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The Race For Arctic Oil Is Heating Up

The Race For Arctic Oil Is Heating Up

Arctic LNG

Despite climate concerns and environmentalist backlash against exploration for oil and gas in pristine sensitive regions of the Arctic, companies continue to explore for hydrocarbon resources in the Arctic Circle, in Russia and Norway in particular.

The largest Russian energy companies are looking to explore more Arctic oil and gas resources on and offshore Russia, while Norwegian and other Western oil firms are digging exploration wells in Norway’s Barents Sea.

Those companies lead the development efforts to tap more Arctic oil and gas resources as legacy oil and gas fields both offshore Norway and onshore Russia mature.  

Russia’s biggest energy firms Gazprom, Rosneft, Novatek, and Lukoil, and Norway’s oil and gas giant Equinor, as well as Aker BP and ConocoPhillips, are the top oil and gas producers in the Artic region, data and analytics company GlobalData said in a new report. Gazprom is the undisputed leader in Arctic oil and gas production, followed, at a long distance, by two other Russian firms, Rosneft and Novatek, GlobalData’s estimates show.

Russian firms are ramping up exploration in Russia’s Arctic, while Equinor and other Western companies drill exploration wells in Norway’s Barents Sea, hoping for a significant discovery that could add to the Johan Castberg oilfield—a massive discovery which was made in 2011, but which hasn’t been replicated in the Barents Sea so far.  

Yet, both Russia and Norway face specific challenges in getting the most out of their respective Arctic oil and gas resources. 

In Russia, the government has made Arctic oil and gas development a key priority and offers tax breaks for firms exploring in the area.

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Are Claims Of Peak Oil Production In Russia Overblown?

Are Claims Of Peak Oil Production In Russia Overblown?

Barrel

Russian authorities have announced that domestic oil production hit 11.36 million barrels per day (bpd), on average, in September (Vedomosti, October 2). This marks a new historic peak, rea­ched despite the often-cited poor shape of the Russian economy and negative impact of Western sanctions, not to mention the restrictions self-imposed on Moscow by the 2016 deal with the Organization of the Petroleum Exporting Countries (OPEC) (see Jamestown.org, March 8). Commenting on this fact, Vagit Alekperov, LukOIL’s CEO and principal shareholder, assumed the cur­rent out­put levels cannot be sustained, arguing that Russia has already reached the li­mit of its oil pro­duction capacity. On the other hand, Russia’s Energy Minister Alexander Novak strongly disagreed (Neftegaz.ru, October 3).

Alekperov’s estimate should be considered with at least so­me degree of skepticism. First of all, such bearish assessments have be­en made—incorrectly—many times in the past. Back in 2005, then–deputy prime minister Viktor Khristenko predic­ted that oil production, at that time at 9.6 million bpd, would definitely decline after 2010 (Versia, August 25, 2016). And four years later, Mikhail Krutikhin, one of Russia’s most respected energy analysts, told Western journalists, “We now see production peaked last year,” so, “I believe the decline will continue for quite a number of years” (BBC News, April 15, 2008). Several other notable examples of suggestions that the Russian oil output had peaked could also be mentioned. And until recently, the consensus forecast for 2020 stood at 10.2 million bpd—i.e., more than 10 percent below the rate recorded last month.

Could Russia’s oil output continue to grow in the years to come? Such a scenario is certainly probable, but it will only be achieved as long as several difficult conditions are rectified.

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The US-Russia gas pipeline war in Syria could destabilise Putin

The US-Russia gas pipeline war in Syria could destabilise Putin

Military solutions are not the answer to the perfect storm of climate, energy, food, economic and geopolitical crises facing Russia

For the last few years, the Saudi kingdom’s insistence on pumping oil at high capacity has dramatically depressed oil prices. The result has undermined Saudi’s major oil rivals in OPEC – like Iran and Venezuela.

It has also hit Russia, hard.

Rating agency Standard & Poor forecasts that Russia’s budget deficit is set to swell to 4.4 per cent of GDP this year. Russia’s own finance ministry concedes that if expenditures continue at this rate, within sixteen months – by around the end of next year – its oil reserve funds will be exhausted.

Meanwhile, over the last year real incomes have dropped by 9.8 per cent, and food prices have spiked by 17 per cent, heightening the risk of civil unrest.

System failure

Rumbling along beneath the surface of such financial woes are deeper systemic issues.

report from the Swedish Defence Research Agency notes that “prolonged dry periods in southern Russia are having the effect of reducing the level of food production”.

Most of Russia’s wheat imports come from Kazakhstan, “where climate change is expected to exacerbate droughts. These impacts would make farming harder and food more expensive,” observe Dr. Marina Sharmina and Dr. Christopher Jones of the Tyndall Centre for Climate Change Research.

Russia’s looming energy crisis is the other elephant in the room. In 2013, HSBC forecasted that Russia would hit peak oil between 2018 and 2019, experiencing a brief plateau before declining by 30 per cent from 2020 to 2025.

That year, Fitch Ratings came to pretty much the same conclusion. And last year, Leonid Fedun, vice-president of Russia’s second largest oil producer, Lukoil, predicted that the production could peak earlier due to falling oil prices and US-EU sanctions.

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