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Russia will put its Arctic ambitions on hold.
The Russian Energy Ministry gave a presentation earlier this week that pointed to exploration in the Kara Sea not resuming until 2020 at the earliest, a huge blow to the highly touted project north of the Arctic Circle.
In 2014, Rosneft suspended drilling in the Kara Sea after western sanctions forced Rosneft’s partner, ExxonMobil, to withdraw from the project. But just before ExxonMobil pulled out, the companies made a potentially huge discovery at its Universitetskaya-1 well in the Kara Sea. The well was drilled just as the U.S. government was preparing harsh sanctions on Russia in response to its intervention in Ukraine. Just before the deadline for ExxonMobil to withdraw, the companies announced that the $700 million well could hold at least 750 million barrels of light oil, and 338 billion cubic meters of natural gas.
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The results were preliminary and need follow up. Still, a few weeks before the discovery, Rosneft’s CEO Igor Sechin laid out plans to invest $400 billion in the Arctic over a period of 15 years.
Those plans are now in a state of limbo. Reports from earlier this year suggested that it would take at least another two years before Rosneft could get back to work and drill a second well. However, the energy ministry’s presentation from this week suggests that it could take much longer – the company probably won’t drill another well until the early part of next decade. Without the technology and capital offered by ExxonMobil, Rosneft will be unable to go it alone.
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Western sanctions and the crash in oil prices will hamstring the ability of Russia’s oil companies to expand any further, at least for the next few years. Just like the rest of the global oil industry, Russia will have to retrench and focus on its most productive assets, while putting expensive frontier exploration plans on the shelf.
Nevertheless, Russia has gone much further than any other nation in exploring the Arctic for oil. Gazprom began production at an offshore oil field – the Prirazlomnaya – in the Pechora Sea in 2014. The field produced 2.2 million barrels last year, and the company expects to double output this year.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com