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Expert notes Arctic looking forward to high oil prices, developing technology

March 29, 10:28 UTC+3 MOSCOW

Experts say businesses are waiting for the prices to hit at least $75 a barrel

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© Lev Fedoseev/TASS

MOSCOW, March 29. /TASS/. Only recently the Arctic shelf has been known as the main hope of the global oil industry - the raw materials’ prices were climbing up, and the traditional deposits were decreasing. The situation changed after the oil prices slumped, making the players delay for long their ambitious plans for development of the Arctic. Anyway, experts do not doubt the sector’s future is still in that severe place, and now businesses are waiting for the prices to hit at least 75 dollars a barrel - this waiting time would be quite good for preparing new technologies.

Deputy Director of the Academy of Sciences’ Institute of oil and gas problems, Academician Vasiliy Bogoyavlensky gives an optimistic forecast for oil production on the Arctic’s shelf by 2030 - it cannot be more than 13 million tonnes a year, he said.

And still, the Arctic’s severe conditions do not frighten off the oil producing countries, since strategic interests of the "Arctic" nations - Russia, Norway, the U.S., Canada and Denmark - are not expecting immediate profits. They have long-term plans for implementation of investment programs for decades ahead. "The Arctic shelf, despite the temporary slowed projects caused by the oil price situation, still remains a strategic development direction," Russia’s Minister of Natural Resources Sergei Donskoi said. "Like most experts, I am sure the unique deposits, playing key roles in the global balance of reserves, are bound to be opened exactly there."

Challenges and objectives of the Arctic development will be on agenda of the Arctic: Territory of Dialogue international forum in Arkhangelsk in late March. Experts say, active discussions of the Arctic development may give an additional impetus to it.

Unapproachable Arctic

In Russia, the right to develop the shelf is given to state-run companies with at least 5-year experience of working at marine fields. Only Gazprom, Rosneft and Gazprom Neft meet this requirement. Lukoil also develops some parts of the Russian shelf - the company had received this right before the legal requirement became tougher. On the Arctic shelf, only Gazprom Neft develops hydrocarbons at the Prirazlomnoye field in the Pechora Sea.

The academician says in waters of the Russian Arctic may be implemented many projects, which can be cost effective even with the current oil prices. "In short term, many projects in the transit zone may be implemented," he told TASS. "For example, in the Pechora Sea - the Varandey and the Medynskoye fields (of Rosneft) are ready for development, and production may start there in five-six years, as well as Gazprom’s some projects - like in the Gulf of Ob, Kamennomysskoye Sea and others. Those projects may be cost effective even in case of not high prices on hydrocarbons. Development of the Prirazlomnoye field is cost effective now already."

Finam’s Analyst Alexei Kalachev said oil development of the Arctic shelf is not quite timely now and with development of technologies the production’s cost would go down, like it has happened with shale oil. "Technologies are developing, and only recently shale oil used to be most expensive in production, but now it is much cheaper, thus as technologies continue developing, the cost of oil production on the shelf will become cheaper. But for development of technologies, we need international cooperation, which is limited now," the analyst said.

Factors of price and weather

Experts say development of the Arctic’s shelf is affected not only by the lack of technologies, but also by factors of price and climate conditions. There are many natural problems related to the ice conditions, for example, some water areas may open from ice for only two months during a year - if at all. In conditions of the kind, the scientist said, only nine fields are developed on the Alaska shelf, but they all are developed off artificial islands, that is in shallow waters, and not a country has projects in the Arctic deep waters. "All projects in deep waters are projects of the mid-term future - 2035-2045 in case conditions allow," the academician said. "Projects in deep waters, like those in the Chukchi Sea, the East Siberian Sea, will be cost efficient only if the oil price is above 100 dollars a barrel, thus in near future the project are important mostly from the scientific point of view - in studies of the Arctic shelf."

The analyst says the high price of oil production on the Arctic shelf comes first of all from the complicated conditions, the lack of infrastructures and pipelines. "Production on the shelf may be cost effective if the oil price is around $75 a barrel, not less," he told TASS.

Delayed terms

A representative of Rosneft, which owns 28 areas on the Arctic shelf, told TASS the company plans for the current year prospecting drilling in the Eastern Arctic, saying now the company consider a priority its preparations for drilling in the Arctic and development of necessary technologies. "One of the priority tasks for the company is a complex of geological exploration on the shelf of the Arctic seas to prepare and develop technologies for fields’ development on the Arctic shelf by the moment the oil price goes up and the oil production begins," the company said.

Rosneft says the company’s licensed obligations referring to seismic exploration have been completed ahead of schedule at some areas: in 2016, the company made twice more than licensed 2D and 3D seismic explorations. Thus, the work covered the area of 0.8 million square kilometers of the Russian Arctic shelf. The company promises to continue the work and to increase by a few times within coming five years its investments in the Arctic development.

However, in prospecting and exploring drilling the companies are way behind their obligations. "The companies have already requested the Ministry of Natural Resources to review the drilling terms, as now they are facing certain problems, including the sanctions and limited opportunities in borrowing foreign drilling equipment, as well as low hydrocarbon prices," the academician said. "Thus, for example, development of the Dolginkoye field (Gazprom Neft) is delayed to 2031, and due dates for some other fields are also postponed."

Earlier, the ministry has approved to Rosneft and Gazprom delays of geological exploration and beginning of production for more than 30 areas on the Arctic shelf, in the Far Eastern and southern seas.

Later on, the Russian government introduced a temporary moratorium on licensing new areas on the Russian continental shelf. Head of the federal authority on use of subsoil resources, Rosnedra, Evgeny Kiselev said the ban may be lifted as oil prices go up to $100-105 a barrel.

"As for drilling, during the recent six years, on the Arctic shelf were drilled only three wells, one of them - in 2011 and the other two - in 2014. Thus, not a single well in recent two years," the academician said. "This contradicts with the licensed obligations the main companies had undertaken. According to those obligations, to 2020 they were to be drilling about 12 wells a year, including in the previous years. As of today, even theoretically it is impossible to observe those licensed obligations."

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