Analysis: Black Sea gas bonanza remains elusive

Thu Oct 24, 2013 10:31am EDT
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By Michael Kahn and Nina Chestney

PRAGUE/LONDON (Reuters) - Southeast Europe is hoping increased natural gas exploration in the Black Sea will help cut its dependency on Russian supplies, but a gas bonanza remains elusive and Moscow is taking steps to defend its dominant position in the region.

Despite previous efforts, the Black Sea has so far not produced much gas because deep water and tough geology have required costly high-tech equipment.

But advances in technology and an improved business climate have helped fuel optimism in a region that has disappointed exploration firms in the past.

"More companies are getting more of an appetite for offshore drilling and they think that they, unlike those who tried previously, have a real shot at it," said Alex Jackson, a political risk analyst at London-based Menas Associates.

"Doing business in Turkey, Romania, Bulgaria and Ukraine is much simpler now. Those countries also now have significant gas demand of their own, and in particular demand from non-Russian sources. All these factors make it a more appealing prospect."

The chance to boost domestic energy supplies is a big driver for countries such as Ukraine and Bulgaria which receive most of their gas from Russia. Other countries in the region heavily reliant on Russian supplies, such as Hungary and Slovakia, also hope the Black Sea will soon produce gas.

There are also political undertones. For Russia, it is about protecting the dominance of Gazprom (GAZP.MM: Quote) as a supplier to the region while the European Union is seeking to blunt Moscow's use of energy resources to wield influence.

"From a security of energy supply perspective the Commission encourages private endeavors to exploit Black Sea resources in full respect of EU rules," a European Commission source said.   Continued...

People stroll on the beach at the dawn in the Black Sea resort of Mamaia, about 260km (162 miles) east of Bucharest April 28, 2012. REUTERS/Radu Sigheti