Ambitious oil and gas development plans in the Russian Arctic often meet with icebergs and raw northern storms which produce just as ambitious a challenge for the transportation of equipment and hydrocarbon raw materials. Therefore, Russia’s enormous experience in Arctic transport is needed by domestic and foreign companies alike. Oil & Gas Eurasia discusses how this experience is being used and developed upon in an interview with the management of Murmansk Shipping Co. (MSCO). Vsevolod Garulin, first deputy general director and fleet operations director, and Nikolai Loginov, deputy general director and director of petroleum-related project operations and development) speak for MSCO.

Oil and Gas Eurasia: The transport of oil (and prospective transport of gas) are new to MSCO, which has previously specialized in the transport of petroleum products. What are your company’s strategy and tactics in these new business areas?
Vsevolod Garulin: Our strategy is full participation. We want to stand firmly on our own feet. One of our “feet”, as it were, has a solid foundation; that foot is our cargo transport fleet. Our second “foot” is the transport of liquid petroleum products – a line we have been developing since 2000. At present, the company has six of its own tanker ships and two bareboat charters. But the most important factor is not the means we have at hand, but our 65-year experience working in the Arctic and our unique know-how. Many oil and gas companies now wish to develop their own fleets for Arctic work but they are walking across a mine field. In northern, ice-bound oceans, work conditions are very difficult. Experience such as we have can’t be bought – only earned over a period of time.
Our tactics for the transport of petroleum products, oil and gas will depend on the competitive situation on the markets, the price of oil and the speed with which the fields on Russia’s arctic shelf are developed.

OGE: Could you give us some figures? How much has the MMP oil transport volume increased over the past two years, given the increase in oil prices?
Nikolai Loginov: Two years ago there wasn’t much oil traffic to speak of in the Murmansk region. We only shipped
under the Northern Supply program – we shipped petroleum products from Murmansk to the east along the Northern Maritime Route and oil and gas condensate back in the other direction, but volumes were small. In 2000, the Arctic Underwater Loading Terminal (APPT) was put into operation at Varandei, moving oil for LUKOIL, but only 17,000 t of oil were shipped out that year. In 2004 we passed a real landmark, shipping out 1 mln t from Varandei. This is nonetheless several times less than in the original plan. The fact is that these volumes depend exclusively upon LUKOIL, which has not, as of yet, raised the question of increasing volumes through APPT.

OGE: How is the shipping business developing oil transport in the Kola Bay?
Garulin: In 2002, we began experimental shipments using anchor stops, in accordance with the recommendations of the Ship-to-Ship Transfer Guide. For this process the storage ship is anchored and lighter tankers load oil onto it. After this, the storage vessel lifts its anchor and leaves. Then MSCO built a terminal at which tankers with deadweights of 100,000 t and 150,000 t can dock, allowing two smaller ships to moor either side. The terminal began to work in 2003 and is now functioning stably. 3.7 mln t of oil moved through the loading terminal in 2003; the terminal is built for total capacity of 5.4 mln t and the project has already completely paid for itself.

OGE: Would you be able to give us any more specifics on the operation of the Varandei terminal?
Loginov: The Arctic Underwater Loading Terminal began to function in 2000 when MSCO laid a pipeline and built a mooring wharf at Varandei. The first shipments were experimental and took place in the three summer months of the year. Then we moved to year-round shipments, because if things didn’t work out then further storage capacity would have to be built on shore. Therefore the second phase – again an experimental phase – was garnering shipment experience during the winter months, with the help of the “Captain Nikolaev” ice-breaker, which was specially modernized for the task and patented as an “ice-breaker for securing oil terminal shipments”. The third phase was the modernization of the mooring wharf, and from September 2002 we began making scheduled petroleum shipments via APPT.

OGE: What technical solutions used in the construction of the Varandei terminal were taken from previous experience and in what areas did you have to “start from scratch”? Did MMP use foreign technologies for the project?
Loginov: The Varandei terminal is an absolutely new facility, which has no precedents elsewhere in the world. The search for technical solutions for APPT began with the study of other complicated infrastructural projects both in Russia (e.g. on Kolguev Island) and abroad. But six months into the project we had already begun to implement new solutions recently patented by MMP. In particular our shipment method was an innovation. The end portion of the terminal is the production of the Norwegian company Hitec Marine (now a part of APL), but earlier technical solutions used at APPT did not involve Hitec. In particular, the Norwegians proposed a solution which would either involve the movement of a hose on an extremely narrow sector, or a stationary “foundation” point for the hose, the reciprocal portion of which would then be mobile along with the ship. But these technologies were designed for the clean waters of the North Sea which are free from ice. In the Pechora Sea no system of dynamic positioning will work. It was necessary to develop a fully rotating hose and this innovation was implemented as Varandei.

OGE: Did these technical solutions undergo international certification?
Loginov: The end portion of the terminal is certified by Det Norske Veritas (DNV). We have worked quite a bit with DNV and demand from our suppliers equipment that not only accords with Russian standards, but which also meets DNV standards. But certifiers rules for work in the Arctic don’t really exist – classifiers simply have not yet moved into this region with their work. It isn’t even really possible to call conditions at the Snohvit field in the Norwegian portion of the Barents Sea “Arctic.” In testing the reciprocal portions of APPT we had to set standards for unacceptable oil temperatures ourselves. Unlike the waters of the North Sea or the western portion of the Barents Sea, the waters in the region of Pechora Bay are still. Thus – unlike in Norwegian waters – at Varandei there is a real possibility that the underwater portions of the pipeline might freeze.

OGE: What sort of ecological safety measures have you taken in the Kola Bay and at Varandei? Are solutions put forward by Russian manufacturers competitive in this regard?
Loginov: In both cases, but especially for Varandei where the weather conditions are so much harsher, we have chosen state-of-the-art solutions for ecological safety. To eliminate the possibility of oil spills we use Lamor, DESMI and other technologies. I have to say that at present real, domestically-manufactured ecological safety solutions do not yet exist. In the past few years we have undergone training in the Kola Bay and at Varandei, and have been tested so as to be ready for an emergency spill. In particular, we’ve tested harbor booms manufactured both in Russia and abroad. In the Pechora Sea only imported ocean-type booms were effective.

OGE: What has been the result of your study with regard to the functionality of notification systems and systems for the elimination of emergency oil spills?
Loginov: Positive in all regards. We have certainly concluded that the system works, and MSCO and the Murmansk Basin Emergency-Safety Directorate (responsible for the elimination of oil spills in the region) are sealing that with a number of agreements. All of our work and the work of the Directorate is aimed at the prevention of emergency situations, and to date we haven’t had a single spill.

OGE: In the mid-term perspective, what are MSCO’s geographical development priorities? What are your key goals for the development of your transport business – including your hydrocarbon transport business – along the northern maritime route?
Garulin: While having the potential to develop our shipping on routes to the west, we will not forget that shipping from Murmansk to the east is the thing we do better than anyone. We will continue to provide the Northern delivery by the maritime route. But the Northern Delivery alone won’t really develop the northern maritime route, which will really only be brought to life with the participation of big companies – those who own the materials being shipped. Moreover, if we want to be able to ship out of the polar field zone including the Arctic shelf zone tomorrow, then today is the time to start developing the infrastructure. The market hasn’t yet reached that realization. Resource owners wish to be provided for with ice-breaker and hydrometerological piloting paid for entirely out of their duties paid to the government. But Russia’s existing, atomic ice-breaking fleet can only stay in service until approximately 2015, and not longer. Therefore it is time today to build new ice-breakers, and Gazprom, Rosneft and LUKOIL should be thinking hard about this.