To be king implies preeminence, or lasting rule. In the Arctic, such oil and gas supremacy is still little more than a dream. That dream remains alive in Russia however, and the nation – through an unmatched stubbornness and a decidedly timid field of competitors – is making a strong bid for the throne.
A cursory search of ‘Arctic’ and ‘oil’ elicits little in the way of positivity. Certainly, Shell’s failure in the Chukchi Sea is notable. Combined with the Obama administration’s waffling distaste for future offshore Arctic development, it marks what should be a period of relative dormancy in U.S. waters. Still, it’s not indicative of the sector globally, which is seeing progress, albeit at a glacial pace.
The shining example of such development to date is Gazprom Neft’s Prirazlomnaya platform. Located nearly 40 miles offshore in the Pechora Sea, the rig is the world’s first Arctic oil project involving a stationary platform – though the general concept itself has been employed before (see: BP’s Northstar Island).
Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). With production well number two (of 19) now online, output should reach somewhere between 10,000-15,000 bpd by year’s end.
To be fair, several important tests lie ahead for Prirazlomnaya and Russia’s Arctic shelf development in general. Chief among them is rapidly addressing its import dependence – one of the primary targets of U.S. and EU sanctions. No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia’s onshore and offshore fields.
Attention, domestic and international, has been given to the courting of China, India, and other backers – both financial and technological – but all eyes should be on the Russian solution, which will seek to demonstrate its efficacy by 2020.
At the Prirazlomnoye field, the Russian institute Omskneftekhimproekt has begun work on the modernization of the rig’s drilling installations, technological equipment, and safety and telecommunications systems. The primary objectives are to boost production capacity (to ~120,000 bpd) toward 2020 and lay the building blocks for the future development of Russian-sourced platforms.
The work by Omskneftekhimproekt mirrors that of several institutes, companies, and universities across the country, rallying around the call for import substitution. However, just how much can actually be accomplished is the billion dollar question.
As Russia moves from ideas to concrete mechanisms (read: any forced Russification of the upstream oil and gas industry), the country’s traditionally poor institutions and penchant for corruption will not be easily circumvented – not to mention the stark technical realities of reducing import dependence some 70 percent.
In the meantime – technology be damned – Russia continues to actively and ambitiously position itself across its Arctic geography. The holder of some 58 percent of the entire region’s hydrocarbon resources, Russia has several notable projects in the pipeline.
Gazprom Neft’s Novy Port, Bashneft and Lukoil’s Trebs and Titov, as well as Gazprom Neft and Novatek’s Severenergia are three of the most promising Arctic onshore greenfield projects currently under development. Crude deliveries from Novy Port have already hit the European market, and together the three projects could produce as much as 400,000 bpd by the end of the decade.
The Dolginskoye, Messoyakha, and Russkoye fields are further from realization, though they’re demonstrative of both Russia’s relatively prolific Arctic movements, and its sheer productive capacity.
In the medium-term, competition will be light: arctic crude production in Alaska has slipped noticeably and will continue to decline through 2040; activity in Canada’s Beaufort Sea appears dead in the water; and years of exploratory drilling in Greenland have not yielded a single development project.
Eni’s Goliat project in the Norwegian Arctic, which is set to come on stream pending final approval from Norwegian authorities, is the lone bright spot for the other four major littoral nations. It differs significantly from Prirazlomnaya, but at its peak, Goliat should deliver 100,000 bpd from its floating perch high in Norway’s “manageable” Barents Sea.
To be sure, no one can yet claim supremacy over Arctic oil, but, for the time being, Russia remains its king by default.