October 2019   |   Black Sea region

``A strand of resource nationalism and protectionism is emerging regionally, which could ultimately contribute to an even greater fragmentation of the region`` - Aura Sabadus, ICIS

Posted on 12-09-2017, by GBC
Aura Sabadus is a Senior energy reporter for Romania, Turkey and Ukraine with ICIS. Aura will be speaking at Black Sea Oil & Gas in Bucharest about gas projects in the region on 23 of Oct.

1. What are the economic prospects of midstream development in the Black Sea region and who/what state will be affected (benefit/lose out) the most?

I do not think the question should be put in terms of winners and losers in the development of mid-stream projects in the Black Sea region. Considering that Eastern Europe has been dependent on Russian gas, any new sources or projects that would help it to diversify and integrate markets would be welcome. Russian gas exports would also be welcome providing Gazprom behaves as a commercial operator rather than a political actor and complies with the rules and practices outlined by the European Union.

Unfortunately, a strand of resource nationalism and protectionism is emerging regionally, which could ultimately contribute to an even greater fragmentation of the region.

Countries such as Romania, a middle-sized producer, could become an important regional player if it had a long-term vision on how to monetise its natural gas resources and integrate its transmission network with those of neighbouring countries. So far, the country has sent confusing signals through a mixture of political and regulatory uncertainty and obstructive behaviour that has led to the blocking of a regionally integrated market.  Such an environment is counterproductive and will ultimately consign Romania to regional isolation.

2. How will Gazprom’s supply to Europe through Turk Stream and Nord Stream 2 affect the Black Sea energy projects development?

No doubt, the commissioning of TurkStream and Nord Stream 2 is likely to change the energy supply dynamics in Eastern Europe. On the one hand if TurkStream 2, the second string of the Russian-backed pipeline crossing the Black Sea into Turkey comes online by the end of the decade, the gas will have to be shipped westwards. There are strong indications that the gas would enter Bulgaria and possibly be transited to Hungary either via Serbia or Romania. If the latter, it is possible that the infrastructure which is currently put in place and will make up the so-called Bulgaria-Romania-Hungary corridor (formerly known as BRUA) could serve as a transport route for Russian gas. This may seem as an irony to some, considering that the project had been spearheaded by the EU and partially financed by it.

However, with Romania a reluctant exporter and increasingly talking about the possibility of increasing domestic gas demand by re-launching its fertiliser industry, for example, there is a strong chance that this EU-backed corridor would indeed be used for the transport of Russian gas to central Europe.

Meanwhile, the construction of Nord Stream 2 would, of course, mean the end of the Ukrainian transit corridor. This would force Ukraine to rethink its role and perhaps to increase investment in its own local gas production. Ukraine has important gas resources and has already indicated its intention to ramp up production over the upcoming decade. It is very early to know whether Ukraine would wish to become an exporter in its own rights or simply limit itself to producing gas to cover domestic needs.

3. What are the implications of the EU obligations to diversify energy sources on Black Sea energy industry opportunities?

Black Sea countries have been seeking to diversify their electricity generation portfolio in recent years. Romania, for example, has invested in wind production, although, just as in many other EU states, subsidising this type of generation has proved costly. Other countries, including Turkey, a non-EU state, have been strongly encouraging wind, solar, but also lignite production, even if the benefits of supporting this fuel with a low calorific value, but highly polluting, remain doubtful. 

On the whole, however, I do not think that the diversification of energy sources has been done at the expense of hydrocarbon production in the Black Sea. Romania is currently developing its offshore resources, Turkey continues to remain interested in such developments and Bulgaria has also expressed an interest in developing its offshore oil and gas blocks.

4. What does the future of the Black Sea oil and gas look like after 2019?

This is a very difficult question to answer considering the political volatility of the region. I am reluctant to express an opinion on this topic, and would simply limit myself to arguing that the future of oil and gas projects will depend on the political dynamics that are now shaping up.