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Russia eyes private boost for Arctic energy
by Staff Writers
Moscow (AFP) Jan 20, 2013


Stalling production and global warming are seeing the Russian government mull breaking up its Arctic energy monopoly and allowing independents to survey some of the world's most coveted oil and gas fields.

The idea -- debated at a top but private cabinet meeting this week -- is still nascent and opposed firmly by the state's natural gas supplier Gazprom and main oil provider Rosneft.

But it could see cash-flush private players one day explore forbidding northern expanses that hold as much as 550 billion barrels of oil equivalent -- nearly eight times Russia's current proven reserves.

Any breakthrough could in turn transform a global market that will already see major changes from growing exports of liquefied natural gas from North American shale deposits.

"Gazprom and Rosneft have got everything they have asked for -- 80 percent of the (Arctic) shelf," said Sberbank Investment Research analyst Valery Nesterov.

"They got the fields and now are sitting on them," said the analyst.

"There must be a procedure for taking back these licenses, and that it what the ministry of natural resources is trying to do."

Russia's slowly-melting ice shelf stretches along the Arctic Ocean from the Barents Sea near Norway to the Chukchi Sea opposite the coast of Alaska.

The country's immediate problems are slightly different in the oil and gas sectors due to both global market conditions and existing natural resource supplies.

But the roots of both reach back to a strong state system that forbids independents from controlling offshore projects or getting to access to fields that were claimed but remain untouched.

"The pace of the shelf's geological survey work is not sufficient," Prime Minister Dmitry Medvedev admitted in his opening statement at Tuesday's energy meeting.

"We are studying various ways we can speed up geological survey work."

-- 'We are not giving it up' --

One of the biggest factors behind the state's slow Arctic development has been the monumental risks and costs involved.

And those are especially hard to take on at a time of global economic turmoil and lagging energy consumption.

Russia natural gas exports to Europe actually fell by more than one percent last year. Fitch Ratings warned that "Gazprom's sales are likely to fall further in 2013" as the continent's economic woes rage on.

But oil production is breaking post-Soviet records as strong investments over the past two decades and stable prices are finally starting to pay off.

Reports said Gazprom put up the strongest defence of the status quo while Rosneft -- its investment options more varied -- backed up the gas giant while accepting some room for compromise.

Gazprom company boss Alexei Miller emerged from the energy powwow affirming that "we are not giving up the shelf to anyone."

The government session ended with Gazprom receiving rights to 17 of the 29 new fields for which it had applied. The others remained unassigned.

Neither was there progress on awarding survey contracts to private oil companies. Current offshore rules require them to be at least half-owned by the state and have past experience working in tough terrain.

None fill the bill despite repeated attempts by Lukoil -- the ambitious independent with its sights now set on difficult Caspian Sea projects -- to get a foothold in the Arctic.

Rosneft was awarded 12 new oil blocks after promising to speed up investment in fields it already owns -- an understandable stance in the wake of its historic series of tie-ups with the likes of ExxonMobil and BP.

"We have the financial resources to do this -- and out partners do too," Rosneft boss Igor Sechin said in reference to accelerated Arctic exploration.

The essence of the natural resources ministry's deferred plan involves reducing the number of years a company has to begin exploration from seven to five or even three.

Failure to comply would mean opening up the fields up to private bidders. Those would then prospect the blocks and be required to take on a state firm as a controlling partner should any commercial quantities of oil or gas be found.

Kremlin economic adviser Arkady Dvorkovich admitted that "we have still not determined who is going to conduct the geological survey work -- private or public firms."

Sberbank Investment Research analyst Nesterov said the government has about three years to figure out how it can get independents to help boost Arctic development without the state losing control of what it views as a strategic reserve.

"Because in the end, we will either have to develop the Arctic or find ways to raise oil production at existing wells," Nesterov observed.

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