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Is Rosneft Booting Exxon Out Of Arctic Oil Plans?

The Russian oil company Rosneft is seeking a partnership with China in exploring for and producing energy on the Eurasian Arctic shelf.

“The topic is in discussion at the company level,” Anatoly Yanovsky, Russia’s deputy energy minister, told the state-owned news service RIA Novosti on Monday. “As far as I know, Rosneft is negotiating, discussing.”

But Russia denies that any overtures to China are a way of replacing ExxonMobil as Rosneft’s partner in Arctic exploration.

Producing energy along the Arctic shelf is an extremely valuable goal for Russia. The region is thought to hold enormous amounts of oil and gas, and Russia already has laid claim to any energy deposits within its offshore territories.

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Yet because of a lack of infrastructure there, some Russian energy companies have been reducing operations in the region. For example, in Russia’s northern Yamal Peninsula, which juts into the Arctic Ocean’s Kara Sea, oil production for 2015 is expected to be about 152 million barrels, nearly 4 percent lower than it was in 2014.

The recent trend of declining oil production in the Arctic contrasts with rising output elsewhere in Russia. For example, Novatek, the country’s largest private producer of crude oil, reported a 40 percent increase in production this year.

And not all of the Arctic shelf is seeing a drop in oil production. Gazprom Neft, the oil department of Russia’s state-owned gas company Gazprom, produced its 1 millionth barrel of oil from the Prirazlomnoye field in the eastern Barents Sea in September 2014. Prirazlomnoye is Russia’s first offshore Arctic oil project ever brought to full production. Commercial-level output began in 2013.

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As for Rosneft though, it has been courting China to help improve exploration and production along the Arctic shelf. Already, RIA Novosti reports, Rosneft reached a deal two months ago with China Oilfield Services Ltd. and Norway’s state-owned energy giant Statoil to explore the frigid waters of the Sea of Ohkotsk in the Russian Far East.

Rosneft’s CEO, Igor Sechin, said the three-way deal has led to new potential for cooperation in exploration and production of oil and gas by three countries that are leaders in the energy industry.

Russia’s first deputy natural resource minister, Denis Khramov, was asked whether China was being approached to replace ExxonMobil Corp. as Rosneft's partner in the Arctic. Exxon withdrew from a project in the Kara Sea in 2014 because of Western sanctions imposed on Russia because of its role in the conflict in Ukraine.

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“I don’t think that currently … there is a search to replace Exxon,” Khramov replied, because Rosneft’s relationship with the American energy giant is “long-term.”

Although there’s no word whether China will accept Rosneft’s invitation to join forces in the Arctic, Beijing is clearly showing interest in the region, if only as a trade route. Cosco Group, the country’s state-run shipping company, is considering the region as a quick route connecting China with Europe.

In October one of its vessels, the Yong Sheng, completed the second of two exploratory round trips in the Arctic Ocean between China and Europe. But it’s too early to tell whether this might translate into broader cooperation with Russia on developing Arctic energy.

By Andy Tully of Oilprice.com

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