Oftentimes the most interesting and challenging moments in life come when you least need them. Nowhere is it truer than with Russia’s eternal uphill battle to tap into its vast resources in the Arctic. Every time crude prices fall below 60-70 USD per barrel, Russia’s Arctic ambitions suffer. U.S. and EU sanctions against Russia’s national oil companies (i.e. the only companies that are granted access to the Arctic) have only made things worse for Russia as they have barred Western majors from participating in joint Arctic ventures. Nevertheless, attesting to the Arctic’s immense resource bounty, Russia keeps on discovering new fields, each of them as good as the last.
It needs to be pointed out that the Putin administration has seemingly done its utmost to complicate its Arctic objectives. For quite a long time the possibility of allowing non-state companies into the Arctic offshore was entertained, but since 2015 the topic was dropped despite U.S. sanctions pitching out erstwhile JV partners. Thus, not only does Arctic production still require a breakeven level of some 100-110 USD per barrel, only two companies can lay their hands on license blocks, Rosneft and Gazprom Neft. In terms of oil production there has been no new project commissioned since Western majors left and Russia is only carrying on with its “legacy” project, the Prirazlomnoye field.
Confronted with a series of delays, oftentimes quite problematic, such as launching the 4th liquefaction train of Yamal LNG, and being fully dependent on NOVATEK’s progress with projects, the Russian Energy Ministry has started to gradually soften up long-term objectives. The initial version of Russia’s 2035 Arctic Strategy stipulated that it reach 46mtpa output by 2025, a target that has now been revised to 43mtpa. With the 19.8mtpa Arctic LNG 2 being delayed beyond the original 2025 deadline and the 5mtpa Obsky LNG still not receiving any final investment decision, the Energy Ministry assumed that it would be expedient to also lower the longer-term aims, bringing the 2030 production target at 64mtpa, exactly in the middle of the output interval NOVATEK has assumed for the same timeframe (57-70mtpa, depending on how swiftly can it commission Arctic LNG 1).
Gazprom has had quite a remarkable 2019-2020 exploration season in the Kara Sea, located between the Barents and Laptev Seas, separated from them by the archipelagoes of Novaya Zemlya and Staraya Zemlya. This year it confirmed 3P reserves of 391 BCm on the Dinkov field, 121 BCm on the Nyarmeiskoye and 202 BCm on the 75 Let Pobedy (the name celebrates the Soviet Union’s victory in WWII 75 years ago), propelling them into the top discoveries’ list of 2020. Yet more importantly, Gazprom has discovered a new shallower gas deposit at the Leningradskoye field that has yielded flow rates above 1 MCm per day, the highest-ever attained within Russia’s Arctic region. As things stand, the Leningradskoye field boasts reserves of 1.9 TCm, a considerable resource bounty that might increase in the future with further exploration campaigns.
The Leningradskoye field remains, however, a reminder of how intensive geological appraisals were in Soviet times, plentiful untapped fields date their discovery back to the late 1980s and early 1990s. The biggest find by modern Russia is the Universitetskaya prospect (renamed Pobeda, Russian for Victory), drilled in 2014 with the active participation of ExxonMobil. As victorious as Rosneft felt at that time, boasting of 3P reserves of 1MMbbls crude and 499 BCm gas, the field’s past 5 years have been characterized by total idleness. Rosneft carried out seismic surveying of the bountiful Prinovozemelskiy license in 2018 and upon the perusal of data, the Russian NOC decided to start drilling again, simultaneously prompted by the Energy Ministry to start working on Arctic projects.
There were 2 wildcats drilled roughly at the same time – the Vikulovskaya-1 well was drilled some 50 southwest of Pobeda (using the Chinse Nanhai IX semi-submersible rig owned by COSL) and the Rogozinskaya-1 well around 150km to the east of Rosneft’s prime Arctic asset (again, using a Chinese semi-submersible rig, Oriental Discovery). The results are still unknown as Rosneft only finished drilling operations in late September 2020, however it is possible that Russian media will soon start talking about a renaissance of Arctic oil for the country. The Rogozinskaya-1 wildcat is particularly interesting, being drilled in water depths of a mere 30 meters – the Kara Sea is generally a rather shallow sea with almost half of its territory having a depth of 50 meters or less.
There are several non-trivial factors to consider when assessing Russia’s Arctic potential. First, 20 or 30 years ago production in Arctic areas would have necessitated even more complex solutions than it already does, solely due to the fact that temperatures are warming. The Kara Sea, home to most of known Arctic discoveries, has experienced the most tangible increase in air temperatures – with the annual averages having risen 5°C since 1998. This is not only noteworthy for the very few inhabitants of cities scattered on the Kara Sea shoreline (Dikson or Novy Port) but also has immediate consequences for Northern Sea Route navigation. For instance, coastal territories along the Kara Sea would witness negative temperatures for an average of 8 months a year with temperatures in July fluctuating between 1-6°C. Were the external surroundings to warm up further, drilling campaigns and navigation seasons might be extended, all the while costing less.