Black Swans in the Black Sea? Romania’s Gas and the Southern Corridor

The discovery of a major gasfield off Romania’s Black Sea coast back in February attracted a fair amount of attention. Preliminary estimates range from 42 to 84 billion cubic metres, according to OMV, which discovered the field along with ExxonMobil – a major find for Romania, and now the subject of talks with Bulgaria since part of the field lies in disputed waters.

Comparatively little attention has focused on the impact which the discovery might have on Europe’s Southern Corridor. If the field is as big as believed, and if the negotiations between Bulgaria and Romania can be settled amicably, then the race to bring Caspian gas to Europe could be changed from an unexpected direction.

In a nutshell, the development of significant gas reserves in the Black Sea – from the Khan Asparuh field and also from any new finds – would reduce the short-term imperative to supply gas from the Caspian to southeastern Europe.

This has been one of the prime rationales for the Nabucco pipeline. At numerous conferences this month, officials and analysts have underlined that for the EU simply getting gas into Europe is not enough: gas must also reach the vulnerable Balkans, which are overwhelmingly dependent on Russian supplies. Black Sea gas, along with new shale developments in the region, would help to reduce that vulnerability without taking up too much Caspian gas.

There are three key issues. Firstly, how much gas does the Balkans need over the coming years? Secondly, how quickly can the Khan Asparuh field be developed? And thirdly, how does this timeframe match up with the development timeframe for Azerbaijan’s post-Shah Deniz gasfields?

The forecasts for Balkan demand in the next decade remain extremely vague, dependent on new energy sources and – above all – the impact of the financial crisis in the Eurozone on their fragile economies. This month Al Cook, BP’s Vice President for Shah Deniz, said in London that some estimates suggested that Balkan demand could grow by as much as 10bcm over the next few years.

This would represent all of the Shah Deniz Phase Two output (the other additional 6bcm set aside for Turkish consumption). There is no chance that the Balkans would actually be granted all of this, but it underlines the fact that the Southern Corridor is not just about ‘getting gas to Europe’ but about contributing to a more equitable supply of gas across Europe, particularly in the southeast.

The 42-84bcm figure given for Khan Asparuh is a ballpark figure, but an analysis of prospects in the Black Sea by Platts – in both Romanian and, soon, Bulgarian waters – suggests that even if it is much smaller, other fields means that the Black Sea could be a major source of gas within the decade.

Some production could be expected within around three years provided that the tender and exploration process runs smoothly. A raft of major international companies are expected to bid for drilling rights. Large-scale production could therefore coincide with the start of Shah Deniz Phase Two operations in 2017, and actually before the full additional 16bcm starts flowing to Europe around two years later.

Other post-Shah Deniz fields may only come onstream by 2022 or 2023, it was noted this month, by which time more Black Sea gasfields (as well as shale and LNG projects) will probably be in operation. Companies will be substantially less willing to invest in Azeri fields if the key European market is already flooded with locally-sourced gas. This is quite aside from other ‘black swans’, such as new inflows from the eastern Mediterranean.

So what does this all mean for the Southern Corridor? In the short-term it knocks another prop out from under Nabucco and strengthens the case for the Trans-Adriatic Pipeline to Italy. Speaking to me in early May, Michael Hoffmann of TAP emphasised two relevant points: that the project was commercially more attractive than Nabucco and did not require EU funding; and that TAP would supply the Balkans as required, by plugging into existing and planned pipelines there.

But this is a flexible element of TAP. With Black Sea gas meeting a considerable slice of Balkan demand, TAP can prioritise the Italian and central European markets, its main rationale. So TAP is strengthened in its competition with a central European route for Caspian gas (the decision is still set to take place next June).

In the medium term Black Sea energy could be another element to the new and non-Caspian sources of European gas. It will not eliminate the commercial drive to develop Azerbaijan’s new generation of gasfields; in the long run European demand will probably be able to accommodate all comers. But the issue is one of phasing and timing, and for now it seems that Black Sea could reset the clock for the Southern Corridor.

Alex Jackson is a political risk analyst at Menas Associates in London, focusing on the Caspian region. He also writes independently on politics, security and energy in the wider Caspian region. This article does not necessarily reflect the views of his employers.