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№ 10 (October 2011)

SPE Arctic: AEE 2011 Moscow is Center Stage for Key Arctic Dialogue

   For those growing up during the Soviet times, "Arctic", was a popular brand of chocolate candy bar and television stories about the brave, bearded Soviet polar travelers who lived for months in these harsh conditions.

By Alexander Bratersky

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   Having the world's longest Arctic coastline, Russia lays claim to the greatest volume of undeveloped hydrcarbon reserves in the world - a 21st Century "sweet spot" if you will. So this month, SPE, together with Reed Exhibitions, invites specialists from around the world to Moscow for  its first Arctic & Extreme Environments Exhibition & Conference.  The event takes place 18 to 20 October in the All-Russian Exhibition Center.

   The three-day expo will host representatives of dozens of Russian and foreign oil companies and service companies including BP, Rosneft, Total, Gasprom, Halliburton, Baker Hughes and others.  

   The conference is co-chaired by TNK-BP deputy president Sergei Brezitsky and professor of Gubkin Russian State University of Oil and Gas Anatoly Zolotukhin. “We would like to address issues during this conference, to address, rather then resolve,” Zolotukhin  said  in in his welcoming video address to the conference, posted on its official site.

   “The Arctic development is not a  task for a single company and  not even for a single country, it’s a global challenge,” Zolotukhin said.

   According to TNK-BP’s  Brezitsky, exploration of the Arctic territory will give a boost to innovation and  help developing  industries related to the oil and gas industry. “The future of TNK-BP is associated with the region,” said Brezitsky, referring to plans to increase production on the Yamal Peninsula were  the company is currently developing oil and gas fields.

   The development of oil and gas resources in the Russian Arctic, called by prime-minister Vladimir Putin a priority, is impossible without a state program to explore Arctic shelf, foreign capital and flexible fiscal policy, professor of Gubkin Russian State University of Oil and Gas  Anatoly Zolotukhin said. He would present  his views  in his report  “Hydrocarbon Resources in the Arctic” during the conference.

   Interesting enough, some legal experts have already advocated the use of production sharing agreements for Arctic development. Global majors feel more secure with PSA agreements which were the norm on Sakhalin in the 1990s and in one project in West Siberia.

   Sergei Lazarev, a senior partner from Rusin and Vekki legal company believes that the PSA can send a positive signal to foreign  companies. “Foreign investors understand that they  might  face the situation, then the state would change  the rules  of the game,” he told Interfax.

   According to experts and industry professionals, the  AEE conference and exhibition is a great opportunity for professional exchange of views, concerning the region's development: “If you translate  the message from the usual diplomatic language, perhaps we are on the threshold of turning the Arctic into a place which will be of interest to the national economy,” Alexander Pampusha, professor of continuum mechanics and offshore oil and gas affairs of Murmansk University told Oil and Gas Eurasia.

   Professor Pampusha, who takes part in the conference, called for creation of a legal framework for conducting operations in high latitudes, which will help development in the Arctic. He said that Arctic exploration will have to resolve many practical day to day issues, which need to be addressed. “Take the question of glaciation of a floating platform, it is a question that will have to be studied,” says the scientist.

   French company Total will organize a presentation on  how to conduct exploration in Arctic cold. The company has a considerable experience in similar conditions. It has  done projects in such difficult areas as the Barents Sea and the Russian tundra. Total subsidiary, Total thermokarst BV works on the Yamal peninsula in the Yamal-Nenetz Autonomous okrug. Total is involved also in the Yamal-LNG project.

   Tatyana Lapina, a senior expert from the scientific institute of Gazprom will speak about the company’s experience in building underwater gas pipes. Lapina is a noted specialist in the field and has  written a number of studies on the matter.

   The conference participants will hear the detailed account of the current state of development of gas fields in the areas, belonged to the United States, Russia, Canada, Greenland and Norway. Attention will be paid to the exploration, and Christian Bukovich, vice-President, Shell Exploration, Exploration in Russia and CIS, will speak about the problems of exploration in connection with the Arctic.

   The Arctic area, covering 12 million square meters, could contain up to 22 percent of world oil reserves, according to experts’  estimates. The race to develop the Arctic continental shelf, which could be compared to the Alaskan gold rush of Jack London’s time, has featured 21st Century dramas like Russia's planting its national flag on the floor of the Arctic Ocean in 2007.

    Artur Chelengarov, a  legendary  polar explorer, State Duma Deputy, and Russian Geographical Society First Vice President, told reporters at the time: “We have proven that the Arctic belongs to us. And I don’t care what some foreign politicians say about it.”

   Today, potential reserves of the Russian Arctic shelf are estimated at up to 100 billion tons of oil equivalent and  recoverable reserves up to 66 billion tons of oil equivalent. The extraction of 500 million tons of oil equivalent reserves will last for 130 years, Zolotukhin from Gubkin Russian State University of Oil and Gas estimated.

    Although the stakes are high, specialists and experts understand that the industrial production of oil in the Arctic is not possible without restoration of full navigation on the Northern Sea Route.

   “Arctic is the shortest path between European and Asian markets,” prime-minister Putin  said at a recent international Arctic forum in Arkhangelsk. He  promised the audience that the law on the Northern Sea Route will be adopted by the  existing Duma before the December elections. The law defines the water area of the the Northern Sea Route and establishes an overseeing administrative body to watch over the route.

    According to Sergei Frank, the general director of “Sovkomflot” shipping operator and  a  former transportation minister, the Northern Sea Route will significantly reduce the distance and save fuel for ships. “The state returns to the Arctic and it is a good signal to investors and professionals,” adds vice-chairman of the Duma’s energy committee Valery Yazev.   

   But in order to compete for Arctic oil reserves, Russia needs a strong  fleet of ice-breakers, since its existing fleet is ageing. Transport minister Igor Levitin had promised recently that the country will allocate 20 billion  rubles for the construction of new ice breakers over a three years period.

   Russia is serious about developing the Arctic and the indication is the recent agreement between the country’s largest state oil company Rosneft and the U.S. company ExxonMobile on resource development in the Arctic. Both companies intend to create a research center for offshore development based in St. Petersburg as well as to work together to build drilling platforms to work in the Arctic.

    Under the contract, the U.S. side will also carry out exploration works for Rosneft. For Russia, the agreement is a possibility to access advanced technologies.

   In turn, the United States which is not a party  to the UN Law of the Sea Cooperation agreement, the partnership with Rosneft will help  obtaining  an “entrance ticket” to the Arctic.

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