect strict regulations for the low carbon economy and in an environment where laws are not traditionally respected it will prove to be a challenge. There is also an Efficiency Imperative and the regions will have to adhere to that and standardization. In the current EU policy context which draws from market flexibility the Black Sea assets are shared by many countries and bringing them all together will be the most important milestone. The Neptun Block provided 42-84 Bcm of potential gas resources and most of the seven E&A wells that were drilled encountered gas. The question on everybody’s lips is how long will it take for the region to become self sufficient? The answer might be in the amount of investments we are willing to make.
What will be Romania’s role in all this? We still struggle with energy shortage and are dependent on Russia but we have a good position regarding natural gas in the SEE. The key would be reinforcing our own gas transmission system. We should be a major ally to Ukraine but to do that we should stand on our own two feet. A strong international presence is a good sign as there is no danger of losing upstream access even with the Russian-Ukrainian conflict ongoing. The good thing is that we are actually in the middle of all this, with access to all transit routes. But we have our own situation to consider first. In order to stay competitive we should ensure that we’re not just waiting on the sidelines, we’re cementing our position. To this end we must diversify our primary energy resources, keep up the domestic production of natural gas, coal and oil, look into renewables and consider continuity of the nuclear energy possibility. This, of course, must be done under the watchful eye of the EU. But this is not all. We have to remember that in a few years the face of the industry could change dramatically and this is where timely investments come in. And they should be done quickly as studies show that we are depleting our hydrocarbons reserves faster than we are discovering new ones. At this rate, in ten to twenty years we could become a massive importer of oil and gas, exactly what we are trying to avoid. There are a few risky options that we have to consider: imported gas from regions like Turkmenistan, Iran, Azerbaijan via Turkey, and LNG from terminals in Greece and Croatia. Russia is still an option as long as the political undertones fade away. In regards to this, especially in the Black Sea area, a new way of making business is rising, and that is energy diplomacy. Romania has to be involved in joint purchases and partnerships in this area if we wish to accomplish anything. Our share of the Black Sea is indeed a catch, make no mistake about it. But in order to really realize its full potential we need to ‘sell’ it better. No investor will set foot in this area if we don’t make the offer as attractive as possible. This means assuring them of proper returns and providing a stable fiscal and regulatory environment. Without this, investors will be few and far between. It won’t be easy, as a system is rarely changed overnight, but it will be worth it once we fall in line with the more civilized models of business.
In terms of impacting the area we could be an important part in the Vertical Gas Corridor as it will transit our territory. But due to slow European integration it will be a demanding process. It’s high time we stopped fixating on energy independence and become a team player. Opening up to the EU energy market will do wonders for the economy, as being an economical ‘island’ has been proved time and time again to be a loser’s strategy. We need a game plan right now, one with an open and strategic approach. Since we don’t have the capacity to be a regional hub we should just settle with being a transmitter, and a good one at that. We are in the position to be the best gas transmitter in the region and we should not pass up such an opportunity. Helping our immediate neighbours, Republic of Moldova and Ukraine, will also strengthen our position and assure that there are no imbalances in the region. We have been dealt a good hand in this round; it would be a shame if we squandered it on petty ambitions. The only issue we are facing is that Romanians are notoriously bad at playing with others. This time, the only obstacle we have to overpass is our own capabilities. The Black Sea is just another test towards becoming the kind of energy player we wish we could be.