ARCTIC CHALLENGE: Oil Find Set to Give Russia Massive Economic Boost

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MOSCOW – Rosneft, Russia’s state oil company and the country’s largest oil producer, plans to develop a cluster of discovered oil reserves in the Arctic over the next five years.

These Rosneft plans – led by a close ally of President Vladimir Putin, Igor Sechin – fit the Russian leader’s ambition to develop oil and gas resources in the Arctic and adjacent regions, as well as the so-called North Sea Route – a route by the Russian Arctic in waters that extend from Europe to the Far East.

Russia’s Arctic oil development has stagnated in recent years due to Western sanctions by large international companies, including ExxonMobil, withdrawing from some exploration projects in Russia.

Now, Rosneft is vowing to increase efforts to fulfill Putin’s development ambitions in the Arctic with the goal of having the first oil produced in the so-called cluster of Arctic fields by 2024 and increasing freight traffic on the North Sea Route . This means that Rosneft will have to develop these without ExxonMobil, while poses a direct challenge to the U.S in the coming fight over the Arctic region.

For Rosneft, the North Sea Route, if connected to oil fields in northern Russian interior, could provide another export route for its oil, especially for Asian markets.

During a meeting between Putin and Sechin this week, the head of Rosneft told the president that the oil giant is currently considering the possibility of creating a cluster in the Arctic that will focus on bringing cargo traffic on the North Sea route to 80 million tons by 2024 as planned, according to the translation of the transcript of the meeting provided by the Kremlin.

The development may include the Vankor cluster of Rosneft, Suzun, Tagul, the Lodochnoye depot and various geological exploration projects in southern Taymyr.

“For example, we have the Yermak project that we have launched together with the [British oil company] BP, as well as the promising area of ​​Zapadno-Erginsky,” Sechin told Putin, noting that a second stage of development if resource potential is confirmed, could include reservations in East Taymyr, in the Khatanga area.

According to Sechin, “large Western and Southeast Asian investors” have shown interest in the so-called Arctic cluster, which “will certainly create conditions for an accelerated deployment of resources as well as for a comprehensive development of related industries.”

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The development of the Arctic’s oil resources, however, requires an investment-friendly environment that will be crucial for launching such projects, as well as regulatory terms and taxes that will not change over the life of the projects, be it 30 or 50 years, Sechin told Putin.

A stable regulatory environment will help attract additional investors, especially from outside Russia, according to the head of Rosneft.

Another important point in Sechin’s report to the Russian president was that the northern shipping route needs to be economically viable to achieve Putin’s ambition to develop the resources and regions of the Arctic.

Given the availability of alternative logistics options, the North Sea Route should be economically feasible for projects as alternative routes. In that sense, we formulate our proposals, submit them to the government and we will continue to do this work,” Sechin said.

At the end of February this year, the Russian business newspaper Kommersant reported, citing sources, that Rosneft had decided to make a significant contribution to increasing freight traffic on the North Sea Route by redirecting oil from the new Vankor Cluster fields, (373 miles) of pipeline to the coast of Taymyr.

Russia’s energy minister Alexander Novak also spoke this week about the “huge potential for development” of Russian Arctic projects.

Russia is currently working on a timeline for the development of the large Payakhskoye oil field, potentially using the North Sea Route, Novak told a press release earlier this week on the Ministry of Energy website.

Arctic projects have enormous potential for the development of Russia’s energy sector, Novak said.

It remains to be seen whether Russia’s largest companies can develop the Arctic on their own, whether Russia can attract foreign investment in its ambitious projects, and whether the North Sea Route can become a viable route economically competitive for freight traffic.

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