Crimea split to deprive Ukraine of Black Sea gas

With the forfeit of Crimea, a holiday peninsula of two million people, Ukraine is also set to lose offshore natural gas fields, likely to be snapped up by Russian energy giant Gazprom. Upon voting for independence from Ukraine, the Crimean assembly moved Monday to nationalise assets of Chornomornaftogaz, a unit of state gas company Naftogaz, in a decision that also included the "continental shelf and exclusive economic zone" in the Black Sea. Chornomornaftogaz owns 17 fields -- including 11 gas fields, four gas condensate fields, and two oil fields -- and has 13 offshore platforms, in the Black Sea and Sea of Azov. It employs about 4,000 people. Crimean deputy prime minister Rustam Temirgaliyev told Moscow's Kommersant business daily that the company would soon be put up for "privatisation" and that Gazprom had expressed an interest. In remarks published in Forbes magazine's online edition in Ukraine, Chornomornaftogaz's deputy chief executive said representatives of the new authorities took the helm of the company on March 13, accompanied by gunmen. "There were representatives of Gazprom, four of them," Volodymyr Plechun was quoted as saying. "They immediately began to study documents." The men armed with automatic weapons were then deployed at Chornomornaftogaz's platforms. In 2013, the Crimean company extracted some 1.6 billion cubic metres of natural gas, accounting for more than five percent of Ukraine's overall production. This represented a 40-percent increase from the year before, and was enough to satisfy the needs of the peninsula. "It is never good to lose an asset, but it's not a critical loss," said Dmytro Marunych, an analyst at the Energy Research Institute. "All of the extracted gas will be for consumers in Crimea. This means that the population of mainland Ukraine will not be affected," he explained. - Judicial proceedings - Although largely symbolic, the loss will be painful for the government in Kiev, which for years has been trying to reduce its dependence on Russian gas imports. Significant efforts had been made to modernise the company, which intended to double its production and build a pipeline in the south of the ex-Soviet state. At the UN General Assembly in September, Ukraine announced it had reached a natural gas production-sharing agreement with a consortium led by Anglo-Dutch energy giant Shell and US counterpart ExxonMobil. But this suffered a setback this week when Shell confirmed that in January it had terminated talks on the project to extract natural gas from the Skifski site in the Black Sea. ExxonMobil, for its part, said it remained interested but that it was suspending the negotiations given the Crimean crisis. The result of this is that Ukraine may be forced to pay Gazprom more for gas extracted by Chornomornaftogaz. "Over 50 percent of (Chornomornaftogaz's) planned 2015 gas output will be sold domestically (in Crimea) at a relatively low price," analysts at French bank Societe Generale said in a note to clients. "We think the balance could be sold to Ukraine, where prices for Russian imports are currently at a par with the EU's prevailing long-term contract prices." But analysts say they expect a lengthy legal battle over the ownership of Chornomornaftogaz at international courts. "The dispute will last for several years," said Valery Nesterov, an analyst at of Sberbank Investment Research in Moscow. "It is a policy of acquisition. This (legal) action is embarrassing but there is no choice. Since it is (Russian) territory, it is okay to buy it," he added. For Gazprom, the Crimean company is not a major prize, with analysts putting Chornomornaftogaz's value at between $500 million and $800 million (365 million and 580 million euros). Its production and reserves represent only 0.5 percent of the Russian giant's.