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Sunday, October 23, 2016

Kiev hopes in vain to arbitrate the dispute on the Crimean fields

The Russian-Ukrainian dispute about oil and gas fields near Crimea moves into a new stage. Kiev is ready to refer to arbitration his claim concerning the fate of tens of millions of tons of oil and five hundred billion cubic meters of gas. What position could eventually occupy arbitration?

Kiev in the coming days promises to be referred to arbitration case over sovereign rights in the waters around the Crimea on the basis of UNCLOS – United Nations Convention on the law of the sea, said the foreign Minister of Ukraine Pavlo Klimkin. Previously, he said that the Ukrainian delegation completed a pre-trial consultations with Russia on this issue.

“The only possible serious consequence may be the exclusion of Russia from the number of States parties to the Convention”

The Russian foreign Ministry told that on August 11 indeed held a meeting with the foreign Ministry of Ukraine, which was devoted to the interpretation and application of the UN Convention on the law of the sea of 1982. Russia was expecting a serious discussion of the plot, but the subject of conversation did not. “We heard from the Ukrainian representatives of a long list of claims, and expressed willingness to take them into consideration, as well as questions the applicability of the Convention”, – explained in the Ministry of foreign Affairs.

Moscow said it was ready to discuss with Kiev the UN Convention on the law of the sea. However, as it turned out, all questions were asked to the Russian side not to find a solution and to get a formal occasion for statements about the completion of the preliminary consultations with Russia, according to the foreign Ministry. And the Agency was right.

However, Russia has the ability to delay this process. As says the President of the Russian Association of international law Anatoly Kapustin, the arbitral Tribunal will not accept to consideration the claim of Ukraine to the Russian Federation on the rights in the waters around the Crimea. “The arbitration procedure of the conciliation. They accept the claim to consideration only when both sides declare the completion of the preliminary consultations. If the Ukrainian side declares that they have completed, and we declare that we have completed, I think the prospects of such proceedings is not” – said the expert RIA “Novosti”. According to him, “that is, the arbitration will gather to consider, from the Russian side there is no response, say, finish a consultation, then contact us”.

At least Moscow has the time to work through the answer to a long list of complaints she had received from Kiev at the meeting on August 11. Only after discussing this response will be to put a final end to pre-trial settlement of the dispute.

According to article 287 of the UN Convention on law of the sea, for the settlement of disputes one of the parties may initiate the creation of a special arbitration (by analogy to the creation of a panel of arbitrators of the WTO in disputes between members of the organization). Compiles and maintains a list of arbitrators, the Secretary-General of the UN, in accordance with Annex 7 of the Convention. Each state party has the right to nominate four arbitrators with expertise in Maritime Affairs. You will get the list of eight people. However, in arbitration, each side put on one of her chosen judge (they can be citizens of Ukraine and Russia, respectively). Three more parties should choose mutually, and they must be citizens of a third country (of these three, the Chairman is selected).

Recall that the argument goes around oil and gas fields of the Crimea on the continental shelf of the Black and Azov seas, including the area around the Odessa field. They all belong to the Crimean company “Chernomorneftegaz”. Until March 17, 2014, she, in turn, belonged to “Naftogaz of Ukraine”, and the field, respectively, and Ukraine. However, after joining of Crimea to Russia, all the property of the company, of course, was nationalized.

Just Chernomorneftegaz, as of October 2015, is developing nine fields on the shelf of the Black and Azov seas and in the land of the Crimean Peninsula: two gas condensate (Golitsyn and Storm), six gas (Arkhangelsk, Dzhankoysky, Tadorninae, Eastern-Kazantipskoye, Severo-Bulganakskoie and Odessa) and one oil – Semenovskoe.

Meanwhile, over the past two years Chernomorneftegaz not just pumps oil and gas, but also opens up new deposits of hydrocarbons. So, in January of last year at the Odessa oil field in the Black sea was opened well No. 13, in the fall there discovered new deposits of natural gas. Earlier with the introduction of the two wells is expected to increase production volumes at 200 million cubic meters a year, now these numbers may increase.

Also Chernomorneftegaz plans to start drilling wells in the field of Gordievich on the Black sea shelf, where gas reserves could reach from 68 to 100 billion cubic meters. Mine deep enough, so the drilling of one well would take about a year. Industrial production volumes are expected to come out no earlier than six years, according to the autumn of 2015.

The oil and gas reserves in areas adjacent to the Crimea, the exclusive economic zone of Russia still do not have accurate estimates. According to official data, in the coastal waters of the Peninsula can produce up to 47 million tons of oil (16% of proven reserves of Ukraine at the beginning of March 2014) and 165.3 billion cubic meters of gas (more than 6% of proven reserves).

Chernomorneftegaz is also the main supplier of gas to the Peninsula and has been pumping gas in Glebovsky UGS reserves needed for the winter peak period consumption. In the Ukrainian period in the gas fields of the Crimea poorly invested. Therefore, despite all efforts of the company, extraction of gas falls from 2 billion cubic meters in 2014 to 1.7 bn in 2016. New wells have not opened, and the old level of production decreases.

Because of this, the authorities of the Republic are worried about the possible fuel shortage in the autumn-winter season, which is projected at 200 million cubic meters. However, the shortage of fuel in the Crimea should not be initiated due to the construction of the gas pipeline Kuban – Crimea, which is even ahead of schedule. First gas from the mainland will arrive in Crimea by January 1, 2017. The capacity of this pipeline will be 2.2 billion cubic meters with the possibility of increasing to 4.4 billion cubic meters, which is several times higher than current annual consumption of fuel (maximum 2 billion).

Own gas production in Ukraine continues to fall, and this year the situation will only get worse. Old wells are depleted, with the power to destroy the gas industry. For example, in March 2015, the Verkhovna Rada increased the rate of rent for the use of subsoil in the extraction of natural gas from 20% to 70%. As a result, Ukrainian producers simply do not have enough funds to expand production. So, due to the increase in rents Octobia got a budget deficit of 6 billion USD, whereas in order to maintain production at least at the level of 2015 should be at least 9 billion hryvnia.

Ukraine has repeatedly stated its claim as Glebovskaya field and pumped into the gas and offshore fields off the coast of the Crimea.

However, in the current situation in Kiev, there are only two ways to compensate Russia for the assets – either through military means or through the courts. The first option for Ukraine from the category of fiction. At the end of last year, Kiev did hint at such a development, however, to scare Russia it is clearly not. Then two warships of the Ukrainian Navy were discovered in the region of Odessa and Golitsyn deposits belonging to Russia. To protect drilling rigs of the company and the economic interests of the Russian Federation, the frontier service of FSB of Russia on Republic of Crimea has sent a patrol ship “Amethyst”. However, all this is nothing more than “mosquito bites” for Russia, said the newspaper VIEW, former commander of the black sea fleet Igor Kasatonov. Really Kiev cannot threaten water interests of Russia. “If you need anything, the black sea fleet in all its might will be able to resist any attempt on the part of both Ukraine and NATO,” – said Kasatonov.

The US and NATO to foment a military conflict for the sake of “water ambitions” of Kyiv too. They just advised Ukraine to present their claims to the Crimean assets in the legal field. Therefore, Kiev has nothing left except filing a lawsuit against Russia. Intermediate the path of Ukraine, apparently, had not even considered – in the talks to negotiate with Russia in the hope its concessions, for example on the Odessa field.

Ukraine makes a bet on the UN Convention on water law. The Convention established the General premise that the sovereignty of a coastal state extends beyond its land territory and internal waters. However, based on the solution will lie old debate about the recognition or non-recognition of the reunification of Crimea with Russia.

“The main fact which should be determined by arbitration, in my opinion, would be to establish the fact, the state under whose sovereignty is currently the Crimea. Otherwise to resolve a dispute about the waters of the impossible,” says senior partner of law Bureau “Baibuz and partners” Vadim Baibuz. Thus, the argument of Ukraine and Russia in court will be to confirm sovereignty over the Peninsula. If the court will make a decision in this case, it may be the first judicial act on the recognition of sovereign rights to the Peninsula. Whose rights will have to depend more on policy.

However, the Executive Director of the Consulting Heads Nikita Kulikov sees the third version of the outcome of the case. He does not exclude that the arbitration in such a situation simply refuse to consider the claim because of the lack of subject matter jurisdiction. They say, when the dispute about whether Crimea is part of Russia or Ukraine, will be decided, then the right to disputed offshore fields.

If, for political reasons, the arbitration will be on the side of Kiev, the consequences will be for Russia. However, the arbitration decision does not imply the direct application of sanctions for failure to implement its decisions, said Kulikov. “The only possible serious consequence may be the exclusion of Russia from the number of States parties to the Convention, and even then only if Western countries who secretly participate in the next anti-Russian campaign, you decide to go for the escalation of the conflict and set it in a completely different direction,” – said Kulikov.

Non-participation in the UN Convention on the law of the sea unprofitable for Russia, because it’s the one she’s fighting for its interests offshore in the Arctic. Literally at the beginning of this year, Russia sent to the UN Commission on the limits of the continental shelf an application for the extension of the continental shelf in the Arctic, which was prepared as 10 years. All these years Russia conducted large-scale studies in the Arctic ocean to study the geological nature of the Mendeleev and Lomonosov ridge, which Russia claims.

However, the exclusion of Russia remains unlikely, as the awareness of the world community of belonging of the Crimean Peninsula, Russia, has everywhere begins to emerge, says Kulikov.


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