As the situation in Ukraine continues to unravel and Washington and the European Union consider how to respond to Moscow’s moves, the unhappy fact for Brussels is that the Russian Federation provides roughly a third of the EU’s energy needs.
But Russian President Vladimir Putin is shifting his gaze eastwards, to developing energy resources to serve East Asian, particularly Chinese, markets.
This is not a sudden policy shift in response to events in Ukraine.
During his 12 December 2013 “Presidential Address to the Federal Assembly” Putin singled out developing Siberia and the Far East as strategic objectives, telling legislators, “I will stress again that government and private sector resources should go toward development and achieving strategic objectives. For example, let’s look at such objectives as developing Siberia and the Far East. This is our national priority for the entire 21st century. The challenges we will need to tackle are unprecedented in their scale, which means we must take unconventional approaches. We have already made a decision on a reduced income tax rate and a number of other taxes for new investment projects in the Far East. I feel it would be expedient to expand this regime to all of Eastern Siberia, including Krasnoyarsk Territory and the Republic of Khakassia. …I am confident that Russia’s reorientation toward the Pacific Ocean and the dynamic development in all our eastern territories will not only open up new economic opportunities and new horizons, but also provide additional instruments for an active foreign policy.”
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While Putin is anxious to diversify Siberia’s economy, the fact is that the engine for driving that policy will be energy resources for the foreseeable future. Accordingly, on 28 February Russian state energy giant Rosneft announced that it will invest roughly $83 billion on developing the strategic Vankor oil and natural gas field in eastern Siberia’s Krasnoyarsk region over the next decade.
Vankor, which started commercial output in July 2009, is viewed as central to Russian plans to meet rising energy sales to China. With Russia’s traditional Western Siberian oil-producing regions in decline, Vankor and the other fields clustered nearby in eastern Siberia will be critical to the Kremlin’s continued oil production expansion efforts. What unlocked the region’s potential was the January 2011 inauguration of the 3,018 mile-long Eastern Siberia-Pacific
Ocean (ESPO) pipeline, which created an outlet for East Siberian oil Russian crude oil eastwards to Japan, China and Korea. In its first year of operation ESPO carried 400,000 barrels per day. ESPO is paralleled by the 1,264 mile-long Yakutia–Khabarovsk–Vladivostok natural gas pipeline, currently under construction and scheduled for completion in 2016.
Eastern Siberia’s development was further spurred by tax breaks and the removal of export duties as ESPO came online. Vankor, located north of the Arctic Circle, was the largest oil discovery in Russia in nearly three decades and is estimated by independent auditors to hold the equivalent of more than 1.6 billion barrels of oil in confirmed hydrocarbon reserves. In 2013 the field produced about 430,000 bpd, a figure that Rosneft is eager to increase. There are a number of other fields in the region, including Verkhnechonskoe, Iurubcheno-Tokhomskoe, Agaleevskoe gas and condensate fields as well as the largest deposits of the Iamal block including Suzunskoe, Tagulskoe and Lodochnoe.
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Vankor is the largest field to be discovered and put into production in Russia in the last quarter of a century. According to Rosneft vice president Sviatoslav Slavinskii, the Vankor field contains an oil and gas cluster capable of producing 55 million tons of oil annually by 2025.
In 2013 Rosneft earned a net profit of more than $15 billion a 51 percent increase on its 2012 profits. With China willing to buy all the oil that Russia can pump, the proverbial sky’s the limit. As politicians in Washington and Brussels talk about sanctions against Russia for its policies in Ukraine, it’s worth remembering how China has essentially ignored those imposed on Iran over the past three decades.
By John Daly of Oilprice.com