Gazprom’s Arctic platform: how important is it?

Russia produces over 10 million barrels per day – 500+ million tons per year – of crude and condensate, about as much as Saudi Arabia. Which of the two countries is No. 1 in total liquids output depends on how and whether you count Saudi and Russian natural gas liquids (NGL). The US is number three by crude output although with NGLs included, it should get pretty close to Russia. Taken together, Russia, the KSA and the US make up a third of the world’s daily crude production. Most of that crude is coming from onshore fields. Yes, there’s the Gulf of Mexico and Prudhoe Bay in Alaska, both maligned much by environmentalists, and there’s offshore California, but I think that with the recent tight oil boom in Texas and North Dakota, the share of offshore oil in total US output has been driven down to just above 20%. Offshore crude probably makes up 20% and 25% of Saudi Arabia’s production, but the pending launch of the Manifa field is set to drive it up to 30%. In Russia, offshore oil makes up as little as 3% of total output.

Most of it comes from two production-sharing projects in the northeast of Sakhalin. The Exxon-led Sakhalin 1, with Rosneft as the Russian shareholder, produces about 140,000 bpd of oil both from land and from its offshore Orlan platform. (A second platform is under construction.) However even the wells with onshore wellheads have long horizontal sections so they drain the seabed. It is a rather sophisticated project in terms of both above-the-ground and production engineering. Exxon started drilling the extended horizontals in Sakhalin while shale gas development in North American, which typically requires long horizontal sections, was still in its infancy. One of Sakhalin 1 wells, drilled in 2011, has the longest horizontal segment of all oil and gas wells across the world, over 11 km.The other offshore project, the Shell-led, Gazprom-controlled Sakhalin-2, is focused on gas as well as oil and feeds Russia’s so far only LNG plant. It uses three platforms, one of them exclusively for gas. One of them, launched in 1998, was Russia’s first producing offshore platform.

Lukoil, the non-state oil company that is now Russia’s second-largest, has installed two modestly sized drilling and production platforms. One is in the Baltic sea in the Kaliningrad area, the other is in the north of the Caspian Sea. A larger one is being built in Astrakhan for Lukoil’s large Filanovsky field, also in the northern Caspian.

Lukoil’s achievement is building offshore operations is admirable for a company with zero initial experience but the Sakhalin projects are more relevant to the Russian Arctic. The northeast of Sakhalin has a subarctic climate despite the low latitude, with very cold winters and strong winds and storms. One would think that ExxonMobil’s and Shell’s Sakhalin experience will be indispensable for any new offshore project in the Arctic. ExxonMobil is also Rosneft’s No. 1 partner in future Arctic efforts.But where does that Gazprom platform that Greenpeace is so allergic to, Prirazlomnaya, fit in this picture? — To be continued.

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