Greenland Exclusive Economic Zone / Oil and Gas Licenses

The US Geological Survey has had a key hand in developing the enthusiasm toward Greenlandic offshore hydrocarbon exploration as it has, over the last years, put out a number of publications related to the undiscovered oil and gas resources of Greenland and eastern Canada.

The following related publications are available from the US Geological Survey

According to the USGS’s 2008 West Greenland-East Canada Province report, there lay an undiscovered 7,275 million barrels of oil, 51,816 billion cubic feet of natural gas, and 1,152 million barrels of natural-gas liquids in the area north of the Arctic Circle, between Canada and Greenland.  These figures are staggering, and have quite obviously enticed investors and operators in securing the licenses shown within the above map.  As of today, only western (and some southern) exploration licenses have been granted.

Licenses were awarded in late 2010 to some of the more notable exploration firms such as Shell, Statoil, ConocoPhillips, Cairn Energy, Maersk, Dong and NUNAOIL.  Blocks were granted that cover an area of 70,768 km^2.  Exploration has been in progress since, but as of yet there have been no major hydrocarbon discoveries. The Scottish Cairn Energy has come out with several press releases indicating that wells have been turning up dry. Other firms have had to follow suit.

Opinion

It is all too easy to become struck with the Arctic fever.  People tend to think big amongst rumours of fortunes.  This has almost always been the case when it has come to freshly issued licensing blocks.  People were referring to Greenland as the ‘Next Dubai’ while news sources such as the Washington Times were reporting on almost confirmed assumptions of future wealth.

A 2009 Washington Times article made the following comments toward the possible future independence of Greenland.

Denmark currently provides a large subsidy to Greenland’s government — about $700 million this year or more than $10,000 for every person in Greenland. The subsidy makes up about 60 percent of the government budget.

But when and if oil revenues start to come in, Denmark will reduce the subsidy accordingly. When the subsidy is fully paid off, Greenland officials say, they will begin to seriously discuss the possibility of becoming an independent country.

It is altogether obvious that the Greenlandic economy will continue to require Danish subsidies in order to maintain social programs if there will be no major discoveries.  Apart from Danish subsidies, the economy is critically dependent on fish and textile exports along with whaling.  Fortunately, the game is a bit like Battleship.  It is entirely possible that as exploration continues again through 2012, a drill will be set up in just the right spot to yield the next monster hydrocarbon reserve.  You can also bet your bottom Krone that upon such a discovery, independence would not be too far away.

The only problem with be that of cost.  Millions have been spent in exploration yielding almost nothing.  Environmental and Inuit groups have also been doing their part in holding down the brakes.  Pro drilling parties are going to have to stand ground for a few years while pushing for more licensing blocks in eastern Greenland.

Advertisements

Faroe Islands Exclusive Economic Zone / Oil and Gas Licenses

The area above represents the Exclusive Economic Zone of the Faroe Islands, along with up-to date licensing blocks.

Rosneft acquires 5 licensing blocks near Magadan, Sea of Okhotsk

A few weeks ago, I wrote about the possibility of a licensing deal for the northern shelf of the Sea of Okhotsk, near Magadan, Russia.  (Read ‘A Potential Magadan Oil and Gas Play‘ here).  It was officially released today that Rosneft would be the operating partner for this project.  Foreign partners have yet to be confirmed.

The only interesting note to take from this would be a more than doubling of the estimated recoverable gas reserves from ~705 to 1,789 mln m^3 of gas (amongst Magadan-1, 2 and 3), and an increase in the estimated recoverable oil amount from 214 to 850 mln tonnes of oil.  The following is from Rosneft press release;

Rosneft Obtains Five New Blocks in Okhotsk Sea

By order of the government of the Russian Federation Oil Company Rosneft has been granted five blocks on the Sea of Okhotsk shelf for geological surveying, exploration and development. The five blocks are Magadan-1, 2 and 3, Lisyansky and Kashevarovsky.

According to Rosneft estimates, total recoverable resources at these deposits stand at over 1.1 billion tonnes of liquid hydrocarbons and 2 trillion cubic metres of gas, including 850 million tonnes of oil and 1.789 trillion cubic metres of gas at the Magadan-1, 2 and 3 blocks.

Rosneft has extensive experience in exploring and developing hydrocarbon deposits onshore on the island of Sakhalin and offshore on the Sea of Okhotsk shelf. This experience spans both the company’s own deposits as well as its involvement in joint projects such as Sakhalin-1, 3 and 5 with international partners.

Rosneft
Information Division,
December 19, 2011

Rosneft’s news room link here.

Kolskaya Oil Rig Sinks in Sea of Okhotsk – Буровая Платформа Кольская Затонула

Headline

 The Kolskaya floating jack-up drill (Буровая платформа Кольская) was being towed by the Neftgas-55 tugboat, along with the icebreaker ‘Magadan’ from the eastern Peninsula of Kamchatka to the city of Kholmsk of the eastern peninsula of Sakhalin Island (Sea of Okhotsk).  En route, the oil rig overturned and sank with 67 people onboard.

There were 14 reported survivors with minor injuries.  49 were reported missing.

It is assumed that the accident occurred due to towing under unsafe conditions.  During a storm, for example, an oil rig is much less stable than would be a ship, and one can easily overturn.

Damages 

Environmentally, there is little concern due to the fact that any oil onboard would have been enclosed within hermetically sealed containers.

Economically, the blow would unlikely have any sizeable impact upon the oil market.  If anything, standards in oil exploration will become stricture, as this will become a chief statistic in representing the dangers of wild waters.

This could, however, lend credibility to the environmental NGOs that currently attempt to derail offshore hydrocarbon projects amongst the Barents and Kara Seas (read about Shtokman).  The concerns among NGOs  have to do with the readiness and ability of The Russian Federation and it’s players to attend to and mend any major offshore related incidents.  The speed and success of today’s rescue efforts in the Sea of Okhotsk will lend evidence to either side.

Short Rig History

In August of 2011, the Kolskaya floating jack-up drill rig was delivered from Murmansk to the Magadan Commercial Sea Port to conduct testing on the Pervoocherednaya (Первоочередная) well, situated within the West-Kamchatka licences block of the Okhotsk Sea shelf.  The Kolskaya rig is currently owned by the Russian Arktikmorneftegazrazvedka (Арктикморнефтегазразведка).  It had been operating under a 3.5 month contract for the Gazprom subsidiary, Gazflot.  Following the Pervoocherednaya project, the rig was to be commissioned for a project by the joint Russian-Vietnamese venture “Вьетсовпетро”.

NGO concerns over Shtokman (Штокман)

From the Norwegian Environmental NGO ‘Bellona’ I have come across a letter to Helge Lund, the president of Statoil, to Aleksey Miller, chairman of the Board of Directors of JSC “Gazprom”, and to Pierre Nerguararian, general director of Total Russia.  The objective of the letter was address concerns that the environmental group had over the potential implications of the Shtokman project.  Below are some highlighted excerpts.

*If you would like more information about the Shtokman project, please see ‘The Shtokman Field (Штокмановское Месторождение)‘*

“The Russian Federation does not possess a marine service for spill response or a system for satellite monitoring of hydrocarbon spills in icey conditions. This translates into additional financial expenditures for creation of an infrastructure for elimination of accidental situations that must be considered, guaranteed and provided for already at the stage of project development”

This may be one of the most credible assertions.  A major spill in the northern Barents Sea would not require the same style of cleaning as would BP’s most recent spill of the Gulf of Mexico for example.  Thick layers of ice and icebergs would provide clean-up crews with significant obstacles.  If there is more-so a lack of, or insufficient satellite monitoring system in place, it will limit Russia’s ability to respond.  *I would go on to joke that Putin or Medvedev would take part in an heroic photo-op, perhaps flying a helicopter over top the spill in order to assess and map damaged zones.*

They further argued that guaranteed financing would be required

“sufficient for covering payment of damages that may result from accidental consequences to the environment (both natural and socioeconomic) as required by article 10 of Federal Law “On Industrial Security of Dangerous Industrial Installations”

This seems to be the case, at least, within the western world, as, for example, nuclear power plants are to put required amounts of money aside per every unit of electricity produced so that in the future there will be funding available to assist in the (debatably) proper removal and storage of the spent nuclear fuel.  The law is the law and Shtokman Development AG would be obliged to follow this.

They made several references to the environmentally sensitive areas of the Barents sea that this project could tread upon.  The most significant of which would include the bird populations that the Barents sea is in part famous for.  Secondary concerns would include the

“effect of gas hydrates on flora and fauna, effect on climate, including economic evaluation of measures for minimization and prevention of or compensation for these effects.”

They go on to argue further that

“Shtokman Development AG currently lacks any climate-related policy, which can lead not only to the increase of the project’s effect on climate change, but also to an incorrect view of the profitability of the project due to underestimating risks associated with climate change. These risks include: changes in the quantity and distribution of precipitation, ice cover, increase of storms and hurricanes, sea-level rises, changes of coast line, higher incidence of disease among the population and many other aspects that require evaluation at the planning stages of the project.”

The above excerpt presents us with nothing new.  The main objective of most environmental NGO’s is to force the costs related to negative social externalities from the pocketbooks of the externality producing firms that are in question.  I am sure that this has been the run of the mill criticism of each and every offshore operation that has taken place off the Russian costs.

What will occur, however, through natural market forces will be the assistance to local populations via hospital upgrades, local infrastructure upgrades, and a larger press spotlight.  There will be approximately 10,000 workers needed to take part in the construction of the LNG plant, among other things, along with a permanent future housing of 600 Shtokman employees.  With this there are sure to be other positive socio-economic spillovers and not just negative ones.

According to the assessment presented by representatives of the company, a full accounting of environmental factors will make the project unprofitable.

This is the bottom line.  Profitability.  NGO’s know that major shareholders are already questioning the overall profitability of the project, asking the Russian government for tax breaks / incentives.  They also know that if they can get any of their major shareholders to doubt their profitability, they may be able to help leverage the project into the graveyard.  It seems to me as though the Russian government will, regardless, end up providing for Shtokman’s environmental externalities.  If major shareholders are not sure about expected profits, they will simply demand compensation in some form from the Russian government.

Visit Bellona’s article on Shtokman here.

American led ‘Shale Boom’ hurting Shtokman (Russian) feasibility

In the beginning…, Shtokman had intended on selling much of their estimated 3.8 trillion cubic metres of natural gas and 37 million tons of gas condensate to the United States.  This position was later revised as planning came to fruition, the Shtokman Development AG (Norway, France, and Russia) was pulled together, and it was then decided that must of the gas would be in fact sold to Europe.  The lastest plan assumes a series of gas pipelines that connect with Europe via the Nord Stream pipeline (half of which has already been commissioned).  Europe was predicted to have demanded much gas for the years that stretched past Shtokman’s commissioning date of 2017.  Now that the Western world in its entirety seems to have tripped with low forecasted GDP growth rates for the foreseeable future, the increasingly uneconomical Shtokman project seems to be becoming just that – ‘Increasingly Uneconomical’.

That was then.  This is now.  The market is starting to feel the effects of the shale boom that is occurring across America.  The incentives just don’t line up for Shtokman anymore.  The world is producing more and more shale gas.  The United States (as reported by the IHS) has seen shale gas production reach 34 percent of total production from a measly 1 percent in 2000.  This figure is assumed to grow to 60 percent by 2035.  The success of American shale since 2000 has triggered a rise in shale development in Canada, along with interest in those shale properties in Europe, Asia and Australia.  This is of course almost entirely due to the new technologies that have been developed over these past years.   As new gas comes to market, the price of natural gas comes down.  The price will be effected by the sheer acknowledgement that massive previously unreachable reserves are now reachable.  Take Statoil’s word for it;

The gas market in Europe is challenging, and the main reason for this is the shale gas revolution in the US. It has had an enormous impact on the global gas and LNG industry

Jan Skogen, President of Statoil Operations in Russia

The 3 heads of Norway’s Statoil, Russia’s Gazprom, and France’s Total have still been voicing their concerns over potential issues surrounding profitability.  A continuation of gas booms across the globe are only going to hurt Shtokman Development AG’s bottom line.

A Potential Magadan Oil and Gas Play – Sea of Okhotsk

Although information regarding the Magadan shelf of the Russian Sea of Okhotsk is not available in the English language, I have translated and summarized most of what I have found to be important.  The development of this shelf is something that may be of significance in the not-so-distant future.  *This, especially due to the apparent overwhelming willingness of several Japanese companies to jump onboard as they have in the past with the Russian Sakhalin projects.  Note that the most important issue here is that Russia finds their perfect oil & gas firm to control +50% of the shares for a consortium firm as is normally the case.  Rosneft is likely to be their guy.

The offshore oil and gas reserves of the Sea of Okhotsk, Russia, are in no way exclusive to Sakhalin island.  5 blocks can be seen on the map which are believed to contain oil and gas; Magadan-1, Magadan-2, Magadan-3, Lisianski, and Kashevarovski.  (Магадан-1, Магадан-2, Магадан-3, Лисянский, и Кашеваровский)  Recoverable oil and gas are believed to be available as follows:

Only one press release from Rosneft’s Russian website was found with information relating to the Magadan offshore blocks.

In July of 2011, Rosneft released that it was looking to apply for development licenses for the 5 blocks in September, of 2011.  Furthermore, several Japanese firms have been anxiously awaiting a consortium of Russian and foreign companies in order to explore, develop and process these 5 fields.  This is due to Japan’s proximity to the shelf along with the regular participation of Japanese firms when it comes to the hydrocarbons of the Sea of Okhotsk.  Lastly, know that Japan is ranked 4th largest consumer of natural gas at just over 100 billion m^3 annually, thus it makes sense to get involved.  It would give them a chance to influence futures-style oil and gas contracts toward Japan.  Read the press release here (Russian)

On November, 17th of 2011, the Ministry of Natural Resources and Environment of the Russian Federation (MNERF) put out a press release on the issue.  It was proposed that the 5 plots be awarded Federal status.  It acknowledged that Rosneft was actively seeking licenses to explore, develop and produce within the plots.  It further stated that under Russian law, there would need not be auctions for Federal subsea plots.  The plots would be able to be given to any state-owned company directly.  It is assumed that in any case, licenses will have been granted to Rosneft by the end of the 2011.  Read the press release here (Russian)

In an article put out the next day (17,11,11) by Komersant.ru, the issue of company partners was discussed along with the above information put out by the MNERF.  Japanese candidates thus far are assumed to be the Japanese Inpex Corp., Japan Oil, and Gas and Metals National Corp.  Some, however, believe that it would be best to involve an American partner like ExxonMobil as they have swathes of experience in virtually every energy sector.  Read this article here.

I am still slightly skeptical of Rosneft’s willingness to participate in this project, as they have hardly made available any information concerning the matter.  They must not be too eager to find an American or European partner as they have barely given any attention to an English press.