MOSCOW (RIA Novosti economic commentator Vasily Zubkov) - The Russian government has named the development of oil and gas reserves in Eastern Siberia and Arctic continental shelf as its top priority until 2020.
Although Economic Development and Trade Minister German Gref recently complained the shelf's upstream operations should have been started a decade ago, many ministers and the premier himself understand that Russia's far-northern fields could become attractive for investment only at today's high prices for oil and gas.
Last week, Natural Resources Minister Yury Trutnev presented the government with a report on his ministry's proposals on how to develop the continental shelf. On the whole, the government approved Trutnev's Arctic oil-and-gas strategy. Critics had a word or two to say, but in six months, with the relevant corrections made, the Mineral Resources Ministry is expected to submit a strategy that will be rubber-stamped.
One reason behind such harmony was probably Trutnev's warning that by 2015 too few high-output fields will be left on Russia's mainland. By saying there would be no profitable oil left on the mainland in ten years' time, the minister sent a strong alarming message, potentially about a looming nationwide energy deficit, to the Cabinet.
Three quarters of Western and Eastern Siberian oilfields are already nearing 50% depletion, while the reserves of newly discovered fields are on average five times lower than those found 30 years ago. Russia's huge energy potential is mainly built on the world's largest continental shelf, with two-thirds of its 6.2 million square kilometers promising for oil and gas. Some analysts estimate Russia's Arctic shelf reserves at a quarter of the planet's remaining hydrocarbons.
The Arctic shelves of the Barents and Pechora Seas, and the Karsk Sea shelf near the Ob delta, are particularly rich in mineral resources, with a predominance of natural gas (it accounts for 90% in the hydrocarbons combined figure). Few Arctic sites have been appropriately explored so far - only 7% of the gas reserves and 3% of the oil reserves, but some fields could already be put into production: Shtokmanovskoye (gas condensate), Prirazlomnoye, Rusakovskoye, Leningradskoye, and the best-explored Sakhalinskye. In fact, Sakhalin projects already account for 0.5% of all national oil production.
The ministry has promised up to 13 billion metric tons of oil and up to 20 trillion cubic meters of gas will be explored on the shelf, with a stable oil output of 10 million tons (and 30 billion cubic meters of gas) per year in five years' time. By 2020, Trutnev said, output may rise to 95 million tons of oil and 320 billion cubic meters of gas per year. All this, however, requires the state to invest around $1 billion in exploration for 10 to 15 years to come. In return, Trutnev promised up to $5 billion in earnings on license auctions alone.
Exploration is only the tip of the iceberg, though. To develop Arctic resources, you need an Arctic fleet, special drilling rigs, infrastructure, environmental projects, etc., that will cost between $70 billion and $110 billion. Only international oil majors can invest that much money and Russia understands it will never develop its Arctic reserves completely on its own. Only successful experience and state-of-the-art Arctic upstream technology that many foreign (notably, Norwegian) companies have could solve the problem of what to do with the oil under the Arctic waters.
The Natural Resources Ministry has proposed amending product-sharing regulations to let foreigners into the industry. Certainly, oil majors will only come to the Arctic shelf in partnerships with Russian companies, a protectionist measure that, industry experts believe, is reasonable and justified, to make sure that foreigners do not take complete control over strategic oilfields. According to Sergei Suverov, chief world market analyst with Gazprom, Russia's natural gas monopoly, a partnership with a solid Russian state-run company could be attractive to foreign partners because in this case their investments will have political support from the state.
The government's move to outline its broad agenda on the Arctic reserves is an important step forward, but far from the first one. State-owned Rosneft has been preparing production at the 65.3-million-ton Prirazlomnoye, the largest field in the Pechora Sea, and Shtokmanovskoye (3 trillion cubic meters of natural gas and 27 million tons of oil) for several years. Commercial operations are scheduled to begin in 2010 and the needed investment has been put at $19-$21 billion.
A new special drilling rig is being completed on the Prirazlomnoye field. It is a unique system that explores, extracts, and stores oil. In addition, an upgraded Arkticheskaya oilrig (drilling depth- 6.5km) is to be commissioned in 2007 and Rosneft is building its own fleet of a dozen Arctic tankers, refueling icebreakers, and environmental vessels. Moreover, in partnership with Gazprom, the oil company is considering the joint development of the Shtokmanovskoye deposit with several Western majors.
In other words, Russia is turning northward. And the development of the Arctic shelf will become the nation's largest project for the next 20 years.
