The Crimea is ours, but the gas is yours

Russia will stop the development of the main offshore gas field in the Crimea because of the trial with Ukraine.
Origin source
Russia is going to stop production at the largest gas field of the Crimean shelf zone - Odessa. This is due to the interstate dispute with Ukraine in international arbitration, explained RBC

The Russian authorities plan to stop economic activities at the Odessa gas field, which provides the Crimea with almost half of its own gas production, RBC sources in federal and Crimean authorities told RBC. This decision, according to three federal officials, is connected with the international arbitration dispute over the law of the sea, which Ukraine initiated against Russia in September 2016.

Claims of Ukraine in the framework of this dispute concern a wide range of issues related to the activities of Russia in the Black Sea after the accession of the Crimea. In particular, Ukrainian President Petro Poroshenko said that while extracting gas at the Odessa and other fields off the coast of the Crimea, Russia "steals" natural resources "on the sea shelf of Ukraine."

Tactical move

The statement of claim in Ukraine was not published, the proceedings are confidential, but the source of RBC claims that according to the Odessa deposit, Kiev's claims are formulated as follows: Russia conducts unauthorized economic activities there. And the cessation of production is a tactical move, a formal way to remove this claim, the interlocutor of RBC points out. At the same time, the question of Ukraine's return to control over the field, he said, is not worth it.

According to two federal officials, to stop mining at the Odessa - the recommendation of the Ministry of Foreign Affairs. Its legal department takes part in the dispute on behalf of the Russian Federation, it follows from the case file on the website of the Permanent Court of Arbitration in The Hague (the Chamber administers this arbitration convened under the 1982 UN Convention on the Law of the Sea).

"The Foreign Ministry decided: if we do not conduct activities there [at the Odessa deposit], there will not be any dispute", - one of the interlocutors of RBC explains. "There is no dispute about belonging [of the field], there is a dispute over economic activities in the maritime borders of Ukraine," he adds. The Foreign Ministry's Information and Press Department did not respond to RBC's request.

What is the dispute about

Ukraine initiated arbitration proceedings against Russia on September 16, 2016 ("Dispute over the rights of the coastal state in the Black Sea, the Sea of ​​Azov and the Kerch Strait"). Kyiv demands not only protection of its maritime rights, but also compensation for damage, the Ukrainian Foreign Ministry reported. The court concerns "illegal use of resources on the shelves of the Black and Azov Seas, illegal use of infrastructure, illegal mining," said the head of the Kiev "Chernomornaftogaz" (considers herself the legal owner of oil and gas assets in the Crimea) Svetlana Neshnova.

In May 2017, the first procedural hearing was held in The Hague. Until February 19, 2018, Ukraine must provide the arbitral tribunal, consisting of five judges, with an "evidence base" on how Russia, according to Kiev, "violates the rights" of Ukraine in the Black Sea. After that, Moscow will have the opportunity both to respond to these facts, and to present possible objections to the jurisdiction of the tribunal. The decision on the dispute will be rendered no earlier than 2020, follows from the procedural order of the court.

According to the source of RBC, the Odessa deposit is far from a paramount issue in this process, the main theme is the Crimean bridge. The Ukrainian authorities, for example, announced their claims in connection with the restriction of navigation through the Kerch Strait due to the construction of the bridge.

Weak position

Three interlocutors of RBC, close to the federal Ministry of Energy and the Ministry of Natural Resources and the Crimean Ministry of Fuel and Energy, assess the position of Russia on the Odessa field in the arbitration as legally weak. "We have one of the most losing positions on this issue," one official admitted.

The deposit is located closer to the Odessa region of Ukraine than to the coast of the Crimea, says an interlocutor of RBC. Assuming that Russia claims an exclusive economic zone within 200 nautical miles (370 km) from the coast of the Crimea, the Russian and Ukrainian economic zones will overlap, in which case the courts or contracting states often repel the criterion of the median line (a line drawn so that each of its points is equidistant from the nearest points of the opposite banks.) - RBC. The delineation of disputed economic zones in this case can be carried out on the middle line.

The Russian position is legally weaker, the partner of the law firm Nektorov, Saveliev & Partners Ilya Rachkov agrees. "Arbitration is unlikely to agree with the fact that the accession of the Crimea and, consequently, of the sea areas around its shores towards Russia is consistent with international law," he said. If arbitration proceeded from the fact that Russia has an unlimited border with the Ukrainian exclusive economic zone in the Black Sea, he could use the method of the median line, confirms Rachkov.

In the Treaty on the Adoption of the Republic of Crimea to the Russian Federation signed in March 2014, the issue of maritime borders after the change in the status of the peninsula was only abstractly outlined, its decision was actually left to the future: "The delimitation of the sea spaces of the Black and Azov Seas is carried out on the basis of international treaties The Russian Federation, norms and principles of international law ".

Conservation of wells

The fact that the Crimean state enterprise "Chernomorneftegaz" on July 1, 2018 will cease operation of the objects of the Odessa gas field (and the Golitsyn gas condensate, also located in the West Crimean shelf zone), in November 2017, the news agency Eurasia Daily reported. It referred to the internal order of Boris Zimin, General Director of Chernomorneftegaz, dated November 23, 2017, "On the revision of the production and investment program." RBC managed to get acquainted with the copy of the document. It follows from the order that the long-term investment program of "Chernomorneftegaz" should be adjusted, production at the Odessa field will be discontinued and it is necessary to render assistance to "liberated workers". But why it was necessary to close the deposit, the document was not explained.

The source of RBC, close to the Ministry of Natural Resources, confirms that it plans to curtail production at the field by July 1. At the same time, two interlocutors specify that the wells will be preserved there (about 15 production wells are currently operating at the Odessa field). Operations at the field will be discontinued before any solution appears on this deposit - "there is no point in injecting money into the disputed deposit," says one of them. The general director of Chernomorneftegaz redirected RBC's questions to the Ministry of Energy and the Ministry of Foreign Affairs, the Ministry of Energy declined to comment.

What is the Odessa deposit

Odessa gas field is located on the shelf of the Black Sea in 130 km from Odessa and 155 km from the Crimean coast. Proven reserves - 21 billion cubic meters. m of gas. The deposit was discovered back in the late 1980s, but only in 2012 Ukraine began industrial production there (the facility was then launched by Ukrainian President Viktor Yanukovich).

In March 2014, the Odessa field, together with other assets, came under the control of the Crimean "Chernomorneftegaz" and at least until 2016 was the main gas source for the Crimea. In 2015, Odessa accounted for 49.1% of Crimea's own extraction, followed from the state program for the gasification of the peninsula. From the field there is an underwater gas pipeline to the Crimea. In addition to Odessa GUP "Chernomorneftegaz" is developing eight more deposits on the Black shelf and in the water area of ​​the Azov Sea, as well as on the land of the Crimean peninsula.

The cessation of production at the Odessa and Golitsyn deposits is included in the conservative version of the forecast (.pdf) of the Crimean Ministry of Economic Development for the oil and gas complex of the peninsula. However, this may be due to technological reasons - the lack of deepwater equipment in Chernomorneftegaz because of sanctions follows from the long-term development strategy of the Crimea and assures the source close to the Ministry of Economic Development of the Crimea.

Contacts with Ukrainians

Russian representatives tried to negotiate with the Ukrainians on an extrajudicial settlement of the dispute, two sources say. According to one of them, Deputy Prime Minister Dmitry Kozak (in charge of the Crimea) last year instructed the Ministry of Foreign Affairs to organize a negotiation process with the Ukrainian side on the possibility of settling the issue with the Odessa deposit in extrajudicial procedure. The staff of the Ministry of Foreign Affairs and the Ministry of Energy of Russia were involved in the negotiations and informal meetings.

The contacts with the Ukrainians were confirmed by the second interlocutor of RBC, there was even a proposal to create a joint venture to manage the field and sell gas to the Crimea, but the price that the Ukrainians wanted was too high - it was easier to supply gas to Crimea from the "mainland" Russia via the already built Kuban- Crimea.

The Ministry of Foreign Affairs of Ukraine did not respond to RBC's request. In the apparatus of Kozak, the question is not commented upon. In "Chernomorneftegaz" "do not have official information about possible negotiations" with the Ukrainian side, the company replied.

How much gas was sold from Odessa?

Production figures at the Odessa field for the past two years have not been disclosed, but in 2015 it produced 905 million cubic meters. m of gas, follows from the document of the Crimean government (.pdf). Based on the fact that in 2017, the total gas production in the Crimea was approximately 11% lower than in 2015, it can be estimated that 800-900 million cubic meters of gas were produced annually in Odessa. m of gas. In 2017, gas production in the Crimea was about 1.63 billion cubic meters. m (which provided more than 80% of the gas needs of the republic), said Minister of Fuel and Energy of Crimea Vadim Belik.

From the economic forecast of the Crimean Ministry of Economic Development (.pdf), submitted last fall, it follows that in 2015-2017, Chernomorneftegaz sold gas to Crimean consumers at 3.8-4.1 rubles. for a cubic meter (with VAT), or an average of about 3.9 rubles. Thus, it can be estimated that over three years from the Odessa deposit, gas was sold approximately 10 billion rubles.

"At the suit of the Foreign Ministry [Ukraine], the amount has not yet been declared. The amounts will grow, because illegal gas production continues, "Neshnova said last September.

Where will Crimea take the missing gas?

In 2017, Crimea began using gas supplied "from the mainland" along the Kuban-Crimea gas main. This gas is bought by the Crimea at the St. Petersburg International Commodity Exchange (SPbMTSB) through the intermediary of the Federal State Unitary Enterprise "Promsyrieimport" subordinated to the Ministry of Energy.

Interlocutor RBC in "Chernomorneftegaz" argues that, depending on the seasonality and other factors, the price of such gas is from 5,5 thousand to 6,5 thousand rubles. per thousand cubic meters, taking into account transportation. At the same time, gas tariffs for the population of the Crimea in 2018 are 4.2 thousand rubles. per thousand cubic meters (in the neighboring Krasnodar region the same gas costs 6 thousand rubles and more). He believes that in the case of the termination of production at the Odeskoe field, Chernomorneftegaz will be forced to buy even more gas more than sell it to consumers, and, given debts for fuel from power engineers, this leads to an increase in debt. Without subsidizing the price of expensive gas "from the mainland" for the needs of the peninsula is indispensable, he believes.

Last month, Interfax reported that Chernomorneftegaz signed a contract with Promsyrieimport for the supply of 1.76 billion cubic meters. m of gas by 11.3 billion rubles. from February 2018 to February 2019. The contracted volume is approximately 77% of the planned gas consumption in the Crimea for 2018. Such significant purchases are explained by the fact that in 2018 gas consumption in the Crimea will grow by 25%, according to the forecast of the Crimean Ministry of Fuel and Energy (.pdf), due to increased consumption of the Simferopol combined-cycle power plant.

What's next

According to the interlocutor of RBC in one of the relevant federal agencies, officials discussed various scenarios for resolving the issue with the Odessa deposit, including depending on the outcome of the arbitration dispute with Ukraine. "99 percent" that sooner or later, Russia will take all the equipment from the Odessa deposit and leave it, the Crimean official said. But the federal official assures that the option of transferring the deposit to the Ukrainians has never been seriously considered. Even if Russia loses the court, this does not mean that Moscow will certainly fulfill its decision, he adds. In addition, arbitrators may generally find that they do not have jurisdiction to deal with this dispute.

The participants of the UN Convention on the Law of the Sea agree that the decisions of arbitration are final and binding, follows from the text of the convention. "The fact that Russia participates in arbitration, even at the stage of jurisdiction, is evidence that our country is serious about this issue," notes Ilya Rachkov. But if Moscow objects to the jurisdiction, and the arbitration still finds that it has jurisdiction to consider the dispute on its merits, Russia has the right to refuse further participation in the proceedings. There is no mechanism for compulsion to enforce an arbitral award in international law, and such failure can last for decades, the lawyer emphasizes.

Russia is involved in a maritime dispute with Ukraine because it "is very sensitive to issues of international law," even if the West accuses Moscow of violating fundamental norms, says Ivan Timofeev, program director of the Russian Council for International Affairs. He recalls that in connection with the accession of the Crimea, Russia justified its actions by the norms of international law, but their interpretation did not coincide with the understanding of most other countries. It is absolutely natural that Moscow agreed to participate in the dispute over rights in the Black Sea, Timofeev believes, considering that now there is a "legal vacuum" in the disputed water areas, which is fraught with, for example, military incidents. "It is in the interests of Russia to eliminate these legal gaps as much as possible and achieve some certainty [in relation to maritime rights after the change in the status of the Crimea]," the expert says.

The representative of the Ministry of Natural Resources did not respond to RBC's request, so did Kiev's Chernomornaftogaz. Lawyers and international experts, representing the interests of Russia and Ukraine in arbitration, declined to comment. The press secretary of the Russian president Dmitry Peskov redirected the questions to the Ministry of Foreign Affairs or the Ministry of Natural Resources.