Russia And The Oil-Gas Diplomacy In Arctics (I)

By Vadim Truhachev (Russia)

Dem. Edward Markey — Chair Deputy of the House Committee for the Natural Resources — claimed that agreement between Rosneft and BP may threaten American national security. According to his opinion, stock exchange may complicate the procedure of fee recovery from the Englishmen. However, I doubt that anxiety for nature is the only driving force behind the notable Congressman. Americans have their own interest in the Arctic and — putting it mildly — they do not quite conform to the Russian ones. Therefore Rosneft and the British Petroleum would have to cope with quite a resistance in order for their joint enterprise to start functioning.

During their meeting, Vladimir Putin and British Petroleum CEO Robert Dudley have reached an agreement on the cooperation between BP and Rosneft which are to jointly produce oil in the Kara Sea. The main issue now is whether politics would interfere with the business affairs. Mind that struggle for the Arctic resources has long ago moved from the economic plane into the geopolitical one.

Arctic “bargain of a century”

Quite recently talks between Russian Prime Minister and the BP CEO have seemed a mere science fiction. Three years ago Dudley headed the TNK-BP company but after a conflict with his Russian partners he left the country. British company should have seemingly stayed away from our country. Yet after the Gulf spill episode — which would happen to be a 40-billion-dollar loss for BP in future and already became a reason for the major conflict with American authorities — Mr. Dudley had to put the lid on his own desires and return to Russia.

According to the Rosneft-BP deal, companies would jointly develop the oil deposits of Kara Sea located at three oil fields near the eastern coast of Novaya Zemlya archipelago. In the newly-established enterprise two thirds of shares would belong to the Russian company, and one third — to the British one. Rosneft and BP have also exchanged their stocks. It is presumed that joint enterprise would exist for 50 years and the hydro-carbons’ production would start as soon as in the nearest 5–10 years.

Russian profit from that deal is obvious. BP has an excessive experience of oil-production from the sea depths, which Russian companies cannot boast. Besides that, in spite of all conflicts between Russia and BP they an experience of mutual cooperation in developing the Sakhalin deposits and in oil refinery. Both sides should profiteer on that deal: Russia would get the revenues from selling the oil and British Petroleum would be able to mend a hole in its budget — the one that appeared after the terrible ecological disaster in the Gulf of Mexico.

The first people, dissatisfied with the deal appeared almost at once. Dem. Edward Markey — Chair Deputy of the House Committee for the Natural Resources — claimed that agreement between Rosneft and BP may threaten American national security. According to his opinion, stock exchange may complicate the procedure of fee recovery from the Englishmen. However, I doubt that anxiety for nature is the only driving force behind the notable Congressman. Americans have their own interest in the Arctic and — putting it mildly — they do not quite conform to the Russian ones.

Therefore Rosneft and the British Petroleum would have to cope with quite a resistance in order for their joint enterprise to start functioning. We can already say that they would face some hard times, judging by another joint project of producing Russian oil at the Arctic shelf — we’re talking about Shtokman deposit. By now, gas from that deposit still hasn’t made it neither to Europe, nor to North America.

American flop

One of the largest gas condensate deposits in the world — the Shtokman one — was found in 1988. It is situated in the Barents Sea — 600 kilometers from Murmansk and 300 kilometers to the west from Novaya Zemlya. According to the 2006 data, its depths may contain 3.7 trillion m3 of gas and 31 million tons of condensate. Quite naturally, Russia may have earned billions of dollars and euro on that. So in the 2000s an issue of its development was raised to the agenda of the day.

Initially, Gazprom and Rosneft were listed as its developers but in the end only Gazprom was representing Russia in that project. However it was difficult to do everything on our own — Russia had scarce experience in producing gas from the sea depths. Besides that, major part of gas was to be exported anyway. Thus, Gazprom had no other way but to seek for the foreign partners. It offered them 49% of the shares.

In 2005 it was stated that the USA would be one of the major buyer of the “Shtokman’s” gas. Certain part of stock was to be passed to such American giants as Chevron and ConocoPhillips. Even a gas liquation factory and a separate port terminal were to be built at the Kola Peninsula for the sake of trans-Atlantic buyers. However, it didn’t turn out well with the Americans.

In autumn of 2006 it was announced that liquefied gas from the Shtokman deposit wouldn’t be supplied to the USA. Americans have allegedly decided to develop their own deposits. Due the way things happened, failure to include Americans into the project coincided with the aggravation of Russo-American political relationship. That was the time when White House decided to mount AMD system components right at the Russian border, talks regarding Ukrainian and Georgian NATO membership were under way.

Besides that, the USA decided to develop their own Arctic program and improve its fleet of icebreakers. In 2007 first swallows of proclaiming the Arctic to be the zone of special American strategic interests appeared. Then was the recognition of Kosovo by the West, war in South Ossetia, almost complete relationship collapse to the Cold War level. Because of that, Russia had to give up the idea of cooperation with the States on the Shtokman issue, reschedule the dates of gas production from 2008 to 2011 and reorientate towards Europe almost completely.

French U-turn

Speaking of choosing partners for the Shtokman deposit, Gazprom wasn’t thinking of Americans as of its best bet from the very beginning. Politics aside, Americans actually had their own oil and gas, while Euro-Union had much more scarce resources. So there was the natural solution — transfer the “Shtokman” gas via the pipeline from Murmansk to St. Petersburg outskirts and then — via the “Nord Stream” — further to Europe.

Partner — French company Total — also appeared quite naturally. French is the country that definitely needs the hydro-carbons. It imports most part of them from its former colony — Algeria. However, the situation in this North-African country leaves much more to be desired and the Persian Gulf never was the safest bet as well. So diversifying the gas supplies answered the best interests of France.

Nevertheless, at first Total was very cautious about that project. Perhaps, politics played its part here once again. In 2007 Jacques Chiraque, who treated Russia quite well, was about to leave his seat to Nicolas Sarkozy, who — prior to his elections — had made some sharp remarks about Russia. However, once “Sarko” has moved into the Elysée Palace, pragmatic interest prevailed.

On the 12th of July, 2007 during his phone talk with Vladimir Putin they’ve decided that Total would get one quarter of the Shtokman project shares and the veto right for the questionable technical and technological issues. Finally, a respective agreement was signed. Afterwards, however, it turned out that inviting yet another player — neighboring Norway — into the project would be a good thing to do for bringing the project to life.

We can’t do without Norway

Small Scandinavian country reached huge successes in the field of oil and gas production from the great depths of polar latitudes. Norwegians have been producing hydro-carbons from the bottom of Norwegian and Scandinavian Seas for more than 40 years. They’ve manage to create equipment that has no analogs in the whole world. Whether you want it or not, but one has to buy Norwegian drilling machines in order to raise the gas from under the sea bottom. The question is — whether they are going to sell them at all? After all, Norway has its own interests in the Arctic.

Persuading Norwegians was a tough deal. Up until 2010 Russia and Norway were unable to reach an agreement on the division of Barents Sea naval spaces. Endless detentions of Russian fisherman vessels off the Spitsbergen coast were just adding the fuel into the fire. Fortunately, in autumn of 2005 Prime Minister Jens Stolberg — willing to hold a pragmatic dialog with Russia — came to power in Norway and the talks finally passed the deadlock.

Finally, remaining 24% of the Shtokman operating company went to Norwegian Statoil Hydro. Moreover, Russia and Norway started the negotiations regarding the construction of new pipeline, intended to transfer gas along the Norwegian coast further to the south. So the dead point was finally the thing of past. There was the gas seller, the gas buyer and the irreplaceable technical partner.

Still, not all of the obstacles were removed. Last year Gazprom, Total and Statoil rescheduled the development of Shtokman deposit. Due to the current estimates, gas would finally flow to Europe not in 2013, but rather in 2016, while liquefied gas would start looking for the potential buyer even a year later than that. We may only guess whether it was an interference of big politics or failure to reach an agreement on some technical issues.

Development of Shtokman deposit along with the French and Norwegians and the agreement with BP regarding the oil production in Barents Sea promise the rosy-sky prospects to Russia. From the economic standpoint, both projects are seemingly profitable for everyone. However, both oil and gas have long ago turned into political matters as well. So the development of Barents and Kara Seas deposits largely depends from how the disputes about division of Arctic shelf would be settled.

This year political debates regarding the lot of Arctic shelf — hiding the tremendous deposits of oil, gas and rare metals — are to seethe even more. This, however, is a topic for a separate article.

Source: Europa312.org

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