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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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Russia’s Next Oil Boom Is Happening In The Arctic

One of the major challenges of the 21st century is without doubt climate change. For most countries, global warming poses a serious threat. Russia, however, has identified opportunities when it comes to the changing climate and the gradually decreasing icecap of the Arctic region. Moscow’s Arctic Strategy is intended to provide an edge for the Eurasian country in the areas of energy and defence while at the same time promoting the Northern Sea Route as an alternative shipping route.

Russia has vast oil and gas reserves in the Arctic. In terms of technically recoverable energy, the region contains as much as 90 billion barrels of oil and 47 trillion cubic meters of natural gas of which the Russian zone has the largest share, 48 billion barrels of oil and 43 trillion cubic meters of gas respectively. It amounts to 14 percent of its oil and 40 percent of its gas reserves. Despite global warming, the harsh weather conditions in the Arctic region require specialized infrastructure to extract and transport the oil to consumers.

(Click to enlarge)

Russia regards the Arctic as a strategic area where it is willing to invest significantly to secure the largest and most important share for itself. Moscow supports its claim by arguing that the crust structure of the Lomonosov ridge corresponds to the nearby Russian continental shelf which gives it the sole right to exploit much of the Arctic region. For this purpose, the Arktika research expedition vessel was dispatched in 2007.

Moscow is expanding its Arctic infrastructure with massive investments which dwarf those of the remaining littoral states. If the other Arctic countries do no begin investing in critical infrastructures such as harbors, airports and ice breaks, they could soon find themselves left behind in a new race for the North Pole. 

The complexity of extracting energy in the Arctic

Despite significant investments, extracting oil and gas has not been an easy task for Russian energy companies. While it is possible to mention several successes such as Novatek’s Yamal LNG and Gazprom Neft’s Novy Port project, others such as Rosneft and Exxon have fared less well due to sanctions. Related: OPEC+ Production Cuts To Stay In Place Until June

Completing the existing facilities wouldn’t have been possible without an extensive Arctic infrastructure. The Yamal LNG site is built in the permafrost on thousands of piles of varying shapes which is the first project of its kind in the world. The shipping of LNG has also required a new breed of vessel: the LNG ice-breaker tanker. The ship can sail in ice of up to 2.1 meters thick and defy the worst Arctic weather.

Also, Gazprom Neft’s Novy Port project had to deal with unique problems in a region where temperatures can drop below -50 Celsius. Oil produced at the Novoportovskoye field in the Yamal Peninsula is sent via a 100-kilometre pipeline to the Arctic Gate terminal in Novy Port. Due to the shallow waters, oil is sent 3 kilometres offshore in the Gulf of Ob to an 80-meter-tall structure through heated pipelines to maintain liquidity.

Next, the oil is loaded on specialized icebreaking supply vessels that transport the cargo to Murmansk via the Northern Sea route to be loaded on the Umba floating storage and offloading vessel moored in Kola Bay. The Umba can accommodate the simultaneous berthing of ships on both sides which makes it able to transfer the oil to non-icebreaking ships. That way, the company can return the icebreaking vessel quickly to the Gulf of Ob to pick up another load and increase efficiency. 

According to Gazprom Neft chairman Alexander Dyukov: “Logistics are playing the vital role here, making it possible to continue shipping and transporting oil through the Kara Sea, regardless of the weather conditions. Building these icebreakers was an essential precondition to the effective development of Novy Port.”

To further support operations in the extreme circumstances, the Russian energy giant last year ordered another pair of powerful icebreaking supply vessel, the Alexandr Sannikov and Andrey Vilkitsky. Also, Rosneft has ordered four multi-purpose icebreaking supply vessels to be delivered at the end of 2019 and during the first half of 2020. With all these investments, energy companies seem to be betting big on the Russian Arctic Strategy. Ice-breaking vessels are an essential part of these activities.

By Vanand Meliksetian for Oilprice.com

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  • Mamdouh Salameh on March 11 2019 said:
    Having established itself as the world’s largest crude oil producer, the largest gas exporter and the largest exporter of nuclear reactors, Russia is not resting on its laurels. It is now setting its sights on the Arctic to consolidate its position as the top oil producer with the aim of also becoming the world’s largest producer and exporter of LNG in coming years.

    Its determination is manifested by its Arctic Strategy which aims to exploit the vast oil and gas recoverable reserves in the Arctic estimated at 90 billion barrels (bb) of oil and 47 trillion cubic meters (tcm) of natural gas of which Russia has the largest share estimated at 48 bb of oil and 43 tcm of gas.

    And despite the harsh weather conditions in the Arctic region, Russia has been expanding its Arctic infrastructure with massive investments which dwarf those of the remaining littoral states and also state-of- the-art technology.

    Russia regards the Arctic as a strategic area where it is willing to invest significantly to secure the largest and most important share for itself. Despite significant investments, extracting oil and gas has not been an easy task for Russian energy companies. Notable successes are Novatek’s Yamal LNG and Gazprom Neft’s Novy Port project. To complete such projects, unique and extensive Arctic infrastructure was needed along with a new breed of vessel: the LNG ice-breaker tanker which can sail in ice of up to 2.1 metres thick.

    Russia is hoping to add more than 1.5 million barrels of oil a day (mbd) to its current oil production of 11.4 mbd in the next few years from the Arctic region where ExxonMobil and Rosneft were operating together before US sanctions forced ExxonMobil to withdraw its operations.

    Russia is also planning to develop the Arctic 2 LNG plant in cooperation with French oil giant Total.

    The viability and profitability of Arctic 2 project is assured by Novateck’s discovery of the North Obskoye gas field which was the largest discovery in 2018 with two billion cubic meters of natural gas (bcm) and 100 million tons of natural gas liquids. The Arctic LNG 2 project with an estimated price tag of US$35 billion is expected to start operations in 2022-2023. At full capacity, it will produce 19.8 million tons of LNG per year.

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

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