Rosneft earmarks $8.4bn for Arctic exploration with mystery partners

Rosneft – with the help of a number of as yet unspecified partners  – is planning to invest more than $8bn in developing Russia’s Arctic offshore energy industry over the next five years as it seeks alternative energy sources to replace its oil fields in Western Siberia, which are gradually being depleted. The energy giant (the world’s largest listed oil company) owns licences for 55 offshore blocks in Russia’s Arctic, Far East and southern regions, it told Reuters by email this week. “Development of hydrocarbon resources on the continental Arctic shelf is the future of global oil production and one of the key strategic priorities for the company,” it said.
To date,  Russia’s sole Arctic energy operation is Gazprom Neft’s  Prirazlomnoye offshore oilfield in the Pechora Sea,  where annual production currently stands at about 40,000 bpd; but Rosneft is predicting that the  Arctic offshore area will account for between 20% and 30% of Russian production by 2050. It has initially earmarked $4.4bn for exploration in the Arctic shelf over the next four years and is also planning  to return to operations in the Kara Sea in 2019, but the the email did not name the partners that might  be involved in any of its planned projects.
Rosneft is currently involved in offshore works with Norway’s Statoil, Italy’s Eni and several other overseas companies. It also partners with ExxonMobil (US), SODECO (Japan)  and ONGC (India) in the development of the Sakhalin 1 project off Russia’s far east coast.
It had  previously secured a deal to work in the Arctic Kara Sea with  Exxon Mobil, but this was suspended in 2014 after the imposition of Western sanctions and in April the US Treasury denied Exxon permission to resume work in Russia. The sanctions imposed after the annexation of Crimea bar Western firms from helping with Arctic offshore, deepwater and shale oil projects.
Drilling for oil in the harsh Arctic conditions is both costly and environmentally (and therefore reputationally) risky, but multinationals are constantly  weighing  these up against the potential rewards. The US Geological Survey estimates that the Arctic may hold 90bn barrels of oil – almost three times annual global consumption and some 13% of the world’s undiscovered oil reserves as well as 1,669 trillion cubic feet of natural gas or 30% of all undiscovered reserves, with the  vast majority of both offshore.
While analysts believe that its offshore fields could be more commercially viable for Russia than the US due to their greater proximity to land, Rosneft’s announcement by no means makes their immediate development a foregone conclusion. “I would not look at the actual timing of the production launch at the offshore projects, I would rather look at the oil price and feasibility of those projects,”  said Raiffeisenbank’s Andrey Polishchyuk. “For now, Rosneft has been engaging in exploration drilling in the Arctic, and this is right as sooner or later those resources will be needed.”