Development of Russia’s Arctic Shelf is Inevitable But New Technologies are Required to Make Production Profitable

May 1, 2011

Costs on Building of Platforms and Production are “Exceedingly High”

   Many experts of Fuel and Energy market consider that Russia Arctic shelf crude hydrocarbons production costs are too high. To compare, according to data of Rosneft’s in-house training course, the prime cost of one ton of oil production equals:
in the Middle East – $5-10;
at currently developed fields of Russian Federation – $30-60;
on the Arctic shelf – $200-300;

   Along with the high production costs, there also are excessively high initial costs to developing the shelf and building sleet-proof oil production platforms. The offshore platform building technologies that exist today and which have proven themselves many times on offshore fields all over the world do not apply to Arctic conditions. Some special sleet-proof platforms capable of withholding the enormous lateral pressure of ice floes and resisting the stresses of icebergs hundreds of thousands of tons in weight must be built. You may object and say that sleet-proof platforms are being actively used in Norway for many years now. However, it should be noted that first, the Norway shelf is surrounded by the warm Gulf Stream current and second, there are no icebergs in the Norwegian and North Seas and the third, ice cover thickness on the sea rarely exceeds 80 centimeters.

   Sleet-proof platforms capable of resisting ice loads existing in Russia’s Arctic seas structurally represent stone-concrete cone-shaped constructions mounted directly on the sea bottom. The greater is the depth, the more expensive is the construction. Only one case example of such platform construction has been known in the world for the present time. Stationary sleet-proof oil producing platform Hibernia was built in the North Atlantic near Canada shore beside the Island of Newfoundland and was put into operation in 1982. Even then, its cost approximated $8 billion. Apparently, the cost of a similar platform today will be much higher.

   It should be recognized that the level of technology development in such areas, like production and building, does not provide cost effectiveness when developing Russian Arctic shelf. Groups of experts from two main Russian oil producing companies Rosneft and Gazprom neft have concluded studies recently and prepared programs to develop Russia’s continental shelf through 2030. The primary purpose of these studies was an effort to answer the question – can completing development of the Russian continental shelf be justified or it is enough to be limited to several existing projects at the Black and Caspian Seas, and to Far Eastern projects “Sakhalin-1”, “Sakhalin-2” and “Sakhalin-3?” As a result, oil and gas industry experts could not provide the companies’ management and the Russian government with detailed recommendations regarding the issue.

No Alternative Energy Supplies are Available

   However, despite the absence of shelf projects positive cost efficiency, we have to acknowledge the fact that Russia has no choice at a long-term perspective other than to implement these projects. The age of oil production on land-based fields is drawing to a close. Still, oil and gas will remain