Emerging European energy

By bne IntelliNews April 1, 2009

Matthew Day in Warsaw -

When it comes to energy, nothing focuses the minds of Central and Eastern European governments like a gas crisis between Ukraine and Russia. As the two countries feuded yet again in January over unpaid gas bills, Europe shivered, and talk once again turned to how to break the continent's dependency on Russian oil and gas. Along with the myriad of options touted to reduce this dependency, such as going nuclear or "green", was the possibility of more fully exploiting the region's own energy reserves.

This may come as a surprise to many, as the region has little reputation when it comes to supplying energy. This has much to do with communism locking down CEE for the best part of 40 years. With Western oil majors and their technology techniques for finding and exploiting reserves excluded from the region, deposits went either unfound or untapped. Times have changed, and energy companies are looking to tap into the region's natural wealth. "There is some very exciting stuff out there," says Frank Jackson, managing director of Aurelian Oil and Gas, an exploration company concentrating on CEE. "There is lots of gas outside Poznan, [Poland] for example, which could be in the region of 5bn cubic metres of recoverable gas."

The company has plans to develop the Poznan field to 10 to 15 wells, which should increase Poland's domestic production by about 5%, and it has also looked at Slovak-Polish border where, Jackson says, "there is huge potential for oil."

FX Energy, a Utah-based company which holds 5.38m gross acres in Poland, says oil and gas reserves in the country remain "under-developed and under-explored." It also strikes a confident note, saying that it has the opportunity to discover "significant" hydrocarbon fields.

Another advantage of oil and gas deposits in the region is that they come in sizes attractive for small exploration companies, who, says Holly Pattenden, senior oil and gas analyst at Business Monitor International (BMI), "don't need enormous reserves to get a return on their investments."

But while oil and gas deposits in Poland have got people interested, they pale in comparison to the levels of excitement generated by the possibilities of the Black Sea. "The Black Sea could be billions of barrels, so we're not talking peanuts here," says Pattenden. "It could have a significant impact [on European supply]. Ukraine's and Romania's Black Sea acreage, for example, is getting people quite excited."

Excited could be an understatement. Estimates put oil reserves below the Black Sea at around 10bn barrels and gas at about 1.5 trillion cm. Enough, says Mehmet Uysal, general manager of the Turkish Petroleum Company (TPAO), which has vested interests in the Black Sea, to meet Turkey's energy needs for 40 years.

Big boys return

With so much energy waiting for somebody to tap, the big companies have started to move in.

At the end of last year, oil giant Exxon Mobil announced it had struck a deal with Petrom, Romania's largest oil and gas company, to explore deepwater sites off the Romanian coast. This agreement came just days after the Texan company signed up with TPAO to explore two large offshore blocks in a deal that marked Exxon Mobil's entry into the Black Sea region. "It's very unusual for an oil company to take a punt when there is still a lot of risk," points out BMI's Pattenden, underlining the lure the Black Sea now casts over Exxon. "They generally hold out and let others go in first."

And the Texan company is not alone in this policy. In February, Chevron went knocking on TPAO's door, exploring the possibility of striking up a partnership to search for oil in the Black Sea. "The meetings with Chevron were positive and we expect to reach an agreement in the summer," Yurdal Oztas, TPAO's deputy director general, told the press.

The end of a protracted international legal dispute could also usher in more oil companies in the hunt for Black Sea hydrocarbons. In February, the International Court of Justice settled a decade-old argument between Ukraine and Romania over 12,000 square kilometres of water by defining the maritime border between the two.

With the squabble over, and everybody clear as to who owns what when it comes to the hydrocarbon-rich seabed, experts predict companies will waste little time in trying to exploit the sea's riches. Black Sea oil and gas on tap may not end dependency on Russia, but it should certainly help reduce it.

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