Ukraine's Black Sea Gas Ambitions Seen at Risk over Crimea

By Henning Gloystein, Reuters

Ukrainian plans for expanding Black Sea natural gas output have been thrown into doubt by Russia's seizure of Crimea, a region linked to most of Ukraine's offshore developments.

Past price disputes between Russia and Ukraine have led to the Russians cutting off supply, prompting Kiev to spur development of its own resources including onshore shale gas and Black Sea fields.

Ukraine failed to pay Russian gas company Gazprom $440 million by a deadline on Friday, sparking fresh concerns Gazprom could switch off supplies like it did in 2009.

Ukraine's Black Sea push has attracted energy majors as investors, including Exxon Mobil, Royal Dutch Shell , ENI and OMV.

Promising developments include the Odessa gas field where plans call for output of more than a billion cubic metres of gas by 2015.

But uncertainty clouds such plans after Russia effectively seized control of Crimea following last month's ouster of Ukraine's pro-Russian President Viktor Yanukovich.

Escalating the crisis further, Crimea's parliament, dominated by ethnic Russians, voted on Thursday to set a March 16 referendum on the region joining Russia.

Exxon Mobil has put its offshore activities in Ukraine on hold due to the circumstances, Senior Vice President Andrew Swiger told investors this week.

"Their (Ukraine's) high hopes of increasing offshore gas production may fade with the Crimea referendum," Mikhail Korchemkin at East European Gas Analysis told Reuters.

Ukraine uses more than 50 billion cubic metres of gas a year, worth around $20 billion at current European market prices, with more than half of it coming from Russia.

European Union countries also receive Russian gas piped via Ukraine and were impacted by the shutting off of supplies in 2009.

As Ukraine is a member of the EU's energy community, the European Commission also supports Kiev's efforts to develop its fuel resources and storage.

In the event Crimea does join Russia, analysts said Ukraine's Black Sea gas could end up in Russian hands though be connected to Ukraine's gas infrastructure. They say Ukraine would then likely cut off supplies to Crimea.

That in turn could prompt Russia to use the Odessa field and other Ukrainian developments in the Black Sea to supply Crimea, they said.

"Taking into consideration all logistics ...it is hard to predict how Crimea can live without normal relationships and connections with Ukraine," said Arthur Nitsevych, a partner at Interlegal, a Ukraine-based transport and shipping law firm.

(Additional reporting by Jonathan Saul and Oleg Vukmanovic; editing by Jason Neely)