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Petrel views Crimean gas-export opportunity

Gazprom has received a plan to develop energy projects in the disputed region of Crimea

London-listed exploration company Petrel Resources, has submitted a proposal to Russian state gas monopoly Gazprom to develop a liquefied natural gas export facility on the Crimean Peninsula.

The plan, presented by Petrel's managing director David Horgan, was submitted to Gazprom executives at a meeting in the Crimean city of Yalta in April. He suggested establishing an LNG export terminal fed primarily by a gas pipeline from existing discoveries in western Siberia and central Asia. To these would then be added supply from potential gas discoveries in the Sea of Azov, off the Crimea, where the majors had high hopes of finding hydrocarbons before Russia occupied the region.

"Crimea has been producing oil since the 19th century, but nobody has bothered exploring the shallow offshore because initially there wasn't a market for gas, and later there was the vast potential of Siberian oil and gas fields," Horgan tells Petroleum Economist. "We did look at it briefly 10 years ago when it was part of Ukraine, but the Ukrainians were so corrupt and there was so much mismanagement."

Petrel, headquartered in Dublin, is an exploration company developing opportunities mainly in Africa, Ireland and Iraq-part of Irish entrepreneur John Teeling's 162 Group. Its sister company, Clontarf Energy, focuses on oil and gas exploration in South America and Africa. Petrel says it would work closely on any Crimea venture with its partner Australia's Woodside Energy, which is a major LNG project developer.

Horgan forecasts that LNG will represent half of the world's gas trade in 30 years. This, he adds, would open up the potential for exports based on huge Russian reserves and those from the Azov sea, which could then be piped to the Crimean city of Kerch, or, failing that, to the nearby Russian coast.

Source: Petroleum Economist

"Crimea is ideally suited to be an energy export hub, either in cooperation with Turkey or via LNG," he says. "You could flow the tankers through the Bosphorus by international treaty and then you can serve the European market."

In 2014, Gazprom's deputy chief executive, Valery Golubev, said at a conference that Kerch was one of the most likely locations for the construction of an LNG export plant built for Russian gas. At the time, Golubev said Gazprom intended to build a gas pipeline to a liquefaction plant at Kerch, and had plans to supply Syria with 200,000 tonnes a year of liquefied petroleum gas via the port.

Much of Russia's gas still transits through Ukraine. Europe suffered when Gazprom turned off the taps during disputes with Ukraine through the winters of 2005-06 and 2008-09.

Russian military forces seized control of the Black Sea peninsula in March 2014. Since then, EU companies and citizens have been banned from buying Crimean companies or property, or supplying, and investing in energy and infrastructure projects there.

The Sea of Azov is almost a Russian-controlled lake since the opening of the controversial Kerch Strait Bridge across its mouth in May 2018. That sea and the surrounding northern Black Sea are home to vast amounts of untapped oil and gas resources. Russia acquired these after its annexation of Crimea.

Shell, ExxonMobil and other major companies have already explored the Black Sea, and some analysts say its potential may rival that of the North Sea. The Sea of Azov is estimated to contain 20bn cubic metres of natural gas, according to the Crimean energy company Chernomorneftegaz. That's equivalent to about 10% by volume of Gazprom's 2016 exports to Europe.

A Crimean facility would add to Russia's small but growing LNG export capacity and help integrate the disputed peninsula into world trade flows as a commercial and energy hub, according to Horgan.

The project could be appealing to Russia. If it won international acceptance this would reinforce its claim to the Crimea. But investing billions of dollars in Crimean LNG would be a risky proposition, even for Russia. It also remains to be seen whether buyers would be prepared to take LNG from such a politically contentious source.

Gazprom's press service didn't reply to requests for comment, and there's no mention on its website of any Crimea projects or potential activity there.

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