The Baltic Sea is universally known as a pathway for oil and product transportation, but little is known of its production potential. Yet a recent flurry of activity in the Baltic offshore has stirred hopes that the best is yet to come, and similarly to the Northern and Caspian Sea nations, the Baltics could tap into their resource potential. According to the United States Geological Survey, the Baltic Depression Province, comprising of offshore Poland, Russia, Lithuania, Latvia, Estonia and Sweden with swaths of onshore territory, holds up to 1.6 billion barrels of technically recoverable oil, of which 82 percent is unconventional. An even more peculiar conventional/unconventional ratio was established with regard to the Baltic Depression’s gas reserves, 95 percent of which belong to the shale category. It is noteworthy that the most promising gas fields are supposed to lie in Poland’s territorial waters, whilst the potentially most productive oil fields are in Russia’s. Survey results notwithstanding, so far there has been little going on to substantiate the extractability of these volumes.
First attempts to explore the Baltic’s hydrocarbon potential were conducted by the Soviet Union-led Joint International Organization on the Exploration of the Baltic Sea in 1975 and onwards. Multiple fields were discovered within the Polish, Russian and now-Latvian territorial waters, yet none of them surpassing the threshold of 5 million tons of reserves. Among the discovered fields, three are already producing: Blocks B3 and B8 off the Polish coast and Block D6 (also known as Kravtsovskoye) a dozen kilometers off the Russian Kaliningrad Region coast. Recent discoveries within the Russian sector, however, have come with a glint of new hope – in 2015, Lukoil reported an oil discovery at its D33 block, with recoverable oil reserves estimated at 21.2 million tons, making it the first mid-sized field of the Baltic Sea.
Lukoil started its Baltic quest in 1995 when it bought Kaliningradmorneftegaz, then wielding 18 onshore, predominantly small-sized fields with total oil reserves amounting to 40 million tons. As of today, most of the reserves are depleted and there is little probability of a huge onshore oil discovery there. Concurrently with the exploitation of its onshore fields, Lukoil had been striving to launch the first offshore field D-6, the development of which was hindered by bureaucratic foot-dragging. With the tightening of access to the Russian continental shelf after 2008, effectively barring Lukoil, a private company, from developing new fields, the company experienced significant hardships proving that it be granted the Baltic offshore. As things stand, Lukoil managed to secure its standing and promote a modus operandi that might be characterized as “cuius inventio, eius concessio” (who discovers the field, gets the concession). Therefore, now it is the Government of Russia which grants the concession to Lukoil, following a field’s discovery. Related: The U.S. Nuclear Energy Dream Is Dying
Lukoil’s plans regarding the Baltic Sea reflect the company’s interest to maintain a firm foothold in the region. The company intends to bring onstream four fields (D-41, D-29, D-6-Yuzhnoye, D-2) by 2030, attaining peak aggregate output of 2.15 million tons per year by 2027. This is by no means a significant amount, as it corresponds to a mere 0.3 percent of total Russian output and 2 percent of Lukoil’s total output. Despite this, Lukoil confirmed its intent to continue drilling prospecting and appraisal wells in five blocks, the inferred recoverable resources of which were estimated at 32 million tons. Afterwards, Lukoil will try its luck with the “Baltic” and “Baltic Coast” blocks further off to the sea. Moreover, Lukoil set its sight on the Nadezhda block a few kilometers off the Kaliningrad coast, as it does not fall under the “continental shelf” category, as stipulated by the Subsoil Law, because of its proximity to the coastal line (shelf fields should be at least 12 kilometers away from the coast).
Thus, until at least mid-2000s, the territorial waters of the Baltic Sea belonging to Russia will remain an active, albeit small oil-producing region. Poland’s standing is very similar. Poland became the first Baltic Sea-producing nation in 1992 when production began at the B3 oil field. It waited more than twenty years to get another offshore project onstream until its upgraded “Petrobaltic” platform began producing in 2015 from the B8 field, whose recoverable reserves are estimated at 3.5 million tons. As the producer, the Polish Oil & Gas Company Lotos stated, its peak production would hover around 5 000 barrels per day, which would account for a quarter of the nation’s aggregate oil output. Lotos will transport the produced oil by means of seabed pipelines and tankers, every molecule of gas will be used for processing at a nearby power plant. Lotos now intends to bring online two gas-containing blocks, B4 and B6, with aggregate reserves of 4 BCm and presumed annual output of 250 MCm. Related: Gasoline Glut Remains The Biggest Red Flag For Oil Markets
Not every Baltic nation will get to recover the oil and gas its continental shelf offers. Sweden effectively barred Svenska Petroleum in 2009 from drilling in the Baltic Sea (test drills in the 1990s yielded no result whatsoever), whilst exploration drilling within the territory of Gotland has so far produced minimal results and several companies let lapse their permits. Lithuania has so far taken no steps at all to assess its hydrocarbon potential. Latvia’s largest offshore field to be discovered so far, the E6-1 block belonging to Balin Energy, a joint venture between Poland’s PKN Orlen and Kuwait Energy, is a remnant of Soviet geological prospecting (discovered in 1984). Despite talk of favorable Cambrian sandstone reservoirs, its assumed reserves of 2-3 million tons might prove uneconomic to initiate full-scale production, as has been the case with previous blocks. Thus, Russia and Poland will most likely stay the only oil and gas-producing nations in the Baltics, yet even they might face a couple of roadblocks.
The further companies get from the coastal line, previously impertinent issues arise. For instance, the shallow parts of the Baltic seabed are covered with sand and pebbles, however the deeper the Russian Baltic gets, the marshier and muddier it gets, complicating the anchorage of vessels. Poland and Russia will inevitably draw closer to their maritime frontier, necessitating a form of arrangement over border-straddling fields. All in all, the best Baltic states could do is to harvest the remaining oil, mostly using it for local purposes. It is unlikely that any other major Oil & Gas company apart from companies currently active in the region – that is, Lukoil and Lotos – will join the game as the stakes are too low. Yet even by the 2050s, the Baltic Oil and Gas issue will not be off the table once and for all, because the prospect of extracting offshore shale gas will keep on rousing the imagination of littoral states.
By Victor Katona for Oilprice.com
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