Putin Has Crimea, But Reaping Its Energy Riches May Prove Difficult

Tyler Durden's picture



Donetsk's huge shale fields... And as other regions in east and south Ukraine follow in the Donetsk' footsteps, assuring Russia a land connection to Crimea and cutting off Kiev from the Donbas industrial zones and the Slavyansk shale gas, Putin wins again.


And, as NY Times notes, Crimea's offshore resources are a dramatic bonus...


Submitted by Nick Cunningham via OilPrice.com,

Russia’s seizure of Crimea has led to speculation that a major motivating factor was to acquire potentially vast energy resources in the Black and Azov Seas. I wrote back in March on the eve of the Crimean vote to secede from Ukraine about reports that Russia was eyeing the oil and gas reserves off the coast of Crimea.

But taking control of territory rich in oil and gas is different from being able to successfully pull those energy resources from the ground. The New York Times published an article on May 17 that suggested that Russian President Vladimir Putin quietly achieved a massive windfall – acquiring “rights to underwater resources potentially worth trillions of dollars.”

The Black and Azov Seas could certainly hold a huge bounty, potentially up to almost 10 billion barrels of oil and 3.8 trillion cubic feet of natural gas. The most promising field is the Skifska field just southwest of the Crimean coastline. Early estimates suggest that Skifska holds 200 to 250 billion cubic meters of natural gas.

However, just because Russia now controls this territory does not mean they will be able to take advantage of it, at least not anytime soon. Although there are rough estimates of significant reserves of oil and gas, the area is still relatively unexplored. Ukraine had trouble attracting any bidders for two of its four blocks off the coast of Crimea, despite heavy salesmanship by the government in Kiev.

Also, Russian energy companies still do not have a thorough understanding of the geology in Crimean waters. LUKoil, one of Russia’s largest oil companies, was outbid in an auction for the Skifska field by an international consortium led by ExxonMobil. The consortium had been in talks with the Ukrainian government under Viktor Yanukovych over a deal for the Skifska field right up until the annexation of Crimea. The oil companies had plans to spend $735 million to drill two wells. The deal was never finalized and ExxonMobil and its partners obviously shelved those plans when things took a turn for the worse a few months ago.

Presumably, with Russia now moving in, Russian companies will have to redo some of the preliminary exploratory work that the private consortium had already done.

But, more importantly, offshore oil drilling is highly technical, and requires enormous upfront capital. Russia has often teamed up with international oil companies – like ExxonMobil, BP and Royal Dutch Shell -- to tackle some of the extraordinarily difficult-to-reach oil fields, as Russia’s companies can’t always do it on their own. That’s why Russia has sought partners for offshore oil drilling in the Arctic, constructing LNG terminals in Sakhalin, and for tight oil drilling in Western Siberia.

But in Crimea – which much of the world does not recognize as Russian territory – finding international partners, should Russia need them, will be extremely difficult to do.

For example, on April 30, Shell’s Chief Financial Officer Simon Henry ruled out new Russian ventures for the foreseeable future. “I don't think we'll be jumping into new investments (in Russia) anytime soon,” he said. With Crimea in international legal limbo, other companies won’t invest, either.

Even if Russia can go it alone in the Black Sea – and since the waters are shallower and less remote than some of its other major new projects, they probably will try to – it will take years before any oil and gas will come online.

In the meantime, Russia is paying the price for its international isolation. The economy will probably enter recession in the second quarter, according to Russia’s economy minister. Capital flight from Russia reached $63.7 billion in the first three months of this year, exceeding last year’s total. The ruble is also down 6 percent against the dollar so far this year, pushing up inflation, which hit an annual rate of 7.2 percent.

Moreover, in the long-term, Russia may have severely damaged its reputation as a place for doing business. That will hurt the economy for years to come and is much harder to rectify than playing with interest rates or money supply, which can be used for short-term fixes. The darkening economic climate is inflicting real costs on Russia, and that flies in the face of headlines describing Russia’s takeover of Crimea’s oil and gas reserves as a major strategic triumph.

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nmewn's picture

Leftwing manmade global warming hysterics going batshit crazy on Putin in...

...like never...lol.

Slave's picture

Is it just me, or are they hitting that AGW bullshit really hard right now?

nmewn's picture

Man they are hitting everything besides IRS, NSA, unemployment, Benghazi, national debt, Fast & Furious...anything.

Hell, they probably did the VA "death lists" just to Change the subject but it still points to their complete malfeasance & incompetence...lol.

Look! Squirrels!!! ;-)

SimplePrinciple's picture

It must be fun work for the propagandists at .gov.  Let me take a crack at it:

1.  Russia really annexed Crimea because it wanted all the mermaids in the offshore waters.  See, here's a map of the possible territorial claims.

2.  For the sake of the mermaids and their children, we must punish Russia.

3.  What's more, the stupid Russians aren't even going to find the mermaids because they don't have the technology.

4.  And the clincher is that the smart Western companies weren't even interested in bidding because the mermaid prospecting wasn't that great out there to start with.

Sounds just as logical as the oil stories, doesn't it?

AmCockerSpaniel's picture

Just like in chess; Russia has saved it's self from competition. The EU will have to keep buying Russian

oil/ gas. Every thing else is just so much the better.

Stoploss's picture


You're fired.

Box up your shit, and get the fuck out of the building.......



Vint Slugs's picture

"Russia’s seizure of Crimea......" his lead sentence.

Tylers, what's this?

Canadian Dirtlump's picture

No shit man. Crimea is defacto russian and beyond the fact that crimea hauled ass into russia's arms, Moscow has a strategic interest there namely their naval port.

The idea that one of the world's largest producer of conventional hydrocarbons has to nefariously purloin a postage stamp sized plot of land for tight oil ( or gas ) which has no staying power is science fiction.


As a guy who works in the industry i can tell you that for example in the bakken the wells bleed off so fast they dont even bother to build pipeline gathering systems. Just tanks off the well that tankers drive in and empty. I cant see the shale oil in crimea being much different. This would be like taking over a vending machine when you own a candy factory.

BKbroiler's picture

Tylers, what's this?

Oh no, an article that disagrees with the ZH herd mentality.  Put in isn't winning? bite your tongue!

robertsgt40's picture

It really doesn't make much difference if Russia can drill offshore from Crimea now.  The important thing that it was not annexed by NATO.  That BP would be considered for drilling is mind boggling.

williambanzai7's picture

Another guy who does not understand chess.

CrashisOptimistic's picture

The most important story in years:




"Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits, deflating its potential as a national "black gold mine" of petroleum."

This was alleged to be 66% of total US shale oil.  It's cut by 96%.  This is like a nuclear bomb blast at the US abundance theme.


(BTW the article is from oilprice.com -- It's worse than The Diplomat)

nmewn's picture

 "Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits..."

Like all things .gov, I'd like a second opinion.

Or is that allowed now? ;-)

CrashisOptimistic's picture

Like all such govt stuff, this was contracted out.  In fact the article suggests the original study's writers agree with the new finding. 

New data became available.

g'kar's picture

Tom Steyer generously donated his time for the study.

nmewn's picture

lol...no doubt.

But there are other considerations. I believe the oil is there but this probably isn't the place to do fracking...geologically. They should have just said that, instead of vomiting up "we were wildly wrong just seven years ago"...very sciency...lol.

CrashisOptimistic's picture

No mention of him.

Look.  NoDak and Texas don't have 80 million years of earthquakes to eliminate *horizontal* from the layers.  In fact, every earthquake and volcano over the 80 million years was cracking those layers and letting the oil migrate away.

If it's not there, you can't make it be there.

g'kar's picture

"If it's not there, you can't make it be there."


Much like a sense of humor.



Flakmeister's picture

David Hughes was pointing out this very fact, oh, let's see, 6 months ago.....

CrashisOptimistic's picture

He's quoted.

Maybe he'll get some EIA contracts, unless CERA threatens to have everyone at EIA fired.

TheFourthStooge-ing's picture

Yep. I knew this guy was a fuckhead when he led off with "Russia’s seizure of Crimea". That's the Vichy DC translation of "Russia's acceptance of Crimea's petition for accession and reunification following the Crimean secession from Ukraine".

A few minutes of digging and I was shocked, shocked I tell you, to learn that Nick Cunningham is an "Adjunct Fellow" at the American Security Project, a Vichy DC MIC stink tank whose board members include retired generals, admirals, and senators, as well as Secretary of Defense Chuck Hagel and Secretariat of State John "horse-faced Herman Munster" Kerry.



This article is just another excretion from the tripe mill.

disabledvet's picture

Meh. "Still gotta go to London or New York."

Maybe Singapoor. But no one knows oil and natural gas financing like Wall Street. Bank of North Dakota possibly.

jonjon831983's picture

Bullship, Shell et al will just form a shell company to operate a JV in Crimea/Russia.

Problem solved.

Keyser's picture

Shell won't touch anything with Russian... They were burned to the tune of $22 billion after developing Sakhalin Island, then being escorted to the border... The Ruskies don't have the skills to do it themselves and will try to contract it out through Luke Oil, which has a shitty name in the industry for fucking their trading partners... Imagine that... 





Lore's picture

Re: "But in Crimea – which much of the world does not recognize as Russian territory – finding international partners, should Russia need them, will be extremely difficult to do."

I call BS, particularly in the context of this Most Important and Timely Headline (ZH, 21-May).  There are alternatives, particularly among those in a position to put idle USDs to work, such as this company now listed in Hong Kong:  CNOOC

@ Keyser: Everybody else in the industry has a sterling reputation? Who got the shaft during the invasion of Libya?  Iraq?

Interesting that this comes up just as the Israelis propose to pipe natgas to Cyprus (Rooters, 17-Apr).  "Bet my pipe is bigger than yours."

BeetleBailey's picture

Pootin at least has the muscle to get what he wants - unlike Fuckbama, who has to resort to cowardly drones to do his asinine bidding. The fuck.

Flakmeister's picture

What will be the over under for the flow in barrels per day? 


Keyser's picture

Over... Way over once developed... 

Flakmeister's picture

Show me the oil....

But I do not doubt there is gas....

NOZZLE's picture

Whoever wrote this pap should be embarrassed. 

b_thunder's picture

The article is spot-on.  It will take years to get any oil from the Black Sea.   And after 10 years of under-investment and thefts (they don't jsut give  out luxury London apartments and football clubs, y'a know...)  russkies have no hope of succeding in any high-tech drilling.  They're already facing China that's unilling to pay top dollar (or yuan) for their gas.  If in the intermediate-term oil falls to $80,  all those "russian patriots" in Crimea who voted to get rusian pensions whic are 2.5X ukrainian pension will quickly ask to re-vote and come back to tjhe Ukes.


TheFourthStooge-ing's picture

Sure, sure. Refering to a hypothetical event to happen in the future according to your own crystal ball to justify a current course of actions.

So in present times, why so cheap propaganda? Please explain.

tbd108's picture

The Russians could give a rat's ass about the oil/gas in and around Crimea. They do however care a lot about their warm-water port. You are obviously a clueless donkey-butt whose understanding of Ukrainian/Russian relations almost certainly matches your understanding about fornication.

kedi's picture

Jumping to far away conclusions. Even Putin isn't counting those chickens. The most Putin was concerned about in this whole mess is NATO encroachment and loss of the Black Sea port. He has indicated how annoyingly complex things have become to deal with even those two items.

The Ukraine as an independant state, willing to extend the port lease indefinitely, and not be a forward NATO base, was fine. It was the West that had greater ambitions. Now Russia has to decide what to do with an angry beehive. Getting stung any way it deals with it.

The Ukraine people in general, also wishing everybody else would have stayed out of their business. They know the shitty government they had voted in, would have been voted out. Better or worse, it would have been their choice. Now they are being screwed over from all over. Russia is being forced to make choices it knows are bad in varying degrees. Expensive, controversial offshore fracking? Not a prize at this point.

InvalidID's picture


 As much as Fight Club tries to spin this in Russia's favor, it's all lose -lose for Russia. I agree with you, Putin has only varying degrees of bad options here.

tbd108's picture

Very well stated. Thank you.

Hongcha's picture

"But in Crimea – which much of the world does not recognize as Russian territory – finding international partners, should Russia need them, will be extremely difficult to do."

BP, XOM et al. have no 'loyalty' to any 'country' and no line to toe.  They are international all the way.  And it is clear Russian oil/gas is off the sanction table.

Keyser's picture

Considering that Russia and/or their proxies have pretty much fucked every trading partner they have ever worked with in the O&G arena, it would require a sizeable LOC before any driller would take that contract... 


vincenze's picture

The Chinese just signed an agreement to invest $18.5 billion into Crimea.
They will help to build a big port, the longest bridge in Russia, gas pipelines, etc.

$18.5 billion is more than $17 billion that the West wants to give to the whole Ukraine.


orangegeek's picture

Communists in drag are still communists.


You can put lipstick on a communist, but it's still a communist.

Gavrikon's picture

I think Obama looks terrible in lipstick.  So does his "wife."

Jano's picture


The revolutionary Trotzkij (Leon Bronstein) came to Russia from Brooklzn and was payed by Kuhn&Loeb and the revolutionary comrade Lenin (grandson of alexandrovic Israel Mosko Blank) came from London and was payed by Rotschild.

NoWayJose's picture

The author is right - the area is relatively unexplored and it will cost billions to exploit. Fortunately for Russia, they now have 400 billion reasons why they WILL be able to do so.

sessinpo's picture

NoWayJose        The author is right - the area is relatively unexplored and it will cost billions to exploit. Fortunately for Russia, they now have 400 billion reasons why they WILL be able to do so.


And so what? Thost energy resources will still remain there until they are extracted. As long as Putin controls the area, it's a bonus for him. The author is an idiot.

InvalidID's picture


 We're re-running stories now? WTF Hedge? And I say again, since you posted it again.... IF there was a lot fo oil richs to be had in the land and sea taken from Ukraine, wouldn't it have been tapped years ago? Ukraine wouldn't be paying billions to Russia for gas it already had right?

 Fuck me it's getting dumb in here.

dudeman's picture

Who cares? Crimea provides Putin a key port on the Black Sea and gives him access to trade routes. The natural resources are an added benefit, but they're nothing compared to the trade routes.

Nassim's picture

They can get gas from the remotest parts of Siberia, but the Black Sea is althogether more difficult. Give us a break!

Just you wait till Odessa Oblast joins up. They know who killed all those people in a public building, and they are not going to forget it in a hurry. Looks like the "West" of Ukraine may end up landlocked - serves NATO right.

"Radicals shooting at people in Odessa’s burning building caught on tape"


Joe A's picture

What an idiotic article. So perhaps Russia cannot exploit these fields for now (not very likely) but they made sure for that nobody else will either. It is just like with gold: if you don't hold it, you don't own it.

Gavrikon's picture

NAssim is right (above).  Wait'll Transnistria and Odessa join Russia.  Then the shitheads controlling western Ukraine will have no access to the Black Sea.

Fuck you, cocksuckers!