Rosneft steps in to make good on Putin’s Arctic development plans

arctic-ice-melt1 Glacial melt. Credit: Still from Obama Administration White House video

As the Moscow scrambles to fulfill a presidential decree demanding an unprecedented boost in cargo volumes flowing through the Northern Sea Route, Rosneft, Russia’s oil monopoly, has come to the rescue.

In a highly publicized meeting this week with President Vladimir Putin, Igor Sechin, Rosneft’s head, promised to build a north-flowing oil pipeline that would annually deliver 80 million tons of crude for shipment through ports in the Arctic – with a wink toward increasing that to 100 million tons over time.

“We are now looking at the possibility of creating an Arctic cluster that will fully meet the objective of reaching an annual 80 million tons of goods on the Northern Sea Route by year 2024,” Sechin told Putin during their Kremlin meeting, according to a Kremlin release.

The announcement would seem to set a number of government officials at ease. For the past several months Russia’s Natural Resources Ministry has fretted about how to deliver on an edict issued by Putin almost a year ago, mandating that cargo traffic through the Northern Sea Route increase to 80 million tons per year by 2024.

Though the demand was not officially a decree, it has been treated as such ever since – and the mobilization surrounding it has come to resemble the old-fashioned Soviet five-year plans.

But the Rosneft announcement offers a byzantine update on the Communist work orders of yore. Sechin’s relationship with Putin dates back decades, and the oil baron’s influence on Kremlin politics is widely viewed as second only to Putin himself. As Rosneft’s chief, Sechin oversees an empire that pumps more crude per day than the whole of Iraq, making him the guardian of the Kremlin’s most valuable political asset.

Because of that, it’s entirely within Sechin’s power to reroute the flow of oil toward the Arctic – and by so doing, nearly single-handedly fulfill Putin’s proclamation.

sechin Rosneft head Igor Sechin. Credit: Rosneft

But the deal comes with certain perks for Sechin as well. During the Kremlin meeting, he seemed to acknowledge that rechanneling significant oil holdings for export via the Arctic coast might not, on the face of it, be the most profitable decision.

“Considering the presence of alternative logistical solutions, the Northern Sea Route must provide an economy that is no worse than the alternative routes,” he told Putin. He then enumerated a number of conditions for the pipeline, including tax benefits, fuss-free regulatory clearance – and requested guarantees that these conditions prevail for as along as 50 years.

The pipeline Sechin envisions would run from Rosneft’s Vaknor Field, some 600 kilometers inland from the Kara Sea in Russia’s Krasnoyarsk Region. According to reporting in the Barents Observer, the Vaknor Fields, which began production in 2009, have reserves of some 500 million barrels. The pipeline, when completed, will be able to pump those reserves out at the rate of 25 million tons a year.

The pipeline isn’t Rosneft’s first leap into the fray of Northern Sea Route development. In February, government officials confirmed plans to build a new nuclear icebreaker line, called the Leader, at a Vladivostok shipyard, which is partially owned by the oil monopoly. For years, the shipyard – a former military base known as Zvezda – has been losing money. But the Kremlin’s hat-tip toward granting the icebreaker contract to Zvezda is predicted to turn the shipyard’s financing around.

Sechin’s announcement will go a long way toward quelling the worries of the Natural Resources Ministry, which earlier this month issued a stark report saying that it would take some $160 billion in private investment to realize Putin’s decree. For now, those concerns seem to be appeased.