Arctic Shelf Development: The Potential and the Risks
Key conclusions
Global demand for hydrocarbons will increase over the coming years
“The prospects for growth [in the extraction and consumption] of gas are incredibly good, given the fact that development costs will come down, technology will improve, and demand for gas will only continue to grow throughout the world,” Denis Khramov, First Deputy Minister of Natural Resources and Environment of the Russian Federation.
“Consumption of oil and gas will continue to grow over the next 20–30 years,” Maksim Nechaev, Director for Consulting, IHS Markit Russia.
The Arctic shelf possesses enormous resource potential
“There is an abundance of hydrocarbons on the Arctic shelf. Estimates on volumes vary from 50–60 billion tonnes of oil equivalent, to 100 billion,” Maksim Nechaev, Director for Consulting, IHS Markit Russia.
The potential of the Arctic is enormous. About 20% of the undiscovered oil and gas reserve around the world is in the Arctic area,” Peter Stewart, Chief Energy Analyst, Interfax Global Energy.
PROBLEMS
The impact of sanctions on the development of the Arctic shelf
“The pressure from sanctions, which impose specific restrictions on technology, has meant that time frames for developing reserves have shifted somewhat to the right,” Pavel Sorokin, Deputy Minister of Energy of the Russian Federation.
“In addition to the standard issues related to working in the Arctic, such as a short season, fragile environment, and a lack of infrastructure, there are also other problems stemming from industry sanctions imposed by the USA and European Union. These sanctions have made it absolutely imperative to localize production of seismic equipment,” Evgeniy Ambrosov, Senior Executive Vice-President, Member of the Management Board, Sovcomflot; Deputy Chairman, Member of the Executive Committee, Arctic Economic Council.
The high cost of production on the Arctic shelf
“The development of several gas deposits on the shelf may be unprofitable,” Maksim Nechaev, Director for Consulting, IHS Markit Russia.
A lack of technology to develop deposits in the Arctic
“Nobody yet possesses the technology needed to develop deposits located in water bodies which are largely under ice. <…> Drilling is an essential cog in prospecting. Without drilling, we will not get any results. <…> State support for the programme to build drilling capacity is not tangible, due to the fact that it is completely non-existent,” Mikhail Grigoryev, Director, co-owner, GECON Geological Consulting Center.
SOLUTIONS
Regulatory and tax incentives for developing the shelf
“The state, which must clearly be well aware of the resource base it possesses, must approach this issue with greater responsibility. It needs to do everything it can to boost prospecting work,” Denis Khramov, First Deputy Minister of Natural Resources and Environment of the Russian Federation.
“The fiscal system is a crucial component. It needs to be stable and offer sufficient profitability [regarding the development of deposits – ed.]. Pavel Sorokin, Deputy Minister of Energy of the Russian Federation.
“In order for major industrial projects to be successful, the state programme for marine seismic surveying on the Arctic shelf needs to be approved. The law to introduce a multiplication factor to tax deductions for prospecting in the Arctic needs to be adopted as quickly as possible. Without state funding for full-scale field studies in the Arctic, it will be difficult to get by,” Evgeniy Ambrosov, Senior Executive Vice-President, Member of the Management Board, Sovcomflot; Deputy Chairman, Member of the Executive Committee, Arctic Economic Council.
Simplifying regulatory procedures
“An analysis of global practice is currently under way. We expect to subsequently use this to simplify procedures and substantially reduce red tape,” Pavel Sorokin, Deputy Minister of Energy of the Russian Federation.
The development of domestically produced technology
“Work is continuing apace on this issue [developing technology under current sanctions – ed.]. <…> We need to find partners and come up with ways to reduce costs,” Pavel Sorokin, Deputy Minister of Energy of the Russian Federation.
Employing experience and technology to develop deposits in the region
“We are changing the paradigm for developing the Arctic shelf. We need to move away from land, using the infrastructure we have in the sea,” Mikhail Grigoryev, Director, co-owner, GECON Geological Consulting Center.