This month’s issue contains an in-depth report on Russia (p. 12) – and comes just as Russian oil major Lukoil makes the headlines, accused by the Russian government of pollution, following an oil spill in the Arctic. It is thought that 2200 tonnes of oil could have leaked at the Trebs oil deposit (in a field being developed by Lukoil and Bashneft Plus).
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The Lukoil furore follows recent criticisms aimed at TNK-BP for allegedly causing hundreds of oil spills in Siberia. Russia’s Natural Resources and Ecology Minister Yury Trutnev has ordered a lawsuit against the Russo-British venture over numerous spills in Siberia; some 784 incidents were reported by TNK-BP in 2011. TNK-BP, which says it “inherited” its infrastructure problems, has also been accused of neglecting pipeline maintenance schedules in order to pay out large dividends to investors (it paid out US$ 7.9 billion in dividends last year).
TNK-BP has one month to clean up the spills and will be under close scrutiny as regards future spending on pipeline modernisation programmes. This headache comes on the tails of BP’s failure last year to join Russian oil company Rosneft in developing Arctic reserves. TNK-BP’s Russian shareholders blocked the move, and the company lost out. Some have speculated that a disgruntled Kremlin has stepped up bureaucratic pressure on TNK-BP as a result of the fall-through of the Rosneft deal.
Now, it has been announced that Rosneft has signed a deal with ExxonMobil to develop three blocs in the Arctic Sea. Russia vitally needed foreign investment and expertise to help develop its Arctic reserves and Exxon effectively takes BP’s place at the table. Russia is under pressure to find new fields to replace depleted deposits in western Siberia, in order for it to sustain current levels of production. Igor Sechin, Russia’s Deputy Prime Minister has estimated that by 2030, up to 40% of Russia’s oil output would come from untapped sources in Arctic waters and the Black Sea (in a deal finalised mid April, Exxon receives a one-third stake in production companies at these two locations). Rosneft and Exxon hope to recover 90 billion boe from these untapped resources, as part of a long-term collaboration. They also hope to generate significant investments for the new ventures, which will require working in remote, hostile environments and will call for the construction of some serious infrastructure (pipelines, platforms, transport hubs, etc).
A challenge lies ahead but Russia can certainly draw confidence from the recent successful completion of the Nord Stream pipeline: the second line was fully laid ahead of schedule at the beginning of April and the entire system will, after a short break for testing and integrating the two pipelines, be in operation by the end of the year. Line one has been in service since November 2011, with a capacity of 27.5 billion m3/yr. In total, the two lines will transport 55 billion m3/yr of gas from the Yuzhno-Russkoye field in western Siberia to Germany underneath Baltic Sea, in a move to bypass Russia’s traditional transit states en route to supplying gas to Europe.
Russia’s European customers have long been wary of the vagaries of Russian supply. In recent years, Russia has over-subscribed itself with oil and gas export capacity and is now at a surplus. The argument is that Russia has too many pipelines and ports and lacks oil and gas to feed them. Well, Arctic and Black Sea production will go some way to refilling these lines of supply, but it seems Russia is bent on using its proliferation of supply routes as a political bargaining tool. Russia has halted oil transit through Latvia, Lithuania, Estonia and Ukraine and has neglected infrastructure such as the onshore Druzhba pipeline, in favour of building new routes and looking increasingly offshore. A move towards using the Beltransgas system (Belarussian network) and new subsea lines (Nord Stream; the planned South Stream), looks to further separate Russia from its neighbours. With great plans to export more to China and the Pacific, but with oil production desperately needing a boost and maintenance a key ongoing issue, changes to flows will become more common, as Russia picks and chooses its best route to market for what resources it can recover.