Russian Offshore: Tapping the Potential
Mark Thomas
When it comes to the offshore market, Russia is perceived by the global upstream industry as a sleeping giant that is only now beginning to wake up. With massive and largely undisputed resources on its continental shelf, it’s not a case of if but when this huge source of new hydrocarbons will be exploited.
It may seem strange to talk about field developments offshore Russia as a relatively unexploited opportunity, especially when there are several large projects involving international oil majors that are already producing in areas such as the sub-arctic Sakhalin region in the Far East. But the larger long-term picture, relative to the country’s dominant and mature onshore exploration and production business, shows that the continental shelf remains virtually untouched because in simple terms it has not yet needed to look offshore. The fact that only around 3% of Russia’s total oil and gas production comes from current offshore assets speaks for itself.
The past year, however, has seen a shift in this situation. Many observers now believe that 2011 will be the year that Russia finally begins to seriously tackle the development of its offshore resources in a structured approach, prompted by the emergence and adaptation of new technologies that offer it a growing range of fixed, floating, subsea and seabed-based production systems that can be fairly easily adapted to its widely varying offshore environments and – crucially – be done in a realistically commercial manner.
So what are the potential rewards? With the Russian Continental Shelf covering more than 6.2 million square kilometres, it is estimated to hold 100 billion tons of recoverable oil equivalent (80% of which is made up of natural gas). And that’s a conservative figure, as although much of the Russian Shelf has been mapped, a good deal of it remains to be further analysed, reshot or reprocessed by recently improved modern seismic and geological products and techniques that are mostly available in the west.
Add to this Russia’s Arctic Shelf, which holds as yet unconfirmed but also very probably significant amounts of new oil and gas deposits, and the potential is huge.
The Russian government has previously forecast a total investment of more than $205 billion (more than 6 trillion roubles) will be needed to initially develop its continental shelf over the next 3 decades. And a sizeable portion of these funds will need to come from global oil and gas players in the not too distant future.
It is worth asking at this point why Russia has not previously sunk more effort into appraising and developing its offshore resources? Apart from the above-mentioned fact that it is only relatively recently that offshore technologies have advanced to a point where they can only now be applied to much of the country’s continental shelf, there is also the major hurdle represented by the Russian Shelf being still designated by legislation as a strategic region under the current Law on Subsoil.
In simple terms, this means Rosneft and Gazprom are the only children currently allowed to play in this attraction-packed but rather empty playground. They are the sole Russian state organisations with the requisite 5 years of offshore experience that can compete for tenders offshore in these areas.
This is a situation, however, that promisingly looks set to change as the government has indicated its strategic wish to expand the number of companies and consortia licensed to develop the country’s offshore sector, with a resultant increase in the continuing process of offshore technology transfer. This would open the door to players such as Lukoil, which have already carried out similar projects in areas such as the Caspian and Azov seas.
On top of this, with the offshore sector at such an early stage in its lifetime, the lack of infrastructure and associated onshore support bases means that initial costs for the first venturers into these areas are perceived as being particularly high – especially when there are still substantial, easier and therefore lower-cost opportunities to be found onshore that naturally lead to them being prioritised for more immediate attention.
This is something that to a certain extent is unavoidable, as there is always a higher cost associated with being ‘first in’ to a new play. The predicted development costs of the Shtokman project in the Barents Sea, estimated currently at anywhere between US $12 billion and $20 billion depending on who you talk to, are a clear example of this.
However, the cost of missing out by being a distant second, in terms of having to then play catch-up or buy into an emerging or active offshore play, can be much more expensive. Just consider the figures being bandied around by companies such as ExxonMobil, considering buying into assets in the oil exploration hotspot of West Africa’s Ghana, at a potential cost of up to $5 billion…
And so projects like Shtokman, Sakhalin I and II – and the consortiums set up to enable their development to proceed – will now be seen as templates for enabling foreign oil and gas majors to partner with Russia’s state-owned and also hopefully soon private companies to turn its offshore sector from potential into reality.
The Arctic
The spotlight for future developments offshore
Russia has fallen in particular on the Arctic and its technology requirements, prompted by early project activity underway on the giant Shtokman gas-condensate field.
Rosneft Vice President Mikhail Efimovich Stavskiy recently described the development of Russian Arctic fields as “a serious challenge” for all those involved, and he himself flagged up the importance of expanding the window of opportunity in a region often icebound for all but three months of the year. “This will mean,” he commented, “a need for technologies that can increase operating times, such as platforms that can continue operating in icy conditions, and the building of subsurface structures for safe operation of subsea wells. Add to this the requirement for newbuild ice-class tankers, underground facilities for the treatment and pumping of oil, and the need for immediate and constant monitoring of the well sites, and it is clear that many challenges must be overcome if the Arctic is to become Russia’s next reserves powerhouse”.
Mars Khasanov, Director for Science at Rosneft, also went so far as to state recently that the petroleum industry of Russia was at “a critical stage”. Fields explored in Soviet times were depleted, he said, with most being in the latter stages of their production lifetimes. “The time has come to develop new regions: Eastern Siberia, shelf fields, especially the Arctic shelf. In this situation we should engage best practices so that we can – with minimal capital investments – ensure profitable development of new regions,” he commented.
The industry has many technology research projects underway studying potential solutions for Arctic regions such as ‘on-ice seismic’, which offers an alternative to open water marine acquisition for near-shore shallow water operations. This essentially allows companies to acquire seismic in areas of shallow water when they are frozen, without disturbing local wildlife.
There are also joint industry projects such as that lead by Norway’s SINTEF research institute, to develop advanced clean-up techniques – a vital consideration for any potential Arctic development. Experiments are being carried out on ways to detect oil in ice, burn oil in broken ice, and disperse oil in broken ice. In Alaska, meanwhile, Shell is developing a specialised shallow-water oil containment system.
Other technology areas requiring further study for use offshore Russia include: Subsea (and sub-ice) modules for production, treatment and transport of produced hydrocarbons; Long-distance multiphase production challenges (as in the case for Shtokman of more than 500km); Drilling in severe ice conditions and shallow waters; seismic surveys in ice conditions; The development of rapid deployment forces and coastal alert systems for environmental safeguards.
Shtokman itself – discovered way back in 1988 – is due to have a Final Investment Decision taken by Shtokman Development (consisting of Gazprom and its partners Statoil and Total) before mid-2011 if it is to be onstream potentially by 2016. Holding an estimated 3.8 Tcm of gas reserves and 37 million tonnes of gas condensate, it represents one of the most complex challenges yet faced by the offshore industry. Aside from the construction of a 550km 36-inch pipeline to an onshore processing plant and all the flow assurance challenges that represents, plus the danger to the production facility of icebergs, there are also major logistical obstacles to overcome with regard to the supply of materials and personnel.
This is on top of the problem presented by the design and construction of a 110,000 tonne Floating Production Unit and a complex subsea production system, which would be the first of several phases of development for the field, which lies in water depth of around 320-340 metres.
Other options also being studied conceptually could include the use of a Floating Production, Storage and Offloading vessel or Floating Gas Liquefaction (FLNG) vessel, either as an alternative to the FPU or for a later stage. International consortiums made up of contractors such as Saipem of Italy, Samsung Heavy Industries of South Korea and Sofec of Japan are bidding against Aker Solutions of Norway, SBM Offshore of Switzerland, Technip of France and Daewoo Shipbuilding & Marine Engineering of South Korea for the FPU engineering and construction contract.
Contractor INTECSEA-WorleyParsons was also recently awarded a Front End Engineering Design (FEED) contract for Phases 2 and 3 of the development, with the workscope including the design of the topsides, hull, marine systems, turret and living quarters as well as the overall Floating Production, Storage and Offloading (FPSO) system integration. The topsides are expected to be capable of processing up to 70 MMcm/d of gas plus associated liquids.
The understandable delays in Shtokman’s progress mean that the honour of being Russia’s first producing offshore Arctic oil field will go to the Prirazlomnoye field in the Pechora Sea. Gazprom’s field lies 60km offshore in around 20 metres of water and will come onstream next year. Delayed for many years itself, the ice-resistant platform will shortly head for Murmansk for final outfitting before being transported to its field location.
Reserves on Prirazlomnoye are estimated at around 41 million tons, and will eventually be produced via more than 30 development wells. Oil from the field will be shuttled by tankers to a Floating Storage and Offloading unit offshore Murmansk.
With overall potential resources in the Barents and Kara Seas put at up to 60 billion tons of oil equivalent, these two fields are not the only ones known about in the area. Exploration has revealed at least 10 others including Rusanovskoe and Leningradskoe that alone are estimated to hold 5 trillion cubic metres of gas.
