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Russia Ramps Up Arctic Oil Production

Arctic Oil Rig

Three export terminals on Russia’s Arctic coast shipped an average of 230,000 barrels of crude in the second quarter of 2016. This figure is almost equal to Libya’s total daily exports, according to Bloomberg calculations, and it is also a twofold increase from the initial 130,000 bpd handled by Lukoil’s Varandey, and Gazprom Neft’s Prirazlomnoye and Arctic Gate.

Plans for the future are ambitious – Arctic oil and gas exploration is a clear priority for the Kremlin. A couple of weeks ago, Russia’s Natural Resources Minister Sergey Donskoy wrote on his Facebook page that “the Arctic shelf, despite some project delays related to oil prices, remains a strategic direction for development.”

He added the government has introduced tax relief for companies involved in Arctic exploration and development as a way of stimulating these activities.

Earlier this month, Deputy Prime Minister Dmitriy Rogozin announced the government is working on a comprehensive standard for Arctic exploration that will seek to establish the most appropriate technology and equipment to be used in the development of oil and gas deposits in the region. This also includes the design of new equipment to suit the needs of different fields. In short: Russia is looking North.

Most of the country’s current crude oil output comes from giant fields across Siberia, which were discovered decades ago and are now depleting. Russia is much behind the U.S. and Europe in terms of technological advancements in the oil and gas industry, especially in shale, so it would need to rely overwhelmingly on imported equipment if it wants to explore its shale resources. Until these imports can be restarted, however, shale reserves could be difficult to tap.

There are three potentially giant fields in Russia’s Arctic that are currently being developed: the onshore Kharyaga, Trebs and Titov, and Prirazlomnoye. Kharyaga was considered a very promising deposit initially, and companies such as Total and Statoil were quick to get on board. Now, however, the reserves of the field have been revised down from 125 million tons to 29 million tons, and Total is out of the picture as operator, transferring this role to Russian Zarubezhneft.

A total of 29 million tons may not be as good as more than 100 million, but it’s by no means a small amount. According to Bloomberg estimates, Kharyaga will yield 200,000 bpd in four years. Related: Saudi Arabia Offers Hope For An Oil Price Rally

Gazprom Neft’s Prirazlomnoye, according to the company, holds over 70 million tons of crude in recoverable reserves and can yield 5.5 million tons annually. By 2020, Bloomberg estimates, the field would produce 125,000 bpd.

The third field, which is actually twin fields Trebs and Titov, is operated by Lukoil and Bashneft, where production started three years ago. The current year is the first to see commercial-scale output and by 2020, Trebs and Titov should yield 100,000 bpd.

These figures may not sound very impressive right now, but they will enable Russia to maintain its record-high output as its most mature fields yield less and less. And then, when the Western sanctions are lifted – and they will be, sooner or later – Arctic exploration will get another major boost from foreign operators.

If all goes as planned, the Arctic could help Russia surpass Saudi Arabia and the United States as the world’s largest oil producer by a large margin. That is, if all goes as planned.

By Irina Slav for Oilprice.com

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