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Rosneft Extremely Bullish About Arctic Oil And Gas Discoveries

At the core of Russia’s hydrocarbons-related power is its Arctic oil and gas reserves, with the Russian Arctic sector comprising over 35,700 billion cubic metres of natural gas and over 2,300 million metric tons of oil and condensate, the majority of which are located in the Yamal and Gydan peninsulas, lying on the south side of the Kara Sea. According to recent comments from Russia’s President, Vladimir Putin, the next 10-15 years will witness a dramatic expansion in the extraction of these Arctic resources, and a corollary build-out of the Northern Sea Route (NSR) – the coastal route of which crosses the Kara Sea - as the primary transport route to monetise these resources in the global oil and gas markets, especially to China. Last week it was revealed that a massive new gas field in the Kara Sea itself has been discovered by Russian oil giant, Rosneft.  According to Russia’s State Commission on Reserves, a new gas deposit in the Arctic has been entered by Rosneft into its register, named after the Soviet military hero, Marshal Georgy Zhukov, with natural gas reserves estimated at 800 billion cubic metres (Bcm). It is located in the Vikulovskaya structure, part of the East Prinovozemelsky-1 licence area, over which Rosneft has exploration and production rights running from 11 November 2020 to 10 November 2040. Rosneft later added that the large scale of the deposit was ascertained after the company bored a well 1.6 kilometres deep close to the massive Pobeda oil and gas field, which – along with the newly found Zhukov field – are located in the East-Prinovozemelsky-1 area, in which exploration began in earnest in 2014. 

In fact, it was U.S. supermajor ExxonMobil that led the way in financing across the exploration area that included three huge and highly prospective licence areas in the Kara Sea after the signing of an exploration and development deal in 2011 with Rosneft. The first well drilled in this development program - by a Norwegian drilling rig in 2014 - led to the discovery of the massive Pobeda field, originally called the ‘Universitetskaya-1’ site, that was initially estimated to hold at least 125 million tons (about 916 million barrels) of oil and 422 Bcm of gas. Russia Energy Minister, Alexander Novikov, has subsequently stated that new studies show that the oil held at Pobeda could be as much as 500 million tons (nearly 3.7 billion barrels). Unfortunately for the U.S. firm – but not for the Russians, as the U.S. now has no credibility to claim that such efforts in the Arctic are unethical – ExxonMobil was forced to pull out of its 2011 Arctic co-operation deal with Rosneft due to U.S. sanctions on Russia over is annexation of the Crimea from Ukraine. 

Related: Will Biden Seal The Fate Of The U.S. Shale Patch?

Given this, and the new discovery of the Zhukov field, Rosneft is extremely bullish about the prospects for the other fields under exploration and development in the Kara Sea. “The results of drilling carried out by Rosneft in the Kara Sea have shown the high oil and gas content of these structures, which confirms the discovery of a new Kara offshore oil province,” said Rosneft last week. “In terms of resources, it may surpass such oil and gas provinces as the Gulf of Mexico, Brazil’s offshore, the Alaskan and Canadian Arctic offshore, as well as the largest provinces in the Middle East,” it added. Moreover, it underlined that currently it has more than 30 ‘promising structures’ in the aforementioned three Vostochno-Prinovozemelskiy areas of the Kara Sea. Rosneft is also currently actively pushing the development of the Vostok Oil project in Russia’s Far North that includes the Vankor cluster, the Zapadno-Irkinsky block, the Payakhskaya group of fields and the East Taimyr cluster, and is estimated to hold proven liquid hydrocarbons reserves of at least 6 billion metric tons (about 44 billion barrels), all within the close proximity of the NSR that the company intends to exploit to deliver hydrocarbons to Europe and Asia. Last month, Rosneft chief executive officer, Igor Sechin, formally told President Putin of the formal commencement of operations on the Vostok Oil project, adding that the design work for a 770-kilometre oil pipeline and a port had been completed. In this context, February saw Sechin also promise Putin that the scheme would create a “new oil and gas province” on Siberia's Taymyr peninsula, with the completed project representing a total investment of RUB10,000 billion (US$111 billion), including two airports and 15 “industry towns.” Sechin concluded by saying that Rosneft’s Arctic developments would eventually produce 100 million tonnes of oil per year, with 30 million ton\s of oil being sent from the Arctic along the NSR between now and 2024 alone. 

Rosneft is only one part of Russia’s already intense – but deepening – involvement in exploiting the potential of the Arctic. Last week it was also announced that Russian liquefied natural gas (LNG) exporter Novatek expects to produce the first LNG from the fourth train of its Yamal LNG project in northern Russia in the first quarter of 2021. According to a comment from the company’s chief financial officer, Mark Gyetvay, Novatek had hoped to bring the 0.9 million metric tons per year (mtpy) train online by the end of 2020 but that it was still in the “final stages” of the construction. The fourth train will add to the existing 16.5 million mtpy capacity available in the project’s first three trains, with Yamal LNG having been operating at over 113 per cent capacity throughout the COVID-19 pandemic, according to Gyetvay. Overall, Novatek plans to build an LNG export capacity of up to 70 million mtpy by 2030 as it adds new projects to its portfolio, including the 19.8 million mtpy Arctic LNG 2 which is due to start in 2023. This output is critical to Russia’s overall intention – as evidenced in its new ‘Energy Strategy’ document published earlier this year - to increase total LNG production to 80-140 million mtpy by 2035, which would surpass that of the top global LNG exporters, Qatar and Australia. 

Related: Goldman Turns Bullish On Oil: Sees $65 Brent In 2021

On the oil side of the equation, Russia’s efforts are also being boosted by Gazprom Neft, the country’s third biggest oil company by output and the oil arm of state gas giant Gazprom. July saw Gazprom Neft ship its first cargo of oil produced in the Arctic to China via the NSR, adding to its existing Western exports via the NSR to Europe. According to Gazprom Neft, it took 47 days to deliver a full cargo of 144,000 tonnes of sweet, light Novy Port oil – that comes from the Yamal peninsula developments - to the Chinese port of Yantai on the Bohai Sea from Russia’s north-western city of Murmansk. “Successful experience in the sale of Arctic oil in the European market and in-depth insight of Asia-Pacific markets allow Gazprom Neft to offer Novy Port oil with a unique year-round logistics scheme to Asian partners,” said Gazprom Neft’s deputy director general for logistics, processing and sales, Anatoly Cherner. 

A month later, Gazprom Neft announced a new joint venture (JV) with Anglo-Dutch supermajor, Royal Dutch Shell (Shell) focussed on the exploration and development of oil and gas resources along the Gydan peninsula area, particularly at the Leskinsky and Pukhutsyayakhsky licence blocks. To date, according to Gazprom Neft, little exploration work has been carried out on these two licence blocks, which are a considerable distance from any existing transport and oil and gas infrastructure. This said, both appear to be good prospects, with the Leskinsky block (located in the Taimyr district of Krasnoyarsk) estimated to contain at least 100 million metric tons (733 million barrels) of oil equivalent across its over 3,000 square km area, according to Gazprom Neft. The Pukhutsyayakhsky block is estimated to hold at least 35 million metric tons (256.5 million barrels) of oil equivalent, albeit over a much smaller exploration and development area (800 square km). According to Gazprom Neft, two-dimensional seismic studies have been completed on both blocks, giving positive results, and the drilling of the first well at the Leskinsky block is scheduled for 2020. 

The development of the two blocks will neatly augment Gazprom Neft’s increasingly Arctic-leaning business, with the area accounting for around 30 per cent of the company’s oil production in 2019. The company started exporting oil produced in the Arctic sector from as early as 2013 and since then it has delivered at least 40 million tons of oil – including both the ARCO (Prirazlomnoye field) and Novy Port (Novoportovskoye field) blends – to various European countries.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on December 18 2020 said:
    The Arctic is Russia’s “Wild West” to borrow a phrase from American history. President Putin has long ago recognized the great importance of the Arctic for the Russian economy and the Russian oil industry. That is why he has been pouring hundreds of billions of dollars into the region.

    With more than 48 billion barrels of oil and 43 trillion cubic metres of gas in its share of the Arctic, Russia is going at full blast developing its oil and gas reserves using home-grown state-of-the-art technology that will ensure its energy supremacy well into the future.

    Last week it was revealed that a massive new gas field in the Kara Sea has been discovered by Russian oil giant, Rosneft. The gasfield named Zhukov after the Soviet military hero in WW2, Marshal Georgy Zhukov, has natural gas reserves estimated at 800 billion cubic metres (bcm). Given this, and other discoveries in the Kara Sea, Rosneft is absolutely right to be bullish about the Arctic potential. The results of drilling carried out by Rosneft in the Kara Sea have shown the resources could surpass such oil and gas provinces as the Gulf of Mexico, Brazil’s offshore, the Alaskan and Canadian Arctic offshore, as well as the largest provinces in the Middle East.

    President Putin expects a dramatic expansion in the extraction of these Arctic resources in the next 10-15 years and a corollary build-out of the Northern Sea Route (NSR) – the coastal route which crosses the Kara Sea - as the primary transport route of oil and gas to the world’s largest energy market, China.

    Last month, Rosneft chief executive officer, Igor Sechin, formally told President Putin of the formal commencement of operations on the Vostok oil project, adding that the design work for a 770-kilometre oil pipeline and a port had been completed. Sechin also promised Putin that the scheme would create a “new oil and gas province” on Siberia's Taymyr peninsula, with the completed project representing a total investment of $111 billion, including two airports and 15 “industry towns.” Sechin concluded that Rosneft’s Arctic developments would eventually have 2 million barrels a day (mbd) exported from the Arctic along the NSR by 2024.

    However, Rosneft isn’t alone in its involvement in the Arctic. Russian LNG producer, Novatek plans to build an LNG export capacity of up to 70 million mtpy by 2030 as it adds new projects to its portfolio, including the 19.8 mtpy Arctic LNG 2 which is due to start in 2023. This output is critical to Russia’s overall intention to increase total LNG production to 80-140 million mtpy by 2035, which would surpass that of the top global LNG exporters, Qatar and Australia.

    Moreover, Gazprom Neft saw its first cargo of light oil produced from Yamal peninsula in the Arctic shipped to China via the NSR, adding to its existing Western exports via the NSR to Europe.

    Unfortunately for US oil giant ExxonMobil, it was forced to pull out of its 2011 Arctic co-operation deal with Rosneft due to U.S. sanctions on Russia,

    President Putin who made Russia the world’s superpower of energy has also managed the unique feat of successfully weaning it off oil revenues. He achieved this in a record time by extensive diversification of the economy in the aftermath of the 2014 oil price collapse and the imposition of US sanctions on Russia over the annexation of the Crimea.

    This is a far cry from when the late US Senator John McCain in an insulting remark described Russia as a gas station masquerading as a country. President Putin is now saying that “if someone still wants to consider us as a gas station, then this has no real basis."

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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