The Race For Arctic Oil Is Heating Up

Lambert here: The new Great Game?

By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice.com

Despite climate concerns and environmentalist backlash against exploration for oil and gas in pristine sensitive regions of the Arctic, companies continue to explore for hydrocarbon resources in the Arctic Circle, in Russia and Norway in particular.

The largest Russian energy companies are looking to explore more Arctic oil and gas resources on and offshore Russia, while Norwegian and other Western oil firms are digging exploration wells in Norway’s Barents Sea.

Those companies lead the development efforts to tap more Arctic oil and gas resources as legacy oil and gas fields both offshore Norway and onshore Russia mature.  

Russia’s biggest energy firms Gazprom, Rosneft, Novatek, and Lukoil, and Norway’s oil and gas giant Equinor, as well as Aker BP and ConocoPhillips, are the top oil and gas producers in the Artic region, data and analytics company GlobalData said in a new report. Gazprom is the undisputed leader in Arctic oil and gas production, followed, at a long distance, by two other Russian firms, Rosneft and Novatek, GlobalData’s estimates show.

Russian firms are ramping up exploration in Russia’s Arctic, while Equinor and other Western companies drill exploration wells in Norway’s Barents Sea, hoping for a significant discovery that could add to the Johan Castberg oilfield—a massive discovery which was made in 2011, but which hasn’t been replicated in the Barents Sea so far.  

Yet, both Russia and Norway face specific challenges in getting the most out of their respective Arctic oil and gas resources. Related: The Jet Fuel Crack Killing Oil Won’t Last

In Russia, the government has made Arctic oil and gas development a key priority and offers tax breaks for firms exploring in the area.

Energy giants Gazprom and Rosneft dominate the exploration and development efforts in Russia’s Arctic. Offshore, Gazprom’s Prirazlomnoye field is currently the only producing Russian oil and gas project on the Arctic Shelf.

But even with tax breaks, Russia may find it hard to develop its offshore Arctic resources, due to the U.S. sanctions banning collaboration on Russian deepwater, Arctic offshore, or shale projects with Gazprom, Gazprom Neft, Lukoil, Surgutneftegas, and Rosneft. These are the largest energy firms in Russia and they don’t have access to capital at western banks to develop such projects. In the wake of the sanctions, many Western oil firms withdrew from joint ventures with Russian companies, which are now left without partnerships in technology needed to explore, drill, and potentially produce and process hard-to-extract oil and gas resources. 

Although Russian firms downplay the effects of the U.S. sanctions on their development plans, and although domestic companies are focused on developing in-house technology solutions to replace foreign-sourced tech, analysts believe that 100-percent local content technology in challenging projects would likely take years to implement.

Financing for large onshore projects in the Arctic is not easy either. Rosneft, which wants to develop the Vostok Oil project, to “implement a complex development program for a new oil and gas province in the north of the Krasnoyarsk Territory,” is looking east to gather funding for the US$157 billion project—to Japan, India, and China.

Russia’s largest private natural gas producer, Novatek, is one of the success stories of Arctic resource development. Novatek—which already exports liquefied natural gas (LNG) from the Yamal LNG plant—gave last year the go-ahead to its second LNG project, Arctic LNG 2 on the Gydan Peninsula. Novatek’s partners in the ventures are France’s Total with a minority stake as well as Chinese and Japanese companies. Related: Brace For A Global Crisis In 2020

Last year, Russian officials said that the Arctic area could become the key driver of Russia’s natural gas production in less than two decades, as it has the potential to produce 90 percent of all the gas produced in Russia by 2035.

Norway’s Arctic areas open to exploration are parts of the Barents Sea, where companies are struggling to finally make a large-size discovery after Johan Castberg. Norwegian authorities say that the Barents Sea holds 64 percent of the yet to be discovered resources on the Norwegian Continental Shelf, while the North Sea and the Norwegian Sea each are estimated to hold 18 percent of the undiscovered resources. 

Last year, just five wells were drilled in the Barents Sea, fewer than in 2018. In 2019, a total of 17 new discoveries were made offshore Norway, of which only one was in the Barents Sea.

Norway’s Equinor says that it continues to explore in the Barents Sea because more oil will be needed in the world just to maintain supplies.

“Discoveries in the Barents Sea can lead to significant economic development, nationally and locally. Based on our understanding of the geology, we hope to find high quality light oil that’s in demand—and better for the climate. The wells we drill in the Barents Sea are cheaper than many others, thanks to the geology and shallower waters,” says the Norwegian giant.

In 2020, Equinor will focus on exploration in the western part of the Barents Sea, Tim Dodson, Executive Vice President, Exploration at Equinor, told Reuters in November.

Norway and Russia are leading Arctic oil and gas development, but they both face challenges in making the Arctic the next oil hotspot.  

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

5 comments

  1. The Rev Kev

    The key here is access to these regions which means ice-breakers. At the moment the US has only two in actual service and the Norwegians also have two. One of those American ice-breakers is so old that there is a reluctance to send it too far north in case it breaks down and needs Russian help to to it back. Meanwhile the Russians are going in big and they already have 40 ice-breakers with another 13 planned. You would think that for the US building ice-breakers would be a priority, especially as they try to militarize the Arctic regions, but plans for more just never quite get through those government committees.

    Denying technology and financing for Russian companies sounds like a great strategy until it isn’t anymore. The US has been denying China access to technology recently so the Chinese are now learning to do it themselves which will eventually cut the US out of this particular pie. And even with Russia, the US has tried to crush the Russian Federation with one sanction after another but the net result has been to make Russia an autarky whose agricultural and weapons-exports sectors alone have boomed as a result. But whichever nation tries to open up the Arctic will have a tough challenge as that region is not very forgiving of trying to do it on the cheap or in a half-a**ed way.

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    Reply
    1. Tim

      I thought the key is that in 10-20 years when these fields are ready to be developed global warming will make these areas ice free? It’s a wonderful feedback loop… for the right people.

      Reply
  2. RobYGK

    – Thanks to our overuse of oil, we’ve wrecked the ecosystem to the point where there is no Arctic ice.
    – No ice? Great! We can extract more oil!

    Anybody observing human behaviour from a distance would look at this situation and conclude that we are too stupid to survive.

    Reply
  3. Peter Lynch

    A couple of things 1. Drilling in the artic is INSANE. When BP had a huge leak in the gulf help was less than 50 miles away in calm waters. In the artic you are 500 to 1,000 from help and when (not if) there is an accident it will be monumental and the oil companies will getaway (100% for sure) not paying for the damage.
    2. Ever hear of Climate Change? 3. They will not make money on any of these projects, too many moving parts and conditions unique to the artic.

    Reply
  4. Jack Parsons

    The nation that hosts the University of the Far North will come to dominate the Far North through soft power: all the other nation’s infrastructure will be saturated with graduates.

    The same way the US computer industry is saturated with Chinese and Desi programmers.

    Reply

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