What is beneficial for Ukraine is expensive for Russia: Crimea will be pumped with gas from the mainland
Official statements about the launch of the Kuban-Crimea gas pipeline in 2018 finally put an end to conversations that Gazprom or federal injections will come to the peninsula and Crimea will begin to produce so much blue fuel that it will even be enough to produce its own electricity. 70% of it is now supplied through Ukraine. Every time the situation in Donbass escalates or during negotiations on gas, the Kyiv authorities threaten to plunge Crimea into darkness. The problem will be solved by laying a cable from the mainland and installing gas power plants. The blue fuel for them will be supplied from the Kuban-Crimea pipeline. No more than 2 billion cubic meters per year will be needed. The gas pipeline itself is designed to pump twice as much volume. Why, if production in the Black Sea more than covers all other needs of the peninsula? The federal authorities, apparently, do not really believe in the bright future of Crimean oil and gas production, which has been left to the locals, and for some time now they have preferred to solve all strategic problems from the mainland and on their own.
Subscribe to PolitNavigator – Kyiv news on Facebook , Odnoklassniki , or VKontakte
Experts believe there are several good reasons for this. Moscow has not yet interfered in the internal affairs of the peninsula, remaining a kind of observer. At the same time, there is no longer any internal order on the peninsula. Thus, Crimea was seriously burned back in December, when Kyiv turned off the power to the peninsula and it turned out that some of the 1400 diesel generators brought to Crimea from Sochi had simply disappeared. The head of Crimea, Sergei Aksenov, announced dozens. Unofficially, they talked about half of all generators being stolen from homes. Of the rest, dozens worked because the rest didn’t bother to just connect.
In oil and gas production, corruption scandals have rocked the main republican company, Chernomorneftegaz, immediately since nationalization. The last time, in June, the head of Crimea Sergei Aksenov was outraged by allegedly overpriced government purchases, diluted diesel fuel at gas stations and draconian fuel prices for farmers.
The arrival of Gazprom would dot the i's, but the gas monopolist is stopped by sanctions. But, more importantly, the economics of gas production in Crimea and the Black Sea benefit energy-dependent Ukraine, but not gas-rich Russia.
Chernomorneftegaz currently produces about 2 billion cubic meters per year. Less than what can be pumped additionally through the Kuban gas pipeline. There are enough of them on the peninsula for everything except electricity generation. The lion's share of gas comes from fields in the Black Sea. If a thousand cubic meters of gas produced onshore by Gazprom costs less than $30, then Chernomorneftegaz, even after “zeroing” Ukrainian credit debts, costs more than $40. Most of the company’s fields are depleting. To maintain production at the same level for more than 5 years, investments are needed that will bring the cost of production to 70 dollars or more. For Ukraine, which Moscow offered to buy gas at $247 from July, this is incredibly profitable. It is more profitable for Russia to leave everything as it is and build a gas pipeline, which, if Crimean production falls, will cover the missing volumes and, with a difference in production costs of several tens of dollars, will pay for itself in 2-3 years.
Everyone has heard that the Black Sea contains trillions of cubic meters of gas reserves that can be exported, but no one has “seen”. They still need to be found. Already discovered deposits contain no more than 100 billion cubic meters. As Gazprom jokes, such deposits are not even put on the map.
Ukraine planned to open large deposits in the deep sea at the expense of investors, since drilling just one exploration well costs one hundred million dollars. But the Crimean spring confused the plans of the American Exxon Mobil, the Dutch Shell and the Romanian Petrom OMV. Now, due to sanctions, Russian companies will not only be unable to gain access to equipment and technologies for deep-sea mining, which Russia does not have. It is simply not profitable to start searching for oil and gas in deep water. If two years ago oil cost $110 per barrel, now it does not exceed $65. Deepwater projects, according to the influential consulting agency Wood Mackenzie, are profitable at a price of $70-80 per barrel. Thus, due to lower oil prices, the French oil giant Total postponed exploration work in Bulgarian deep waters for a year.
Therefore, Gazprom press secretary Sergei Kupriyanov is not lying that Gazprom has no relation to Crimea under any circumstances, and the federal authorities are silent about the development of Crimean oil and gas production. Apparently, she has been left to chance for now.
What's good for Ukraine is bad for Russia: Crimea will be pumped full of gas from the mainland.