Posted - 17 May 2012 - The Moscow Times - By
Irina Filatova
Safety, Cost Meet Head On in Arctic Oil Race
SEVERODVINSK, Arkhangelsk Region — Half a century ago, this town
on the White Sea coast was a supply mecca for residents of the nearby
metropolis Arkhangelsk, who regularly made the 35-kilometer trip just
to buy sausage, which was usually available in the well-stocked stores
of strategically important defense industry centers.
Defense orders still form the backbone of the city's economy, with
two-thirds of its population employed at two shipbuilding plants that
struggled through the collapse of the Soviet Union.
But thanks to global warming, thawing of the Arctic ice and the
world's appetite for oil, Sevmash, Russia's only producer of nuclear
submarines for the Navy, and Zvyozdochka, which does submarine
maintenance, might get a new lease on life soon. The government is
discussing a plan to create a technology hub in the northern city
to explore the Arctic's offshore hydrocarbon deposits, which are
believed to have huge oil and gas reserves.
The hub project fits with the high-level attention Arctic energy
exploration gets from the Russian government, and there is at least
superficial attention to its environmental impact.
Speaking at a forum on Arctic exploration in September, then-Prime Minister
Vladimir Putin vowed that all the plans for the region "will be enforced in line with the most rigorous ecological standards."
"Intense business activity in the Arctic will be beneficial only if
we ensure a reasonable and proper balance between the economy's
interests and preserving the nature," he said.
What's not clear is whether the fragile frozen environment will survive the onslaught of efforts to get at those resources.
Rocky Road
The Economic Development and Regional Development ministries are
holding meetings on creating the Severodvinsk hub, which will include
extensive infrastructure development, Arkhangelsk Governor Igor Orlov
told a group of reporters last month.
The two defense factories will play a key role in the hub — having
just completed production of Russia's first oil-drilling platforms
for Arctic offshore projects, with more expected to be made soon.
"It's a very serious strategic project. We need to build complicated
offshore facilities, and we need to attract scientific and human
resources for that, as well as create normal living conditions," Orlov
said.
The detailed plan for the hub might be drafted in the summer, Orlov
said, but it remains unclear how it will deal with environmental
protection issues, as environmentalists have repeatedly urged
the government to demonstrate a more responsible approach to offshore
drilling projects.
Russia's journey to explore offshore fields in the Arctic — the government's priority for the next decade — had a rough start.
In December, the Kolskaya offshore oil-drilling platform sank in the
frozen waters of the Sea of Okhotsk, killing 53 of the 67 crew members
and prompting international environmental organizations to call for the
suspension of new offshore projects in the Arctic.
But the government's efforts to entice foreign companies to explore
Arctic deposits finally bore fruit last month, when international oil
major ExxonMobil — encouraged by Putin's promises to ease taxation
for offshore projects — agreed to establish a joint venture with
state-controlled
Rosneft.
The deal was a landmark in developing Russia's offshore territories
in the Arctic because it was the first in a series of similar agreements
with Italy's Eni and Norway's Statoil, which followed in subsequent
weeks.
"Nobody will be able to explore the Arctic alone. … Billions
of dollars are needed … to start exploring Russia's Arctic territories,"
Yury Lukin, head of the institute of management and regional studies
at the Northern Arctic Federal University in Arkhangelsk told reporters
visiting the university in April.
The estimated hydrocarbon reserves in the Arctic are about 100
billion tons in oil equivalent, according to findings by Russian
experts, said Marcel Gubaidullin, director of the university's oil
and gas institute.
Climate changes have increased accessibility and boosted
international interest in offshore projects in recent years, with
countries that have direct access to the Arctic Ocean — like Norway,
Canada, Denmark and the United States — competing with Russia for the
Arctic's offshore reserves.
"The ice thawing creates favorable conditions for business," Lukin said.
Risky Venture
Russia's first step in tapping the vast Arctic resources is
exploration of the Prirazlomnoye oil field in the Barents Sea with
estimated reserves of 72 million tons.
The work — to be started by Gazprom this year — will be conducted
from the Prirazlomnaya platform, Russia's first oil-drilling platform
designed for offshore projects in the Arctic.
The platform — ordered by Gazprom and built at Sevmash
in Severodvinsk — was delivered to its destination and set up over
an oil field 60 kilometers off the coast in August.
But the Kolskaya platform tragedy galvanized environmental
organizations, including Bellona, Greenpeace and the World Wildlife
Fund.
The government should review its offshore exploration policy and pass
legislation that would guarantee proper liquidation of the consequences
of possible accidents during offshore exploration, the organizations
said in a December statement.
All offshore projects in the Arctic and similar maritime territories
should be suspended until such measures are taken, the statement said.
While exploration of offshore fields in the Arctic involves
significant environmental and financial risks, domestic oil and gas
companies have yet to prove their ability to carry out such projects, as
they neglect safety issues even in onshore projects, according to a
report by Greenpeace published last month.
"If Russia's oil and gas companies can't get existing fields under
control, there's no reason to hope that they'll demonstrate a more
responsible attitude to environmental protection issues while exploring
the Arctic offshore areas," the report said.
The Cost of Safety
Russia suffers more pipeline leaks than any other country in the
world, resulting in at least 5 million tons of oil and oil products
leaking into the environment annually, according to estimates
by Greenpeace.
The organization warned that this amount might grow with the start of offshore oil exploration in the Arctic.
Turning to financial issues, Greenpeace said in the report that
the Arctic's offshore projects are likely to be unprofitable because
they are too costly if carried out according to sufficient safety
standards.
The costs of implementing offshore projects in the Arctic are much
higher than those on land, as Russia will need billions of rubles
in additional budget spending to expand its icebreaker fleet and develop
navigation and rescue infrastructure, Greenpeace said.
The estimated average cost of oil exploration in Russia reached $22
a barrel in 2010, Greenpeace said in the report, citing Energy Ministry
figures. But the real costs at many new oil fields exceeded that figure
significantly, the report said.
The cost of extraction at Gazprom's Prirazlomnaya platform might
reach $30 a barrel, which includes the platform's construction, drilling
and exploitation expenditures, Greenpeace said. That figure does not
include efforts to meet the necessary safety standards, which would make
the costs even higher, the report noted.
"But even the growing costs resulting from introducing higher safety
standards don't guarantee the lowering of environmental risks, which
will remain in any case," the report said.
Talking the Talk
Gazprom lacks sufficient resources to clean up an oil spill
at Prirazlomnaya, having set aside "a meager sum" of 7 million rubles
($233,000) to insure the oil-drilling platform from environmental risks,
Greenpeace said, citing the company's statement at a meeting with
nongovernmental organizations in December.
That policy value was set at the time of the platform's construction
and covers possible damage to the environment that might result
from accidents on the facility, said
Gazprom Neft Shelf, Gazprom's subsidiary in charge of offshore extraction.
"The insurance sum will be increased after the platform is completed
and put into commission," the company said in e-mailed comments, adding
that it might also "attract foreign partners to help cover the insurance
risks."
Gazprom Neft Shelf said it had foreseen three possible scenarios
of oil leaks at the field — from an oil tanker, from the platform itself
and from an oil well.
But "the unique design features of the Prirazlomnaya almost rule out
oil leaks from the platform," the company said, adding that it has
enough capacity and equipment to localize oil spills at the field within
four hours after the accident — as required by current regulations.
It also said it had created a plan to prevent and liquidate possible
oil spills at the field and had bought special equipment to deal with
leaks.
"The working technology of the Prirazlomnaya platform rules out
the disposal of industrial waste, garbage, oils … and other hazardous
substances into the sea,"
Gazprom Neft Shelf said, adding that drilling and oil production waste would be shipped ashore in special containers for disposal.
Rosneft said it had established a research-and-development center
to develop technologies for safe extraction in the Arctic, but added
that it's too early to discuss the financial assessment of environmental
risks in its offshore projects because it will be a long time before
production starts.
All the projects will undergo public discussions and an environmental
assessment by the authorities in line with current legislation,
the company said, adding that partnership with the world's oil and gas
majors guarantees access to high technologies and a responsible
approach.
"The Arctic's fragile environment and sensitive ecology present
unique challenges," said ExxonMobil, which will explore Russia's
offshore deposits in the Kara Sea and the Black Sea with Rosneft in a
$3.2 billion joint venture.
"The company's efforts are guided by an in-depth scientific
understanding of the environment in which we operate and the potential
impact of our operations on the environment and society," it said
in e-mailed comments.
"All design and operational plans are based on the goal
of eliminating all unacceptable environmental and social impacts, with
today's experience used as a basis for improving future performance,"
said ExxonMobil, which has an 80-year experience of offshore extraction
in the Arctic.
A spokesman for Statoil, which will cooperate with Rosneft to develop
oil fields in the Barents Sea and the Sea of Okhotsk, said "safe
operations are our first priority and an integrated part of our work."
Under the agreement with Rosneft, the companies will first carry out
seismic surveys, with a total of six exploration wells to be drilled
between 2016 and 2021, he said in e-mailed comments.
"When it comes to oil-spill response, that will be a part of the
planning of the exploration wells in the same way as for our other
Arctic wells, like in Canada and Alaska," he said, adding that drilling
will be carried out during the ice-free period.
Both companies declined to disclose how much money had been set aside
for environmental safety in their projects with Rosneft, saying it's
impossible to separate this portion from the overall investment volume.
Eni, which will work with Rosneft to develop three license blocks
in the Barents Sea and the Black Sea, said it's too early to provide
an exact estimation of the environmental risks of the projects, adding,
however, that "environmental studies of ecological risks are at the
core" of its activities.
Technologies Needed
Strategic alliances are crucial for developing offshore territories
in the Arctic, said Gubaidullin of the Northern Arctic Federal
University. Apart from sharing the cost burden, foreign partners that
boast extensive experience in implementing such projects can ensure
technology transfer, he said.
ExxonMobil said it has a number of state-of-the-art technologies to conduct environmentally friendly extraction in the Arctic.
It cited one example called Extended Reach Drilling technology, which
is aimed at reducing high capital and operating costs at large offshore
deposits and minimizing "the environmental impact in the sensitive
near-shore area."
ExxonMobil also said it had developed a new dispersant gel, which
reduces the damage of possible oil spills in an Arctic environment.
But Gubaidullin said concerns remain. Most worrying, he said, is that
no technologies exist to deal with oil that seeps into pores in the sea
ice.
Developing such technologies would require huge investment, he said
in an April interview at his office, adding that companies should give
priority to safety.
He called for a rational use of the Arctic reserves, saying oil
companies working at offshore fields should "rely on common sense"
and introduce safety standards, rather than hoping for a miracle.
Meanwhile, Vladimir Nikitin, chief executive of Zvyozdochka,
the Severodvinsk plant for submarine maintenance, called for drilling
rigs to be used properly in order to avoid accidents.
Last year, his company completed construction of the floating oil-drilling platform Arkticheskaya for Gazprom.
The platform designed for drilling at offshore Arctic fields cost
about 7.7 billion rubles ($256 million) to build, Nikitin said.
"We are ready to build [offshore] platforms. … We're extremely
interested in new orders and hope that they will come," he said in an
interview at the plant last month.
Nikitin added that the plant will get 30 billion rubles of state
funding for modernization over the next eight years, which will allow it
to build such complicated facilities in the future.
The construction of such platforms should take into account
the area's extreme climate conditions, as these facilities must be able
to resist pressure of underwater ice masses bumping into them, as well
as the 10-meter-high waves resulting from strong winds, Gubaidullin
said.
Additional problems result from high humidity and low temperatures, which might cause surfaces and equipment to ice over.
Is It Worth It?
Although international oil majors have already made more than $300
billion in stated commitments to investing in Arctic oil exploration
and extraction, the huge investment might be unjustified.
Oil and gas reserves in the Arctic might be overestimated significantly, Greenpeace warned in its April report.
"According to the most optimistic forecasts, oil extraction in the
Arctic offshore territories in Russia might peak at 13.5 million tons
a year over the next 20 years," the report said, citing a draft of the
state program to develop the Arctic shelf.
"For comparison, Russia currently produces about 500 million tons of oil a year," the report said.
However, Gubaidullin said the Arctic's maritime territories could
provide the energy resources for Russia to rely on in the future, as
existing reserves in Siberia are likely to suffice only for the next 40
to 50 years, according to some estimates.
Although the prospects of energy-efficiency projects are widely
discussed, "there's no real alternative to oil and gas for the next 20
years," Gubaidullin said.
"If we don't come to the Arctic, others will do it. We should start
working as soon as possible to develop technologies and get the needed
experience step by step," he said.
http://www.themoscowtimes.com/business/article/safety-cost-meet-head-on-in-arctic-oil-race/458678.html
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