Analysis: Is Russia prepared for oil drilling on the continental shelf?

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The problem of the forthcoming exhaustion of hydro-carbon resources world-wide is becoming critical of late. But In Russia, even continental oilfields will not be exhausted quickly. Many of them are not operating to their full capacity. Some, like the Kovykta oilfield in the Irkutsk region, remain virtually untouched.

Nevertheless, present global tendencies show that the process of oil and gas production is moving from land to sea. Russia is behind in this shift: Only 3 percent of Russian oil is drilled offshore.

The Arctic shelf is full of hydro-carbon. Fifteen oilfields and gas fields had, by the end of 2002, been discovered in the Barents Sea, the Kara Sea, the Pechora Sea and in the Ob Bay. There are three unique oilfields among them, nine large-scale, two average and one small. According to present estimations, the Arctic shelf contains about 80 percent of Russia’s potential hydro-carbon resources.

Sooner or later, Russia must face the problem of producing its “reserve stock,” the Arctic shelf oil, which is very difficult to obtain. Today Russia has neither the required technologies, nor special ice equipment and money for new offshore oilfield production. In fact, there is no essential infrastructure in the North which would include power stations, railroads, airports and other necessary components to drill.

Production at the Kovykta oilfield was stopped because of a lack of transport capabilities. The Timano-Pecherskoye oilfield is producing half of its capacity for the same reason.

Companies developing continental oil projects face problems such as lack of transport networks and other infrastructure. Nevertheless, the companies are champing at the bit to tap Arctic oilfields, primarily in the Murmansk Region’s Prirazlomonoye and Shtokman fields, which are the most high-grade, but, at the same time, most difficult to work.

Russia has already had negative experience with offshore operation in Sakhalin. The forced production rate led to several emergencies. Unfortunately, even an ecological catastrophe in Piltun Bay did not lead to any second thoughts among the oil barons whose companies were working this area.

Sakhalin
The history of Russian offshore projects is short. Russia garnered its first experience in constructing drilling platforms in the temperate Caspian Sea where an international oil consortium is now at work. The second was in Sakhalin with its obviously more severe climate. Five production projects, belonging to different companies, are working or are planning to work here.

The company Sakhalin Energy, the operator of one of Sakhalin production projects, “Sakhalin-2,” has already faced a host of ecological problems as well as other difficulties, for example, adressing the concerns of smaller indigenous nations in the North.

In its news releases Sakhalin Energy said it would take this question into account. It also complained about out-dated Russian legislation governing direct compensation for damages to land located in areas of traditional agriculture and land use.

In other words, according to current legislation, the nations, which have survived on hunting, fishing and deer breeding for several thousand years, have to lodge a complaint to the company. The company can pay some compensation to them, performing it as an act of good will, or refuse to pay, denying its guilt.

Officials try to assure the public that oil extraction is not as bad as it looks. According to most government ecologists, the normal operation of drilling platforms constitutes no grave threat to the environment. Only accidents are dangerous.

Valery Chelyukanov, the head of the Department for Monitoring of Environmental Pollution at Roshydromet says that regular testing of water and air outside Sakhalin’s sanitary zone of drilling rigs reveals no excess of the maximum permissible concentration (MPC) on any index of the drilling processes.

Chelyukanov regards possible oil spills as the main danger tothe environment in oil producing areas. He brushes aside the possible risk of the drilling process itself: “Drilling fluids are not that toxic. Usage of such fluids may lead to some negative consequences, but, from the point of view of ecology, they are not as dangerous as possible oil spills.”

Trouble-free oil producton is science fiction. Real life shows that oil-producing companies are not ready to act quickly in emergency situations, and they try to keep information about accidents under wraps.

An an example, a massive death of pacific herring took place in 1999 in Piltun Bay. The weight of dead fish thrown onto the shore was some 1,000 tonnes. The fish were headed for spawning, but they did not reach their destination. Today few fish are caught in the waters where the nets used to be full—the sad consequence of the catastrophe.

Local authorities in Sakhalin declared freezing waters to be the official cause of the catastrophe. Officials from the Centre of Sanitary Inspection, however, revealed 20 times the normal level of MPC on dichlorodiphenyltrichloroethane in the dead fish.

The third version of the catastrophe was worked out by the NGOs Ecological Watch of Sakhalin and Greenpeace Russia. In their opinion, the cause of the mass death of the fish in Piltun Bay was an accident at the Molickpack drilling platform, owned by the company Sakhalin Energy.

The ecologists can not prove the company’s involvement in the accident. A comparative analysis of Molickpack oil and oil products contained in the dead fish bodies is required, but Sakhalin Energy has refused to give samples for proper analysis. Officials with Sakhalin Energy offered no comment on the results of the independent ecological investigation.

However, Bellona questioned several government ecologists when preparing the present article, and they all distrusted the results of the Greenpeace analysis on the basis that the analysis was conducted in unknown laboratories under unknown conditions.

That leads Bellona to the conclusion that the officials never saw the Ecological Watch of Sakhalin and Greenpeace Russia report, which contained all information about laboratories and methods used for testing.

Sakhalin Energy complains about imperfection of laws on rights of indigenous populations—but are these lamentations indeed frank? The accident at Piltun Bay changed the traditional way of life of several smaller nations, which the company “cares about” so much.

The second catastrophe that struck Sakhalin was the accident caused by the Belgian dredging ship, the “Christopher Columbus,” which took place in the area of Kholmsk (on the south-western shore of Sakhalin) on September 8th 2004.

A storm beached the ship and about 200 tonnes of oil flowed from its damaged tanks. Pollution along six kilometres of the seashore, including town beaches, of oil products resulted. It took 57 hours to start localising the consequences as the oil kept flowing from the damaged tanks. The situation showed that the companies participating in “Sakhalin-2,” could not cope with even comparatively small oil spills. Russian and international conservation agencies appealed to Lord Oxbourgh, the head of Shell (which is participanting in “Sakhalin-2”), and urged him to proclaim a moratorium on many aspects of the project. The moratorium would have lasted until the implementation of the programme for preventing oil flows and the liquidation of their consequences. No moratorium followed the appeal.

Considering the experience of the “Christopher Columbus” accident, the Environmental Supervision branch of the Ministry for Natural Resources (Rosprirodnadzor) suggested altering the programme of liquidating emergency oil spills to make operations in such situations more efficient. It should be noted that the previous programme was quite general. Unfortunately, while discussing ways to improve Russian ecological laws, Russian officials have completely forgotten the real problem. At this writing, the “Christopher Columbus” still sits in deep water despite promises of Shell and Sakhalin Energy to remove it. The oil products keep flowing from the vessel’s damaged tanks. No data on the environmental conditions of the area and the impact of the oil leakage on the health of local population are available.

All the above-mentioned problems that Sakhalin already faces will eventually appear in the Arctic when the tapping of offshore oilfields begins. The threat to the environment will be even higher because of the Arctic’s harsh weather and ice-bound conditions (where the risk of emergencies rises, primarily the risk of hydro-carbon flows). Liquidating the consequences of oil spills will be more difficult, and low temperatures slow decomposition of polluting substances. Ecologists are also anxious about the potential damage to fragile northern ecosystems during the production of oilfields located on the Arctic shelf.

Map of the area
Many oilfields and gas fields are found in the Northern Seas. Here are descriptions of the most significant ones.

The Shtokman gas-condensate field
Of all foreign companies planning to participate in the Shtokman project, only four developed their own technical and economic projects for production— American Chevron, ConocoPhilips, Norwegian Statoil, and NorskHydro.

All the projects, according to the Russian daily newspaper Kommersant, consider fundamentally similar oil recovery mechanisms and one of three methods of gas delivery to the seashore. These are: a pipeline 550 km long; gas stabilisation on the platform at the field and delivery through the pipeline, and the mixed method, with a platform set in the middle between the field and the shore.

Norway’s Statoil company offers another two methods, including the use of ships. Morneftegaz estimates the cost of the first stage of tapping of the Shtokman field to be $6—10m, depending on the chosen method.

Should the method of underwater pipelines be accepted, gas will proceed to the shore along the bottom of the Barents Sea to the village of Teriberka in Korabelnaya Bay on the Kola Peninsula. The gas field is very difficult for production because of its long distance from the shore; water depth; the severe climate; the rugged topography of the sea bottom formed by the probable presence of gas-hydrates, and variously dimensioned frozen grounds in the near-bottom strata.

There is no accepted engineering solution for the Shtokman gas-condensate field. The methods “most corresponding with the conditions” and their combinations are under consideration now. No one has ever worked in such conditions, and the equipment required for operations at the Shtokman field contain technologies that have never been used. Both the climate and inexperience of workers with these new technologies result in numerous risks.

The results of project ecological evaluations conducted in the area of the field are merely preliminary because the data received are insufficient (for example, these were the first analyses of their kind of such a seashore). According to scientists at the Murmansk Sea Biology Institute of the Russian Academy of Sciences and the company Sevmorneftegaz―which holds the production licence for Shtokman―additional research and alterations to ecological and technical standards for offshore field production are necessary. The latter is extremely important because present standards (SP-11-102-97) are for land based fields. No special standards for offshore oilfield production exist in Russia.

Aside from this, production of the Shtokman field will take place in an unsettled area, so flora and fauna of the Barents Sea will suffer from increased antropogenic pressure. An estimation of the real impact of the project on the environment will be difficult because of insufficient research.

To estimate the impact of the project on the environment (a so-called EIPE document), it is necessary to develop the programme of sea, near-shore, shore engineering and ecological research for 5-10 years. This includes a tactical programme of annual research, corrected according to the results of the operations conducted. A single team of specialists should conduct the research. It is also necessary to create a database on environmental conditions and flora and fauna at the area of probable pollution before construction starts.

Ecologists, therefore, suppose that it will take several years to develop the EIPE document for the Shtokman gas-condensate field.

The Prirazlomnoye oil and gas field
In autumn 2003, an expedition from the Oceanographic Institute near the Prirazlomnoye field revealed great mutability of the chemical composition of water and plankton at the area. Therefore, the data of the expedition cannot be used for environmental quality monitoring during the process of construction and operation of the platform. Research on bottom biota also showed its mutability.

The research project paid special attention to the fact that bottom-dwelling organisms often die due to natural causes, such as desalination of water after a great flood.

The Oceanographic Institute presented a report at the conference “Oil and gas of Arctic offshore” in Murmansk in 2004. The institute emphasised that the research of seashore areas of Russia’s of Arctic seas is insufficient and that conservation bodies do not always pay enough attention to the probability of natural changes of environment, flora and fauna.

However, they “forgot” to draw the conclusion that detailed research of the environment in the area of future intensive anthropogenic impact should precede the beginning of construction works. Such an approach may become some kind of “insurance” in the future if an accident or an ecological catastrophe takes place (recall the situation of the herring in Piltun Bay).

The above mentioned facts show that additional research of both the Shtokman and Prrazlomnoye fields is necessary. However, according to the plans of oil producing companies, oil production at the Prirazlomnoye oilfield will start at the end of 2006, and at the Medyn oilfield in 2009-2010. The Medyn offshore oilfield is located near the Barents Sea shore, in the Nenets Autonomous region.

The oil industry plans: financial interests and state policy
Oil producing companies and companies manufacturing equipment for oil production are eager to start the process of working Arctic fields as soon as possible. In February, 2005, Gazprom promised to create an international concern for production in the Shtokman field by mid-summer. Without it, the company will not be able to start gas supplies to the United States for six years. At the first stage, projected gas production capacity is 30 billion m3 a year. 22-24 billion m3 will be the raw material for 15 million tonnes of liquefied natural (LN) gas for supply to the United States.

Gazprom is going to build a plant for producing LN gas and a terminal for its export to the United States in the Leningrad region. Projected costs for the first stage of drilling in the Shtokman field are $10 billion.

Gazprom has preliminary arrangements for participating in the projects of American companies like ExxonMobil, ChevronTexaco and ConocoPhillips, Norway’s Norsk Hydro and the Norwegian Statoil.

Alexander Ryazanov, deputy chair of Gazprom board, says, that Gazprom is going to forge a project agreement with at least one of these companies. In total, Gazprom plans to engage two or three foreign partners in production in the Shtokman field.

Thus, the fragile northern ecosystem becomes hostage to oil companies looking for super profits by any means, despite the existence of more accessible Arctic offshore drilling points. Yury Yevdokimov, the governor of Murmansk district, says that investment required for production of the Kola offshore block are on an order of magnitude lower than of the Shtokman field. He believes that Kola block, with its indicated reserves of 150-200 million tonnes, might become the most attractive for investments and the quickest to develop if the estimates are correct. The field is comparatively close to the shore where the sea does not freeze, so the operation period can be 12 months a year. However, Gazprom needs gas supplies for the United States. Gazprom signed a contract and enormous sums of money are in the kitty, and only the Shtokman field can save Gazprom from staunching the flow.

But is the contract the only point? It turns out that the officials of the former team of Ministry of Natural Resources simply “forgot” about the programme of tenders for prospecting and production of Arctic offshore oil fields.

According to the Ministry of Natural Resources, six companies hold a licence for geological prospecting in the Barents Sea: the state unitary enterprise Sevmorneftegeofizika; the state unitary enterprise Arcticmorneftegazrazvedka; the private joint-stock company Arcticoffshoreneftegaz; the private joint-stock company Northern Oil and Gas Company (Severneftegaz); the Russian joint-stock company Gazprom, and the private joint-stock company Sintezneftegaz. This year distribution of licences for the Dolginsky offshore block in Murmansk region is planned to take place.

The preparation of a programme of tenders for sections of offshore fields in the Barents Sea started several years ago and stopped at the stage of delegating the sections. The deputy governor of the Murmansk district says that there are several blocks ready for prospecting tenders and supplementary exploration. They are: the Zapadnomatveevsky (prospecting seismology done, one structure perspective for oil producing found); the Severorussky (prospecting seismology done without taking modern standards into account, no drilling performed); the Severodolginsky (explored by geophysical methods only), and Yuzhnodolginsky.

Arcticmorneftegazrazvedka drilled an oil well at the latter block, which produced very good results.

The Yuzhnodolginsky block has great reserves. It is contiguous with the Prirazlomnoye field. Most likely, if a tender for these blocks is held, it will be Gazprom that will receive the license for Yuzhnodolginsky because the field was discovered at the company’s expense.

However, the companies now have enough resources and are not eager to start exploiting new objects, especially due to a new policy from the Ministry of Natural Resources. With the appointment of new minister Yury Trutnev, the ministry started more closely monitoring licensing standards and compliance. For example, the company TNK-VR is trying not to lose its license for the Kovykta oilfield, which has barely been developed after the license was issued.

However, at the conference “Oil and gas of the Arctic offshore” held in Murmansk in 2004, Gasflot, the daughter company of Gazprom, presented an extensive programme of geological prospecting on the Arctic shelf. Within the period of 2004 to 2010 the company plans to finish prospecting the Northern Kamennomysky, Kamennomysky and Ob gas-condensate fields and start bringing them into production. The main geological prospecting will take place in Aderpayurtinsky and the Southern-Ob blocks and at the Semakovkoye and Aderpayurtinsky gas-condensate fields. They will also complete research of that part of Kharasayevsky field that lays underwater and continue prospecting at the Dolginsky oilfield in the Pechora Sea.

Some hope that the Ministry of Natural Resources will stop persecution against oil producing companies in an attempt to create a strategic stock.

What does tomorrow hold?
Russia is not ready to develop Arctic offshore oil fields―and not only because of insufficient research of the regions in question. In our country there is neither the technology nor the equipment required for this purpose.

Anatoly Khodorovsky, analytics and information director of the investment company Region, names the following problems of production in the Arctic offshore: “To develop the Arctic offshore, we need technologies potentially different from the ones we have today,” he said. “Offshore stocks are easy to consolidate, if proved. Production of offshore oil is the process for more than one year, perhaps, more than one decade, and it requires large investments. Russian companies, declaring their willingness to develop offshore, have no required funds. Indeed, Gazprom is debt ridden, as is Rosneft. Taking into account, that infrastructure is to be the main object of investments, and they will not be repaid soon, Russia cannot expect offshore drilling anytime soon”.

In Khodorovsky’s opinion, Arctic offshore production will require (and already requires) large investments for scientific research of offshore geology. The supposition is quite logical, taking into account the fact, that Russian companies have no experience working in icebound conditions. Yukos’ recently-jailed Mikhail Khodorkovsky spent large sums for such research, and now there are no investors of his level in Russia.

“Special equipment for production of Arctic offshore drilling is a separate question. Russia has very little experience in platform aside from those few in the Caspian Sea. As far, as other countries are concerned, only Norway have begun constructing equipment for icy conditions,” Khodorovsky says.

The Snohvit gas field of Norway’s Statoil company is a case in point. Certainly, the ice conditions they work in differ from those that Russian oilfields will be producing in, but they are analogous in their complexity. Russia can use Norwegian technologies without any changes at some fields, the certificates for which have not been distributed yet. Statoil declares the principle of zero damage to the environment: They practice purifying and reverse pumping of used water, decreasing emissions from operation of platforms and inject carbonic gas under ground to decrease its emission to the atmosphere.

“Russia has two paths. The first is to invite specialists to the Arctic who have technologies―for example, the Norwegians― and to work according to their standards. The second one is for Russia to develop its own technologies, but in that case, the cost of project and terms of its realisation grow by several times,”says Khodorovsky.

Russia has experience with shipping oil to tankers without constructing a stationary mooring line only. An experimental production block has operated at Kolguev island for several years, and, additionally, the company Lukoil transports its oil with tankers from Varandeya terminal. However, both projects are continental ones.

There are no approved technologies in Russia for operation in Arctic offshore conditions. Asie from that, it is obvious that Russia will need several special ice-breaking tankers, like ones of the Arctic class ES-10 and ES-15, to provide stable and ecologically safe oil delivery. There are no such tankers in Russia, and they are much more expensive than those Russia has. The Performance attributes of the 1A Super class tankers are the closest to what Russia needs. Sovmorkomflot has three tankers of this class, as does the Primorskoye steamship line. The tankers operate around Sakhalin.

Sovmorkomflot negotiated with the Far Eastern Sea Company, which provides sea transport for production at the Prirazlomnoye field, on the construction of two Arctic class tankers. However, it will take three or four years to bulid them.

Besides the necessary equipment, production projects of the Prirazlomonoye and Shtokman fields require a developed infrastructure of power and transport. Such infrastructure exists at many continental fields, for example, in the Tyumen district, which was built during Soviet times. The Sakhalin infrastructure requires fewer investments. In the Arctic, Russia not only will have to build the infrastructure from scratch, but Russia will also be bound to ecological standards of other neighbouring states.

“Thus, the project is not ready with respect to technology, techniques and infrastructure,” Region analyst Khodorovsky says.

“Supplementary exploration is required, and the cost of project of production of Arctic offshore development and the terms of its realisation are unknown. I am sure that it will look completely different in the technical and economical assessment, but the facts show that the problems exist. So, I think, operations at the Shtokman and Prirazlomnoye fields might not start earlier than in 2025, unless the production project of Prirazlomnoye oilfield is not forced in asunwarranted way. However, the matters seem to take such a turn”.

Oil-gas baby shakes his fist from the cradle
Nikita Kucheruk, a scientist at the P.P. Shirshov Institute of Oceanology of Russian Academy of Science, expects no danger for fish from production in Arctic offshore fields.

“The fish live in shoaling brackish waters in mouth areas, so producing of Arctic offshore fields is no threat for them. Besides that, both the Pechora Sea and the area of the Barents Sea to the east from Kolguev Island are extremely poor with fish. Oil spills are the danger for birds only,” says Kucheruk.

“The Shtokman gas-condensate field is the only field west of Kolguev Island. I want to remphasise that methane is insoluble in water and it is no threat for sea flora and fauna. A methane blow out has gushed in the Sea of Azov for more than six months without any bad consequences for the environment,” he said.

Only Shtokman field alarms the ecologists.

“I don’t know the composition of gas condensate of this field, but if there is hydrogen sulphide in it, its overflow will be a great threat for sea inhabitants,” says Kucheruk.

“Hydrogen sulphide is very soluble in water and very toxic. A concentration of less than 1 mg per a liter of water is enough to kill all the fauna of an entire district.”

Though production on the Russia Arctic shelf has not yet started, and despite optimistic forecasts of many scientists, ecological problems have already struck the region. In spring 2003, an expedition to the Nenets national park along the northern Siberian coast found traces of oil overflow near Dolgy Island. Birds died in the national park. According to unconfirmed data (the information on the catastrophe was kept secret and no oil producing company was eager to accept responsibility for it), the cause of the overflow was an emergency that took place during drilling operations conducted by a daughter company of Gazprom.

Kucheruk is sure that drilling operations in the Pechora Sea could not have caused the catastrophe around Dolgy Island. Drilling equipment appeared there (but did not start operating) in the middle of July 2003. Kucheruk says it is not inconceivable that the catastrophe could have happened due to ice bearing-out from the Pechora Sea (in the Usinsky basin, for example) or a wash out from the seashore drilling platforms on the Bolshezemskaya Tundra.

The situation is very similar to the catastrophe at Piltun Bay. Somebody is guilty, but it is not clear who. This confirms one more time that urgent measures to bring Russian ecological laws into correspondence with requirements of the realties surrounding drilling are necessary. State control over the activity of oil producing companies must be more strict, and information on such activity must be open to the public. Public ecological organisations must have legal instruments to control the oil-producing process, too. Many regions owning oil and gas fields face the problem of keeping ecological information in secret by the companies, who are unwilling to tidy up the mess that they created. Does Russian North really need such a sad experience?

Ministry of Natural Resources is going to reconcile ecology and economy
Though oil-producing companies try to speed up the process, there is hope that offshore oil production of will more or less correspond with common sense. Minister of Natural Resources Trutnev made an inspiring declaration at a press conference, conducted jointly with the Norwegian Minister of Petroleum, Industry and Power Engineering, Turhild Vidvey, in Oslo on February 2nd 2005. He said: “Russia is approaching the stage, when it will have to go to offshore, but that will happen no earlier than 2015.” He also mentioned that exploring and production projects of offshore fields are the most prospective sphere of co-operation between the two countries where oil and gas are concerned.

Changes of Russian laws on the use of the co-called bowels of the earth, development of new ecological codes, and a strict policy of the Ministry of Natural Resources toward oil companies allow one to hope for the best.

According to the new “Law on Bowels of the Earth,” foreign companies working in Russia will have to meet some new requirements. Trutnev says that the participation of foreign companies in producing Russian oil and gas fields, including the strategic ones, is not improbable. However, the state is going to control the process in order to prevent controlling stock from becoming foreign property. The Minister also emphasises that, for offshore projects, slightly different ways of foreign participation are possible to make the projects more attractive.

Trutnev claims that there is no contradiction in the sphere of Arctic shelf oil production between the economy and ecology. Russia simply needs to approach to the process of bowels of the Earth development with more responsibility. Though Russian ecological standards are very strict (for example, the company ExxonMobile had to delay the project Chaivo-6, finding requirements of Russian ecological laws too stringent and practically impossible to follow), they do not stipulate a normative act governing offshore oil production. All standards of oil producing in Russia are for continental fields only. Trutnev wishes to attract foreign investments, inviting representatives of foreign companies to be the members of concerns in the production of offshore fields along with Russian companies. This will provide the proper level of protecting offshore ecology from oil and gas. Thus, all participants of a given project will follow ecological standards and stimulate the application of modern technologies and ecological standards into Russian oil production.

For example, Norwegian participants will surely do much to keep the waters clean because the consequences of pollution will strike the ecology of their own country.

Developing and passing a good law establishing liability of oil-producing companies before regions and the state will take time.

Who will take the egg and who will take the shell?
There is a hope that the state will rationally approach Arctic offshore oil production. However, there is as yet no reason to suspect that oil production will have a favourable impact on northern regions.

Alexander Selin, deputy governor of the Murmansk Region, speaks in support of production of Arctic production, but he wants gas for the region. This, he says, will reduce the cost of production in the region and increase its prosperity. Local authorities of the Arkhangelsk Region surely cherish the same hopes.

To develop northern regions, distributing finances must be revised ―taking into account the interests of provinces―not only the budget interests of the federal government.

“The state must care of this territory, must regard the people as citizens of the Russian Federation, not as the citizens of Murmansk Region,” Selin says. Meanwhile, people are flowing out of the Murmansk Region—to better climates and salaries.

Oil made Norway one of the richest countries of the world—and turned Nigeria into a drug dealing outpost. What will Arctic offshore oil bring to the Russian North? Judging by the experience of continental oil production, nothing or very little will change in Russia’s provinces, apart from the permanent threat of ecological pollution because of mishandling of technologies, old transport or just a human error.

Or perhaps becasue the companies coming north are just coming to make a quick few million bucks, they are not thinking about the environment at all.

Maria Saplinova