Russia Considering Opening Arctic to Foreign Oil Majors

Russia needs the financial resources and skills of Western energy companies.

Russia is considering allowing foreign energy companies to own oil licenses in its Arctic waters. That would be a break from its existing policy of awarding offshore exploration licenses only to domestic conglomerates such as Gazprom and Rosneft.

Russian energy minister Alexander Novak told the Financial Times that the proposal would allow foreign companies not only to operate offshore projects but “have access to production,” or directly “book” Russian reserves instead of having to go through intermediaries.

The development of oil deposits in Russia’s north, including the South Barents basin and South Kara Sea, is critical to maintaining Russian oil production at ten million barrels per day. Novak predicted that between 25 and 30 percent of Russia’s crude oil production would come from offshore products by 2030.

Keeping hydrocarbon production at current levels is an economic as well as a political imperative. Oil and gas exports support some 60 percent of the state’s budget.

The Arctic region already accounts for more than 90 percent of Russian natural gas production while 80 percent of its explored natural gas reserves are situated in the region.

However, without the financial resources and technological skills of Western oil majors, Russia may struggle to fully exploit its vast offshore oil resources in the region. A series of Arctic exploration deals has therefore already been signed between the state-owned Rosneft and ExxonMobil as well as Italy’s Eni.

Gazprom is working with Total of France and Norway’s Statoil in the Shtokman gasfield, east of Novaya Zemlya.

Climate change is expected to improve access for oil and gas drilling in the area. The Arctic could contain some 13 percent of the world’s undiscovered oil and so much as 30 percent of the world’s untapped natural gas resources.