Domino could trigger knock on effect for Black Sea investment, Wood Mackenzie says

4/23/2015

VIENNA, Austria -- Wood Mackenzie has presented its latest analysis of the competitiveness of Black Sea deepwater developments and the significant Domino discovery, which look set to dramatically influence the region’s gas supply dynamics and corporate landscape, at the annual BBSPA conference in Vienna.

The Black Sea's potential has already attracted the attention of the majors, with high levels of investment and exploration activity. If results live up to expectations, Wood Mackenzie says the area is likely to be a hotbed of activity this year. Wood Mackenzie also says that the volumes in the area would fulfill a large proportion of the region's uncontracted demand, positioning Romania as a net gas exporter for the first time and leading to increased competition in Eastern European gas markets.

According to Wood Mackenzie, the recent discoveries in the Black Sea mean that Romania’s gas supply looks set to diversify significantly. Wood Mackenzie expects 630 MMcfd to be on-stream in the early 2020s from the play-opening Domino discovery. This volume alone will make Romania a net exporter of gas for the first time—fulfilling a large proportion of the region's uncontracted demand.

“When Exxon Mobil discovered the 2.5 Tcf Domino gas field, in the Romanian Black Sea, there was a significant step change in the outlook for regional gas supply," said Chris Meredith, senior analyst for Continental and Mediterranean Europe Upstream research at Wood Mackenzie.

Wood Mackenzie says the economics of Black Sea deepwater gas developments stack up for investors—even in the current climate—with gas production in the area forecast to come in at a significantly lower price than competing sources.

"Black Sea gas from Domino, can be delivered in the early 2020s at a more competitive price than existing Russian contracts and new additional Azerbaijan gas imports. We believe this could even be improved if more gas is proven at Domino, or if new sources of gas are found in the surrounding areas," Meredith said.

The Black Sea's strong project economics have already attracted the attention of the majors and if results live up to expectations, Wood Mackenzie says there is likely to be a vigorous burst of upstream industry activity this year.

"Exxon Mobil is continuing to invest hundreds of millions of dollars exploring the area—drilling the Pelican South and Dolphin wells—despite the low oil price environment and pressure to cut exploration budgets. In addition, Shell has already spudded its first well in the Turkish Black Sea, while Total, OMV and Repsol plan to drill a deepwater well in the Bulgarian sector in early 2016. With the high level of exploration activity in the area—there could be even more to be excited about in the Black Sea beyond Domino's development," Meredith said.

Wood Mackenzie says the planned development of Domino means that an abundance of gas will hit the Romanian market by the early 2020s—more than the country needs to consume—meaning that for the first time exports are on the cards.

Much of Eastern Europe relies on mature declining domestic production from Romania, Hungary, and Croatia, as well as expensive gas imports from Russia. However, with the development of Domino, new infrastructure, and imported Azerbaijani gas via Turkey, many Eastern European countries will have more choice about where they source their gas, according to Wood Mackenzie.

"In its new role as a gas exporter Romania would have a number of options. The most obvious route being neighboring Hungary, where uncontracted demand is forecast to increase over the next decade to around 300 MMcfd and existing infrastructure could be upgraded,” Meredith said. “There is also potential for new Black Sea gas supply to reach other markets like Serbia and Bulgaria, but this would be subject to new pipelines being constructed. With new sources of gas, the price at which they can be delivered begins to matter and we could finally see real competition emerging in the region."

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