Our Arctic Neighbors: Rosneft wants tax breaks for Arctic development

Russia needs to realistically assess the risks and costs of Arctic oil and gas development, Sergey Bogdanchikov, the president of state-owned oil company Rosneft, told the Murmansk International Economic Forum Oct. 15. Exploration drilling in the offshore Arctic can be done with far less certainty than drilling in traditional exploration areas in western Siberia, Bogdanchikov said. The cost of working in Arctic regions is also extremely high, he noted.

“Here we can already talk in quite concrete, specific terms, based on our development of the shelf off Sakhalin, and if you compare the figures from western Siberia, $30 to $50 to produce a ton of hydrocarbons, on the Far Eastern shelf we have about $300 and it will be at least $600 to $700 to produce a ton of hydrocarbons here on the Arctic shelf,” Bogdanchikov said. “Companies have to be prepared for this and our government, of course, also has to be prepared for it. When it determines a tax policy for the offshore regions it can’t be identical for the Caspian, the Sea of Azov, the Black Sea and the Arctic Shelf. We hope for mutual understanding with the government here.

“We have to be honest above all with ourselves going into such a complex task as developing the Arctic shelf,” Bogdanchikov said. “We are technologically backward here in the Russian Federation in virtually all the technology that is necessary.”

At this point in Bogdanchikov’s speech Alexei Miller, the CEO of Gazprom, Russia’s other state-owned energy giant, interrupted to indicate that he agreed with the sentiment.

“We have to synchronize the following processes, the process of licensing on the shelf, the process of conducting geological exploration work and the process of preparing Russian industry, companies that are on both the regional and the national scale, in order to support these projects and to achieve the required production on time,” Bogdanchikov said.

“When we’re talking about investment of $250 to $300 billion, the question is whether this investment will go into Russian companies located in Russia or whether about 80 percent of it will go overseas to overseas suppliers and contractors who already have this experience,” Bogdanchikov added.

—Sarah Hurst