What will the Shtokman gas field project bring the Murmansk Region?


Publish date: February 16, 2011

Written by: Anna Kireeva

Translated by: Charles Digges

MURMANSK – On Friday, the administration of the Murmansk region and the Northern Norwegian county of Rogaland signed a cooperation agreement to share experience in the development of the oil and gas industry. The signing was proceeded by a seminar discussing work conditions in Russia and the perspectives of the Shtokman gas condensate field project for the Murmansk region.

According to Danial Fjaetfort, an advisor to the consulting firm Econ Poyry, the majority of local companies are in no condition to directly participate in Arctic Shelf projects.

“Murmansk has great potential to become the capital of development and exploration of oil and gas fields, but there is little to be done to realize this potential and they have to move on it now,” said Fjaetfort.

Most important, noted Fjaetfort, is changing the unacceptable conditions of border and customs filings and the skepticism toward foreign companies.

Creating the ‘cluster’

“We are trying to create a cluster – a union of industrial enterprises that will participate in oil and gas projects,” said Grigory Straty, director of Murmanshelf, in an interview with Bellona Web. According to Straty, the clusters will apply maximum cooperation in dealings with foreign companies that will be working in the region.

Representatives of Norwegian companies that already work in the Murmansk Region shared their experiences in Russia and told of the difficulties that foreign companies must be prepared for. Among them was the absolute unpredictability of Russian reality, the contradictions between laws, different bookkeeping systems, different accounting systems, the absence of a system of mutual trust, which is substituted for by innumerable reams of decrees and sub-legislative acts.

According to Alte Berge, the director of Olen Betong, who has worked in Murmansk for a number of years, foreign investors must be prepared for the extremely complex Russian customs structure.

“Everything always gets stuck at customs, and this leads to breakdowns in deliveries and contracts, unmet deadlines, and the impossibility of planning business,” said Berge. He added that beyond dealing with officialdom, one also has to deal with corruption at all levels.

“We have to exert maximum effort to fight corruption and hope that we will get the best results from the implementation of [oil and gas] projects in the region,” said Straty.

Sakhalin , Sakhalin 2 and the development of the region

Murmansk residents have be told for years about the Shotkman gas and oil field project and how it will give a new impetus to the development of their region. Taxes will flow into regional coffers, the region will switch to natural gas, new jobs will appear, the economy will flourish and so on.

A few years ago, the same bill of goods was sold to the residents of the Sakhalin Region in Russia’s far east during the implementation of the large scale Sakhalin 1 and 2 projects and the construction of the country’s first gas condensate plant.

Andrei Cherepovitsyn of the St. Petersburg Mining Institute summed up the results that the Sakhalin region achieved.  Cherepovitsyn said that according to the federal tax structure, the federal government would receive 95 percent of the taxes produced by the project, leaving only 5 percent for the regional budget – and such will be the case with the Shtokman project.

The expert noted a population drop in the Sakhalin Region – meaning that the number of workers coming from other regions to take jobs was insignificant. Moreover the region was given no gas tariff preferences – the region had to buy gas produced in its own area at world market prices, and so still depends on coal deliveries.

Statistics also revealed that while the project was being implemented, the number of specialized and higher education institutes dropped, rather than rose, as did the number of students.

Cherepovitsyn also noted a gap in the level of salaries in the region: High salaries were paid only at the level of the extraction facility; the manufacturing complex employees and employees of other branches received significantly less. Over the last six years the regional budget deficit has not only not disappeared as promise, but grown by 5 to 14 percent prior to 2011.

There has been no noticeable improvement of infrastructure on Sakhalin in general. Only certain small factors have been improved and they are relative only to the project. Instead, several violations of environmental law were brought to light.

“Developing large oil and gas field is not always attractive for the development and economy of a region,” said Cherepovitsyn.

Environmental always at the bottom of the list

Unfortunately the environmental safety of oil and gas projects is not a priority during project during implementation in Russia.  The development projcts for Shtokman and Prirazlomny are no exceptions.

Bellona has suggested a cornucopia of environmental projects that could be implemented in the framework of the cooperation agreement that was signed between Norway’s Rogaland Country and the Murmansk region last week. One such measure is the implementation of satellite monitoring of the Kola Gulf and the Barents Sea, which would allow for the quick location of sources of oil pollution and the tracking of oil slicks in case of an accident, and no less important, identifying who was responsible for the accident. But talk has shifted away from the necessity of completing response systems to oil spills.

“Currently there is not one company in the world that has effective technology for the liquidation of accidental spills of oil and petroleum products in the Arctic,” said Bellona Murmansk’s energy projects coordinator Nina Lesikhina.

“And the response system in the Murmansk Region is characterized by a lack of specialized equipment, the distance of emergency response stations, the absence of contemporary means of predicting the behavior of oil spills, and a deficit of financial means for defense and cleansing of coastlines. And without this, we cannot even talk about implementing oil and gas projects in the Arctic,” said Lesikhina.

She noted the laboratory for the study of oil development that was given to the Murmansk Region in 2008 for research on various types of oil and producing models of their behavior in the event of a spill. The laboratory still has not opened its door.

Bellona sees the necessity of creating a zone of especially vulnerable and environmentally valuable parts of the Arctic shelf that is free from oil and gas activities, as well as the establishment of fixed routes for tanker traffic that is sufficiently far from shore. This would allow for additional time for response and allow the most prized coastal ecosystems to avoid impact. It is also necessary to forbid the use of fuel oil in the Arctic as well as to promote the implementation of technologies that isolate CO2 emissions at oil and gas projects.

“Of course, Norwegian companies have more experience in implementing oil and gas projects in far northern conditions, however this experience is clearly insufficient,” said Lesikhina. “The problems at Gullfaks C and Snøhvit only confirm this.”