1.8. Companies operating on the Arctic shelf
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As stated before, in January 2007 it was announced that the state companies Rosneft and Gazprom will develop all fields on the Arctic shelf and on the Far-Eastern shelf in Russia. These fields have been granted tax exempt, and possible foreign investments will be looked at individually.73
Here’s an opinion
Some political analysts in Russia believe that the process of sharing the Russian Arctic shelf will lead to conflict between the two state owned companies Gazprom and Rosneft. 74
OAO Rosneft Oil Company is a Russian integrated oil company. Rosneft conducts oil and gas exploration and production activities on Sakhalin island, in Siberia, in the Timan-Pechora province, and in southern Russia, including Chechnya. It also owns and operates two refineries. Its plant in Tuapse, on the Black Sea, focuses on refining high-gravity oil from western Siberia. The other plant is located in Komsomolsk-on-Amur is the easternmost oil refinery in Russia. Rosneft operates shipping companies, pipeline companies and marketing companies.
Although the company is an open joint stock company, according to its website, it seems to be completely owned by the Russian Federation, as represented by the Federal Property Management Agency. In 2004 the company agreed to merge with Gazprom. The merger did not come through because of disagreements between the leadership of the two companies.
On December 22, 2004, Rosneft bought the Baikal Finance Group, which three days earlier had won a government sale of Yuganskneftegaz (Yugansk), the main production subsidiary of the beleaguered oil company Yukos.
Market value of Rosneft was valued at $83.908 billion. on December 29th, 200675
Gazprom (Russian: ОАО Газпром, sometimes transcribed as Gasprom) is the largest Russian company and the biggest extractor of natural gas in the world. It accounts for about 93% of Russian natural gas production and with reserves of 28,800 km³, it controls 16% of the world's gas reserves. After acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels of reserves, ranks behind only Saudi Arabia, with 263 billion barrels, and Iran, with 133 billion barrels, as the world's biggest owner of oil and oil equivalent in natural gas.
According to Gazprom’s official website Gazprom is the sole gas supplier to Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, and provided 97 percent of Bulgaria's gas, 89 percent of Hungary's, 86 percent of Poland's, nearly three-quarters of the Czech Republic's, 67 percent of Turkey's, 65 percent of Austria's, about 40 percent of Romania's36 percent of Germany's, 27 percent of Italy's, and 25 percent of France's. The European Union gets about 25% of its gas supplies from this company.
Apart from its gas reserves and the world's longest pipeline network with 150,000 km, it also controls assets in banking, insurance, media, construction and agriculture. See appendix.
With US$ 270 billion of market capitalization (as of May 2006), Gazprom is the world's third largest corporation following this measure. 76
The company Sevmorneftegaz, a subsidiary of Gazprom, is an operator involved in infrastructure development and exploitation of oil and gas fields on the Continental shelf of the Arctic Ocean and in adjacent mainland regions. Sevmorneftegaz owns the licenses to develop the Prirazlomnoe oil field in the Pechora Sea and the Shtokman gas condensate field in the Barents Sea.77
The company Arcticshelfneftegaz, established by the Federal State unitary enterprise Arcticmorneftegazrazvedka and the state company Promyshlenniye Investitsy in January 2002. The main purpose behind creating the private company Arcticshelfneftegaz is to search for, survey and drill mineral resources in the seabed of the Barents Sea. Arcticshelfneftegaz carries out oil and gas prospecting on the shelf of the Barents Sea. It owns licenses to open up three oil and gas sites by 2025: Medynsko-Varandey, Pomor and Kolokolmor.
The company Sintezneftegaz, was established in 2001. In accordance with the Law “regarding subsoil”, it possesses licenses giving it the right to undertake geological studies of the subsoil at five sites on the Barents Sea shelf: Zapadno-Kola, Tsentral’no-Kola, Sryedne-Kola, as well as Admiraltey and Pakhtusov. At present, in accordance with agreements entered into with specialist companies (the Federal State unitary enterprise Arcticmorneftegazrazvedka, the Sevmorneftegeofizika state company and the “AMIGE” [Arctic Marine Engineering Geological Expeditions] state company), scientific research, engineering / geological and seismic surveying work is being conducted on licensed fields.78 In November 2006 the Federal Agency for subsoil regulation, Rosnedr, withdrew two licenses of “Sintezneftegaz”. The licenses were to the fields Pakhtusov and Amirality in the Barents Sea. In February 2007 a Moscow court found the withdrawal invalid. However, according to RBC Daily, Rosnedr will appeal the court decision. The Rosnedr representative declared that the Sintez group under no circumstances would be able to keep the licence on the two fields(!)
The MAGE [Marine Arctic Geological Expedition] state company was founded on 17 November 1972. The aim and objective of this company’s activities is marine geological and geophysical exploration of Arctic Sea shelves and the Pacific Ocean, the geological mapping of the shelf of the Russian Federation, geo-ecological investigations and ecological monitoring.79
“When drilling wells, the marine environment is polluted by a variety of waste materials. According to data provided by experts, depending on the extraction technologies applied and the sea depth, each well may discharge up to 120 tonnes of petroleum products, 150-400 tonnes of drilling sludge and 200-1000 tonnes of other waste products into the sea”, says Shamil’ Movsumov, Presidential adviser of the International Ecoenergy Academy (Baku) and a member of the International Socio-ecological Union.
The YUZHMORGEOLOGIYA State Scientific Centre is under the jurisdiction of the Federal Agency for Subsoil Regulation of the Ministry of Natural Resources. The centre conducts geological activity that ensures federal tasks associated with prospecting and development of mineral resources on the Continental shelf, internal waters and international waters of the Pacific Ocean.80 This centre possesses licenses allowing it to study the western part of the Pechora Sea which are valid until end 2007.
Areas included in the programme of licensing tenders for the shelf of the Russian Federation for the period up to 2010 (State strategy, 2003):81
| Area name | Tender | Year of realisation | Area (in thousands of square kilometres) | Total Potential Resources (millions of tonnes of extracted standard fuel) |
| Yuzhno-Russkiy | Barents-2 | 2006 | 9.1 | 300 |
| Zapadno-Matveevskiy | Barents-2 | 2006 | 2.6 | 180-200 |
| Yuzhno-Prinovozemelskiy | Barents-2 | 2006 | 3.4 | 70-80 |
| Mezhdusharskiy Vostochniy | Barents-2 | 2006 | 6.3 | 90-100 |
| Russkiy | Barents-3 | 2006 | 2.7 | 107-115 |
| Severo-Pomorskiy-1 | Barents-3 | 2006 | 2.5 | 40-50
|
| Severo-Pomorskiy-2 | Barents-3 | 2006 | 2.8 | 37-42 |
| Korginskiy | Barents-3 | 2006 | 10.1 | 60-70 |
| Murmanskiy | Barents-3 | 2006 | 4.4 | 120 |
| Papaninskiy | Barents-4 | 2007 | 2.1 | 50-60 |
| Mezhdusharskiy | Barents | 2007 | 2.0 | 50-60 |
| Zapadno-Mityushikhinskiy | Barents-4 | 2007 | 6.5 | 170-180 |
| Dmitrievskiy | Barents-4 | 2007 | 6.6 | 200-210 |
| Mityushikhinskiy | Barents-5 | 2008 | 6.1 | 190-200 |
| Krestoviy | Barents-5 | 2008 | 8.6 | 170-180 |
| Ledoviy | Barents-6 | 2009 | 23.6 | 430 |
| Ludlovskiy | Barents-6 | 2009 | 12.2 | 210 |
| Kil’dinskiy | Barents-7 | 2010 | 35.6 | 120 |
| Demidovskiy | Barents-7 | 2010 | 18.2
| 800 |
| Fersman | Barents-7 | 2010 | 16.8 | 950 |
We refer to Appendix 2 for the programme of measures concerned with utilising the subsoil in the Barents and Kara Seas over the period 2011 - 2020.82
Conclusions
1. In accordance with Russia’s energy strategy for the period up to 2020, development of an oil and gas industry on the Arctic sea shelves is the energy policy priority in the north-west federal district. In a long-term perspective, the Yamal Peninsula will become a priority region for gas production from a strategic point of view, along with other waters of Russia’s northern seas. The development of fields in this region will involve a number of problems and will require significant investment due to difficult environmental and climatic conditions, the remoteness from existing oil and gas industry infrastructure, and the need to introduce new technological solutions for recovery and transport that ensures environmental preservation in polar conditions.
2. The situation in Russia’s oil and gas industry is characterised by a reduction in explored oil and gas reserves and the slow rates of their reproduction. The volumes of geological exploration work do not guarantee reproduction of the raw materials base in the oil and gas industry. Only the most profitable and accessible parts of the fields and deposits are being developed.
3. At present, the All-Russian Scientific Research, Geological and Petroleum Institute within the Ministry of Natural Resources is drafting a “programme concerned with the integrated study and development of oil and gas reserves and resources in the north-west region”, including a strategy for implementing geological survey work, on the basis of energy strategy regulations. This programme makes provision for the replenishment of the oil and gas raw materials base.
4. Oil and gas production in Russia over recent years has largely increased using infrastructure established previously. Therefore, the majority of companies are increasing oil and gas extraction primarily by renewing the production-related and technical potential of fields brought on line previously in regions which have already been opened. An essential increase in production volumes will require investment both in prospecting and in new infrastructure.
5. According to information from the Ministry of Natural Resources, deposits of recoverable resources from the Russian shelf exceed 100 billion tonnes of standard fuel. The ministry predicts that between 2020 and 2030, it is precisely these resources which will become the new resource base for oil and gas extraction in Russia.
6. Russia is inclined towards rejecting utilisation of the production sharing agreement plan. At a meeting of the Security Council of the Russian Federation in December 2006, it was declared that the practice of concluding production sharing agreements on fields on the shelf is not in keeping with Russian national interests. The Russian argument is that this is linked to the fact that investors participating in such agreements own a part of the raw materials recovered. However, since raw materials prices may increase, an agreement of this nature may become unprofitable for the State.
7. A discussion of the possibilities afforded the State by consolidating its own forces to develop the riches available on Russia’s Continental shelf has become the main topic of conversation. In connection with this existing legislation on subsoil regulation is undergoing a change.
8. Federal law number 177- FZ ”On export of gas” grants Gazprom the exclusive right to export gas from all fields in Russia. The European Union endeavor Moscow to ratify the European Energy Charter which would deprive Gazprom from their monopoly on export.
9. On the shelf of the Arctic seas, the largest subsoil user is Gazprom, which owns the licences for the Prirazlomnoe oil field and the Shtokman field. In 2007 it was decided that two governmental companies, “Gasprom” and Rosneft, will develop the Arctic and the Far East Shelves. The issue of creating a single State company from Gazprom, Rosneft and “Zarubezhneft” for extracting resources on the Russian shelf is being discussed.
10. Russia lacks the necessary infrastructure and technologies to develop oil and gas under the difficult conditions encountered in Polar areas.
Footnotes:
[73] Шельф поделят госкомпании // «Газпром» и «Роснефть» получат налоговые льготы http://www.kommersant.ru/doc.html?path=/daily/2007/095m/14939923.htm (2006 year) Back
[74] RBK Daily Ljudmila Podobedova. 2007. 05.07 Back
[75] http://en.wikipedia.org/wiki/Rosneft (2006 year) Back
[76] http://en.wikipedia.org/wiki/Gazprom (2006 year) Back
[77] “ACTIVITIES UNDERTAKEN BY THE Sevmorneftegaz PRIVATE COMPANY IN THE DEVELOPMENT OF OIL AND GAS FIELDS ON RUSSIA’S ARCTIC SHELF”, Ivan N. CHERNOV, Sevmorneftegaz private company Back
[78] http://www.regnum.ru/news/473325.html (2006 year) Back
[79] http://www.arcticshelf.ru/Conf2004/Rus/4/files/files/index.php?option=com_content&task=view&id=20&Itemid=31⟨=ru (2006 year) Back
[80] http://www.ymg.ru/ (2006 year) Back
[81] “The state of the mineral raw materials base of Russia’s Arctic shelf and the future prospects for its development”, Suprunenko O.I., Kaminsky V.D. (All-Russian scientific research institute concerned with geology and mineral resources in the Pacific Ocean named after I.S. Gramberg) - materials from the conference entitled “National marine policy and economic activities in the Arctic”, Murmansk, 1-2 June 2006. Back
[82] “The state of the mineral raw materials base of Russia’s Arctic shelf and the future prospects for its development”, Suprunenko O.I., Kaminsky V.D. (All-Russian scientific research institute concerned with geology and mineral resources in the Pacific Ocean named after I.S. Gramberg) - materials from the conference entitled “National marine policy and economic activities in the Arctic”, Murmansk, 1-2 June 2006. Back
