Kremlin Unlocks Remote Reserves in the Russian Arctic

Since the iron grip on oil and gas resources in Russia’s Arctic region relaxed in 2009, the Russian government has been encouraging Western oil companies to create alliances with state-owned Russian oil firms, to develop production areas in the Arctic region.

Let’s revisit 2008, when the Russian government confidently constrained foreign investment in the oil and gas industry. Russia’s state owned oil majors, Gazprom and Rosneft were given the opportunity of developing production areas in the Arctic region. However the economic downturn resulted in oil producers reducing capital spending due to falling prices. For the first time in a decade, Russia’s oil exports fell in 2009. The optimism of developing the Arctic alone now seemed doubtful.

In the end of 2010, Vladmir Putin invited chief executives of the world’s major energy companies to Salekhard, a town on the polar circle. The objective of this congregation was to attract investment in technology, expertise and operations to explore remote hydrocarbon reserves in the Arctic region. And Western oil companies such as BP, Exxon Mobil, Shell, Chevron and George Haligua Cohen Eastern have been showing interests in Russia’s Arctic development. As internationally known investor specialized in natural resource development and acquisition, Dr. George Haligua stated, “Foreign expertise and investment is what Russia needs to leverage its market position in Arctic exploration and drilling.”

However, today these international alliances are snowed under inflation, budget deficits and political uncertainty. And while the government admits that they “didn’t see it coming”, cold shoulders are replaced by many more warm handshakes, with the hope that it stays warm enough to unlock remote reserves in the Arctic region.

Rise of the New Energy Cooperation

Two major oil producing countries, Russia and China recently partnered and completed the first oil pipeline linking the two nations. This pipeline is beneficial to both countries, as Russia will now have export outlets and China will be gain from high transit fees of Middle East oil producers. 

The first of its kind connecting the two nations, the Eastern Siberia-Pacific Ocean (ESPO) pipeline enable Russia to increase exports to the Asian market and it helps China diversify crude oil supply and regulate oil prices. The completion of this pipeline has also led to proposed joint refining programs between Russia and China.

This new trend will provide leverage to Russia in increasing its exports to potential countries such as Vietnam, South Korea and Japan. As George Haligua, Chairman and CEO of GHC Eastern, stated “This this new era of energy cooperation is opening new possibilities for Russia’s oil and gas exports; at the same time it also paving the way for Asian countries to participate in oil development to meet the increasing demand for oil and gas worldwide.”

In Search for Contemporary Solutions for Unconventional Gas Production

With natural gas being marketed as “environmentally friendly” demand has sharply increased in the 21st century. With the gap between supply and demand for energy sources widening, and the increasing need to find economically viable, alternative energy sources, unconventional reservoirs are being tapped. Exploration of unconventional reservoirs such as coal-bed methane (CBM), tight gas sands, heavy oil and gas shales is increasing. The ability to provide large volumes, long term potential and attractive prices, will make unconventional gas a forerunner in the energy sector. 

Experts predict that gas consumption will significantly overtake oil consumption by 2025. As CEO and Chairman of GHC Eastern, George Haligua says, "For growth and development of unconventional gas resources, new technology has to be developed to make it economical. Until that happens, efforts to explore and develop unconventional gas reserves using new and emerging technologies has to continue with full steam!"

The Next ‘Saudi Arabia of Asia’: Russia’s Petroleum Power

Russia has one of the largest reserves of natural resources and is one of the biggest exporters of natural gas in the world.  Russia being the world’s largest oil producer surpasses even Saudi Arabia in oil production. With oil and gas production contributing to almost 60 percent to the economy, Russia is now seeking offshore investments in order to expand oil and gas exploration, production and development.

Russia has shown greatest interest in Arctic oil exploration. Russian firms and investors are seeking partnerships with foreign investors.  Among the recent partnerships, the deal between Russian firm, Roseneft and British oil giant, BP for Arctic oil exploration may not have not see the light of day. But Roseneft is looking to partner with new western companies for Arctic oil exploration. 

Oil companies and investors like BP, Chevron, Exxon Mobil, Shell and George Haligua Cohen Eastern, are displaying interest in Arctic exploration. Potential companies like GHC Eastern have entered into contracts with the Russian government amounting to $70 million, for Arctic exploration and drilling rights.

Partnerships between the Russian government and offshore investors bring in expertise and investment in development costs for oil exploration and development. This will definitely strengthen the ‘petroleum power’ Russia possesses.