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$2.64 trillion please Developing Russia’s Arctic offshore oil and gas will require trillions of dollars Alan Bailey Petroleum News
According to Russian estimates, Russia’s Arctic Ocean shelf could hold 580 billion barrels of oil equivalent in place, with a substantial component of that resource consisting of natural gas. That would amount to 25 percent of the world’s remaining hydrocarbon potential, Professor Anatoly Zolotukhin, deputy rector on international affairs at Gubkin Russian State University of Oil and Gas, told a meeting of the International Association for Energy Economics in Anchorage, Alaska, April 29.
Zolotukhin is visiting Alaska to give a series of talks in connection with the International Polar Year.
The Barents Sea may hold 210 billion barrels equivalent of those offshore resources, with the Kara Sea holding 280 billion barrels equivalent. The remainder is distributed between the Laptev, East Siberian and Russian Chukchi seas, Zolotukhin said.
Reserves replacement needed Although Russia is rich in hydrocarbon resources, economic growth and insufficient oil and gas reserves replacement are driving a need for new oil and gas exploration, Zolotukhin said. Estimated Russian resources amount to about 150 years supply, if production were to remain stable at 2006 levels. But reserves growth through exploration for those resources would need to be 31 percent higher than production every year to maintain a production growth of 4 percent per annum, he said.
That need for new reserves is turning the exploration spotlight onto the Arctic offshore — recently Russian state-owned companies Rosneft and Gazprom announced they will develop Russia’s Arctic continental shelf, Zolotukhin said. Rosneft tends to focus on oil development, while Gazprom focuses on gas.
“(But) when we talk about the resource potential of the Russian Arctic we talk about (resources) yet to discover, yet to define,” Zolotukhin said.
And exploration of Russia’s Arctic offshore has hardly begun, he said, comparing the status of Russian offshore exploration with that of Norway. The Norwegian continental shelf has about 5,000 exploration wells compared with only about 200 on the Russian continental shelf, Zolotukhin said. There are only perhaps six wells in the whole of the Kara Sea and no wells in the eastern Arctic seas, he said.
Thousands of geologists, engineers needed Development of the offshore region faces some formidable challenges.
Rosneft CEO Sergei Bogdanchikov has said that an investment of $2.64 trillion — 2.5 times the Russian gross domestic product in 2007 — will be needed to develop the Russian Arctic shelf between now and 2050, Zolotukhin said. Seismic surveying and exploration drilling would require $680 billion, with the remainder of the investment funding oil and gas development activities.
Zolotukhin compared these numbers with the $18 billion that he said was invested in the Norwegian continental shelf in 2007. Projecting the Norwegian experience into the Russian situation results in an estimated cost of $4 trillion to $6 trillion by 2050, essentially double Bogdanchikov’s estimate. Zolotukhin attributed the difference to the absence of environmental protection costs in the Russian figures.
Russia’s companies and its government talk about environmental protection, but it is very difficult to project costs for this type of activity, Zolotukhin later told Petroleum News in an interview. So, he said, it is best to use data from a region such as Norway that has a mature offshore industry to estimate environmental costs.
In addition to a massive financial investment, Russian Arctic offshore development will require a large number of skilled specialists such as geologists, geophysicists and engineers. Russia will need 1,000 new specialists per year to develop about 700 million barrels per year of Russian Arctic offshore oil, Zolotukhin said. At the moment Russia produces about 50 specialists per year and does not have the teachers required to increase that number, he said.
Harsh environment And then there is the challenge of working in the harsh Arctic environment.
The Arctic seas have no infrastructure, a small population and have become a public icon as the world’s last wilderness, Zolotukhin said.
Experience of oil development offshore Sakhalin Island, a region with sea conditions comparable with those on the borders of the Arctic Ocean, has demonstrated the need to be able to cope with sea ice up to 1.7 meters (5.6 feet) thick and ice drift speeds up to about 12 miles per hour, Zolotukhin said. Ice ridges can extend 6 meters (almost 20 feet) above the sea surface, with keel depths of about 27 meters (88.6 feet).
In some of the Arctic sea areas icebergs and floating stamukhas (iceberg remnants) are likely to present significant offshore hazards, especially in the dark and when snowfall limits visibility.
And the high environmental risks in the Arctic are not fully understood, Zolotukhin said.
Global climate is cooling From the perspective of global climate change, Zolotukhin said that he agrees with some scientists in Russia and the United States who have said that they think that the Earth’s climate is on a long-term cooling trend, with observed warming impacts being temporary phenomena observed over perhaps decades.
Because people do not really know what type of climate change to expect over the coming decades, people need to take a flexible approach to accommodating climate change impacts, he said.
But from perspective of environmental impacts, oil spill response in ice conditions is especially challenging, he told Petroleum News.
International rapid-response spill task force needed
“From a technical point of view, a spill on ice or broken ice is one of the most technically challenging things,” Zolotukhin said. “There is no immediate solution available for that.”
Challenges like this require international cooperation and effort, he said. For example, the risk of an Arctic oil spill requires an international rapid-response task force.
“Pollution doesn’t recognize borders,” Zolotukhin said.
And, in general, Zolotukhin wants to see international efforts to address Arctic oil and gas development, promoting technical standards and finding innovative technical solutions. He said that he himself has a long-term goal to establish international programs in cooperation with Alaska universities.
“I would like to retire with the knowledge that I have done something good that has brought together at least three or four nations that are responsible for the development of the Arctic offshore,” Zolotukhin said.
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