Oil and Natural Gas Exploitation in the Russian Arctic | ISPI
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Commentary

Oil and Natural Gas Exploitation in the Russian Arctic

Maria Morgunova
14 April 2021

The Arctic has always been very important for Russia. First, it makes up a considerable part of the country’s territory. Second, the region hosts important transport and military infrastructure. Finally, it possesses significant natural resources potential, which is not limited to oil and natural gas, but also includes minerals, timber, fish, and other resources including land itself.

However, interest in the natural resources of the Arctic and its economic potential seems to be prevailing. The global interest in oil and natural gas was especially noticeable from the early 2000s due to stably high oil prices, growing energy demand, and bonanza-like projections for the oil and natural gas resources to be found offshore in the Arctic. The Arctic offshore basins are considered highly promising for oil and natural gas resources according to the United States Geological Survey investigation.

The early 2000s demanded more investments in Arctic infrastructure and even more in oil and natural gas exploration offshore. However, macroeconomic conditions, including falling crude oil prices and an overall global shift towards climate change mitigation and greener energy have ruptured this trend, making the economics and public acceptance of these resources questionable. Even one of the strongest arguments for exploring the Arctic offshore oil and natural gas resources – energy security – is losing its weight due to the increasing availability of other more flexible and decentralised options to supply energy. From the pool of the circumpolar countries and those that have geographical access to the Arctic Ocean, so far only Russia and to a certain extent Norway maintain rather active interest in exploiting oil and natural gas resources offshore in the Arctic. Worth mentioning is that the Norwegian Arctic is characterised by milder climate and ice conditions.

In the case of Russia, research shows that economics is not always a decisive factor for oil and natural gas resource exploitation, even though Russia’s considerable interest in developing the Arctic region can also be explained by the Russian economy’s strong dependence on oil and natural gas (accounting for up to 40% of budget revenues). Onshore Arctic oil and natural gas resources have served as the basis for exports since the 1960s, but oil and natural gas resources in the offshore and coastal areas are often seen as the key driver of the future socio-economic development of the region.

According to recent governmental strategic documents including the renewed “Strategy for the development of the Arctic zone of the Russian Federation and ensuring national security for the period up to 2035”, Russia’s view of the Arctic region’s development has shifted from the expansive exploitation of just natural resources, with rather rapid infrastructure development, to a more conscious socio-economically centred approach. Oil and natural gas resources are nevertheless a backbone of this process, as the projected volumes for oil production according to the Strategy should reach 26% of the total produced in Russia, gas 79%, and liquefied natural gas production should expand 10 times. Respective freight traffic along the Northern Sea Route is expected to increase 7 times.

Such intense development plans naturally require considerable intensification of exploration for oil and natural gas resources offshore in the Arctic. However, the enormous oil and natural gas resources projected to be found require new technical approaches for their exploration and exploitation, as well as huge investments. Harsh climate conditions, remoteness, absence of infrastructure - and, most importantly, ice conditions offshore in the Arctic – are the factors significantly increasing risks and costs. Despite global climate change, which according to the scientific evidence affects the ice cover of the Arctic, the operating conditions are to be no less challenging and require intensive technological adaptation. There are also numerous ecological concerns including those related to climate change. The ecological and environmental statements of the operating companies regarding these overall exploration activities have become much more visible, but the actual grade of change towards more ecologically responsible choices is hard to estimate.

The intensity of exploration and drilling operations offshore in the Russian Arctic can be characterised as currently very limited. With only two governmental companies – Gazprom and Rosneft - eligible to conduct such operations offshore, drilling activities resulted in only a few wells. As a result, the Prirazlomnoe oil field is the only one that operates offshore in the Russian Arctic (not including horizontal drilling and Far East offshore areas). Such a slow pace, of course, does not match the strategic plans, and raises serious concerns for the decision-makers.

International capital does not have access to the oil and natural gas exploitation in the Russian Arctic due to the implied EU and US sanctions of 2014, which are continuously progressing. Although oil and natural gas exploration activities in the Arctic and especially offshore are strongly supported by the Russian government, the Russian companies themselves have limited resources to ensure and sustain the desired level of operational growth. The overall challenging situation is further exaggerated by sanctions on technological transfers for oil and natural gas exploitation, which not only limit current operations but considerably increase ecological risks.

However, despite limited exploration activities offshore in the Arctic, there is a dramatic development in the production of liquefied natural gas (LNG) in close proximity - on the Yamal and Gyda peninsula, driven by the Novatek company. Yamal LNG – the pioneering liquefied natural gas project (16.5 million tons per year, MT/y), has now been followed by the Arctic LNG-1, 2 and 3 projects (total announced capacity of two out of three projects is approximately 40 MT/y), and also by the Obskiy LNG project (4.8 MT/y). The total planned capacity of more than 60 MT/y of liquefied natural gas by the late 2020s – early 2030s (approximately 17% of global trade volumes as of 2019) is naturally resulting in very intense exploration work along with building the respective infrastructure and ice fleet.

To conclude, the Arctic region’s development, its resources, the potential synergetic effect from industrial activities (including infrastructure, transportation and transit), and not the least the region’s geopolitical significance, are most likely going to keep it high on the list of strategic priorities for Russia, whether or not oil and natural gas resources are going to be a big part of this development.

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Russia environment energy
Versione stampabile
 
EU GREEN DEAL

AUTHORS

Maria Morgunova
Department of Civil and Industrial Engineering, Industrial Engineering and Management - Uppsala University

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