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Two New Oil Projects Come Online, Adding To Glut

As if there already weren’t enough oil on the world market, ExxonMobil Corp. and Anadarko Petroleum Corp. are announcing that each has begun producing oil from two major projects.

ExxonMobil said Jan. 19 that it had begun retrieving oil from the Arkutun-Dagi field of the Sakhalin-1 project in the northeast of Sakhalin Island in the Russian Far East. Once it hits its stride, the company said, it is expected to produce 90,000 barrels a day.

Arkutun-Dagi is the last of the three neighboring fields to be developed in the Sakhalin-1 project. The other two are Chayvo, which began production in 2005, and Odoptu, which has been producing oil since 2010. Together the three fields will produce more than 200,000 barrels of oil per day.

Related: Iranian Oil Industry Not Threatened By $25 Oil Claims Minister

Oil produced at the Arkutun-Dagi field will be routed through the existing Chayvo onshore processing facility on Sakhalin Island and delivered through pipelines to the De-Kastri oil export terminal on the nearby Russian mainland in the region of Khabarovsk Krai.

James K. Flood, vice president of ExxonMobil Development Co., expressed enthusiasm over the success of the Arkutun-Dagi field. “I congratulate the team for the safe and successful development of Sakhalin-1’s third field, Arkutun-Dagi,” he said. “The start-up of this field will continue to add to the benefits the community is receiving through the development of the Sakhalin-1 project.”

The operator of the Sakhalin-1 Consortium is Exxon Neftgas Ltd., which holds a 30 percent stake in the project. Exxon Neftgas’s partners include Sakhalin Oil and Gas Development Co. Ltd., which has a 30 percent stake, and companies affiliated with the Kremlin-owned oil company Rosneft.

The Rosneft affiliates include NR-Astra with 8.5 percent, Sakhalinmoneftegas-Shelf with 11.5 percent and ONGC Videsh Ltd. with 20 percent.

Halfway around the world, Anadarko said, also on Jan. 19, that it has extracted its first oil from the Lucius deepwater project in US waters of the Gulf of Mexico south of Louisiana. The company said it expects the well, one of the biggest offshore oil debuts of 2015, ultimately will generate 80,000 barrels of oil a day.

So why more oil during a glut? Chris Ross, a professor at the University of Houston’s Bauer College of Business, says that together, the Sakhalin-1 and Lucius projects aren’t likely to have much of an impact on the global oil market. The two new wells will max out at about 17,000 barrels of oil a day, compared with current worldwide production of about 94 million barrels per day.

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Besides, these projects began well before oil prices began their plunge in June 2014, Ross said, and there’s no point in shutting them down once they’re ready to produce. “The cash costs of operating a major project, or operating any well that has been completed for production, are very small,” Ross said.

And don’t expect any intervention from the US government. Amos Hochstein, the energy envoy for the State Department, said at an energy conference on Jan. 18 in Abu Dhabi that Washington is relying on the global oil market to contend with the oil glut and the plummeting prices.

“When people ask the question ‘what will the U.S. do?’ it’s really the market that’s going to have to decide what happens,” Hochstein told the meeting. “This is about a global market that is addressing the supply-demand curve.”

By Andy Tully of Oilprice.com

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