It’s not only the Eastern Mediterranean. New gas exploration campaigns in the Black Sea are underway, yet not without their challenges.
Last June, Turkey’s state-run energy giant TPAO raised a fist in triumph, claiming discovery of the country’s largest natural gas reserves to date. Located off of its Black Sea coastline, Turkish President Recep Tayyip Erdogan recently claimed that the Sakarya field holds up to 405 billion cubic metres (bcm) – an increase on the 320 bcm estimated in August – and will be onstream for the Turkish public’s consumption by 2023.
While some skepticism is justified, the find has raised many eyebrows, much of which has been conveyed through mainstream media. Less widely reported are other offshore discoveries in the Black Sea being made by various regional players, some more overtly than others. Given the not insignificant hurdles posed by limitations of technical capacity, a bounty of market supply, and unresolved conflicts leaving borders and exclusive economic zones (EEZs) in question, many are asking who’s campaigning for new Black Sea gas, and why? And just as importantly, whose national security interests stand best to gain?
The Exploratory Kick Off
Black Sea offshore shallow water extraction began in the 1970s. Initially, none of the discoveries had geopolitical or security implications, as both the Soviet Union and Romania were then energy independent. The first deep water gas discoveries in the Black Sea date from 2012, when Exxon Mobil and Romanian-Austrian OMV Petrom found deep sea gas in the Neptun Deep block off Romania’s shoreline. So far, Neptun Deep is Romania’s most lucrative offshore block, worth an estimated 40-80 bcm.
The Neptun Deep discovery set off multiple Black Sea offshore explorations, having confirmed the energy potential of regional deep water resources. So high was the optimism that European energy analysts compared the Black Sea’s potential to the North Sea of the 1970s, further citing Ukraine’s “tremendous exploration potential.” Ukraine and Russia soon after commenced offshore deep water exploration with the help of Exxon Mobil and Italy’s Eni, respectively. Similar efforts by Turkey culminated in the spectacular Sakarya discovery announced in August.
Problematically, the Black Sea’s deep sea is limited in surface and disputed among its littoral states. The lawful demarcation of EEZs was established in 1982 by the United Nations Convention on the Law of the Sea (UNCLOS). An EEZ extends 200 nautical miles beyond a sovereign country’s coastline in which it has exclusive rights to natural resource exploitation. UNCLOS obligates states to resolve conflicts equitably; little other guidance is given. Accordingly, it was left to the International Court of Justice (ICJ) to delineate maritime boundary lines disputed between Romania and Ukraine in 2009.
Black Sea explorations and discoveries have their expected geopolitical consequences. Offshore gas explorations in the Black Sea bear the promise of reducing Europe’s energy dependence on Russia, but the region’s security runs along the East-West political fault line. Russia’s invasion and illegal annexation of Crimea is one example. Russian-occupied Crimea’s EEZ overlaps with what remains of Ukraine’s, as well as with the EEZs of Turkey and Romania, the latter with an estimated 200 bcm in offshore gas reserves. Absent a rules-based order, what matters is who drills first, as the world is witnessing in the Eastern Mediterranean. The fact that Turkey is not a signatory to UNCLOS could someday prove troublesome in the Black Sea as well.
Romanian Moves at Home
The Neptun Deep block is licensed to American company ExxonMobil and Romanian OMV Petrom, each owning 50 percent (Austrian based OMV owns a 51 percent share in its Romanian partner). The block is estimated to contain natural gas resources of approximately 42 to 84 bcm, amounting to between three and six times the annual Romanian consumption. Other key discoveries include OMV Petrom’s in the Histria block (an estimated 48 bcm) and in the Midia block (an estimated 9 bcm) by the joint US-EU firm Black Sea Oil and Gas.
Not all blocks, however, are licensed under joint Romanian-Western ventures. Russia’s Lukoil won an exploration and development tender issued by the Romanian government in 2010. Then in 2015, Lukoil announced the discovery of 32 bcm natural gas in the Trident block. This was the first time Lukoil discovered gas in the Black Sea, giving the Russian company a jumpstart into deep sea offshore explorations, to the detriment of Western companies.
The saga of Romanian gas fields continues. In 2018, Romania’s then ruling Social Democratic Party increased taxes on offshore exploitation, provoking ExxonMobil to announce its withdrawal from Neptun Deep one year later. Lukoil promptly expressed its acquisition interest in Exxon Mobil’s shares for Romania’s largest block. In January, the National Liberal Party government promised to change the relevant tax law in an effort to prevent Deep Neptun’s takeover if elected in the recent parliamentary elections. The outcome of this remains to be seen.
Romania’s complex EEZ landscape reflects two dynamics. The first is the East-West divide. Romania’s offshore resources can aid in the region’s autonomy away from the Russian energy monopoly. In theory, every cubic Romania produces is one less Russia sells. In practice, Lukoil’s presence in Romania’s EEZ and attempts to buy out ExxonMobil undermine its energy security. With approximately $26 billion by 2040 in tax revenues flowing from Black Sea developments into Romania’s state budget, the stakes are high.
OMV Petrom isn’t only making moves off its own shore. The firm is implementing an ambitious strategy to expand its upstream operations throughout the Black Sea region. Earlier this year, OMV Petrom acquired OMV Offshore Bulgaria from OMV Exploration and Production, possibly to consolidate the parent company’s interests in its Romanian subsidiary.
Romania’s largest energy company OMV Petrom has further set its sights beyond the eastern shores of the Black Sea. In June 2020, Georgia’s Economy Minister Natela Turnava announced OMV Petrom’s successful bid to undertake oil and gas exploration activities in Georgia’s Black Sea II license block. Production agreement negotiations are currently “going on in a very constructive manner” according to Giorgi Tatishvili, Head of Georgia’s State Agency for Oil and Gas.
Should negotiations successfully conclude by the end of 2020, this development represents significant steps forward for both sides. For Georgia, this is its first foray into offshore oil and gas production. If successful, it may eventually lead to the country’s full independence from Russian gas, as Georgia forecasted 6.6 percent of its 2020 consumption coming from its northern neighbor.
As for OMV Petrom, a successful find and extraction in Block II will bolster its – and by extension – Romania’s credentials as an increasingly serious player beyond its near shores. Future well depths remain undisclosed as explorative studies continue. There is cause for optimism. All of Georgia’s discovered oil and gas fields lie along the Transcaucasian intermountain depression, which runs from the Kura basin on the shores of the Caspian Sea to the Rioni Basin, abutting the port of Poti and Block II. The bigger question is whether any finds are deep water, likely leaving OMV Petrom in need of a global firm with deeper drilling capacity and experience.
Ukraine’s chances for energy autonomy were effectively cancelled with Crimea’s illegal annexation. According to its Energy Ministry, Ukraine lost 80 percent of its Black Sea oil and gas deposits as a result. As of March 2014, the Crimean-based Chornomornaftogaz’s gas estimates totaled 58.6 bcm in an EEZ three times the peninsula’s land mass and potentially worth trillions. Upon annexation, Russia seized all its fields and production facilities; the U.S. imposed sanctions not long after. ExxonMobil withdrew from Ukraine’s EEZ while other hydrocarbon supers similarly retracted.
After years of offshore inactivity, Kyiv sought to revive the sector by tendering 43 blocks in 2019, with only four going to international bidders. A potentially profitable bid worth $1 billion in investment was awarded to U.S.-based Trident Acquisitions, only to be canceled by the incoming Ukrainian government later that year. Presently, Ukrainian offshore explorations are dormant and will likely remain so well after the fighting stops, given attendant legal uncertainties.
Speaking of Directions…
The Trump Administration has been consistently forward-looking in its approach to facilitating a greater North-South energy corridor, among other sectors. From the widely touted Three Seas Initiative, former Energy Secretary Rick Perry’s consistent Eastern Mediterranean engagement, to recent nuclear energy deals in Romania, Bulgaria and Poland, the political will to engage in the region’s energy sector has been apparent. That Georgia may be on the cusp of natural gas independence from Russia is most welcome news, as are the prospects of greater natural gas resources for a European market whose clean(-er) energy needs remain significantly greater than what up-and-coming renewables can produce.
The U.S. government can build on this momentum by affording loan guarantees to energy giants wary of an admittedly challenging environment. The next administration would be further wise to double-down on the progress already made in Central-Eastern and Southeastern Europe by further solidifying diplomatic and military relations with current and aspiring NATO membership states in these regions. Absent engaging U.S. public-private partnerships that serve both our economic and security interests as well as our allies, malign actors taking orders from Moscow and – increasingly – Beijing will.
Iulia Joja is a Senior Fellow with MEI's Frontier Europe Initiative. Richard Kraemer is a Non-resident Scholar with MEI's Frontier Europe Initiative. The views expressed here are their own.
Photo by Mustafa Kamaci/Anadolu Agency via Getty Images