Arctic oil: Russia pushes north as U.S. blocks Alaska leasing

While the U.S. Department of the Interior announced earlier this month that it would hold off on leasing areas in the Alaskan offshore for the foreseeable future, Russia is moving full steam ahead in developing Arctic oil. This difference reflect’s the current U.S. administration’s bearish stance on Arctic fossil fuels, whereas the Russian government is bullish.

The U.S. government has just enacted a policy that will prevent Arctic drilling until 2022 at a maximum, though possibly shorter if the Trump administration tries to re-write the leasing plan. In contrast, the Russian government has put in place several strategies since 2008 directed at boosting its Arctic oil production. Most recently, the Russian Energy Strategy up to 2035 aims to increase energy production in the Arctic so that by 2035, Arctic offshore resources account for 5% of national oil extraction and 10% of national gas extraction (1). While the government placed a 10-year moratorium on new Arctic offshore leases in September 2016, a significant number of leases have already been issued, as the map below illustrates.

In line with the government’s strategies, this month, Russian oil company Gazprom Neft announced that it would begin sea trials of a non-nuclear icebreaker called Alexander Sannikov. The ship is designed to support oil exploration and oil spill response in the extreme Arctic. Named after a lieutenant general who served in the Russian Imperial Army in the early 20th century, the vessel was recently completed at a shipyard near St. Petersburg and is the first of its kind. Alexander Sannikov will accompany oil tankers sailing along the Northern Sea Route in winter and ensure year-round export from the marine terminal “Gates of the Arctic” at Novy Port on the Yamal Peninsula, which is the fast-growing heart of the Russian Arctic oil industry. Novy Port’s first shipment of oil in winter took place in February 2015. The Gates of the Arctic terminal can operate in -50°C and in ice up to two meters thick, according to Gazprom. The company claims it also “meets the most stringent requirements in the field of industrial safety and environmental protection.

On the Yamal Peninsula, Gazprom Neft has big plans for the Novoportovskoye field, which just opened this year. The company plans to increase its oil production from 2.5 million tons this year to 5.5 million tons in 2016 and 8.5 million tons in 2017. According to Russian news agency TASS, Vadim Yakovlev expressed that “the commercial exploitation of Novoportovskoye field heralds a new, northernmost gas province, which is unique in exploitation, infrastructure, and transportation.” The oil will be shipped out of Novy Port, which appears to have laid relatively dormant in satellite imagery from 1985 until 2015. As shown below, the pipeline from the Novoportovskoye field to the port on the Gulf of Ob appears to have been laid in just one year.

Icebreakers like Alexander Sannikov and a similar vessel under construction, Andrey Vilkitsky, exemplify the Russian state’s belief in the importance of developing state-of-the-art technology to exploit Russia’s Arctic resources. Alexander Dybal, a board member of Gazprom Neft, offered, “The majority of Russia’s offshore fields, which are located close to shore and were exported by sea in the 20th century, could not be built or operated because there were no such new technologies. Only the technology of the 21st century, embodied by technologies such as this icebreaker, permit the extraction of oil in the Arctic.”

Similar ideas were expressed over the past few days at the Arctic Days conference in Moscow, sponsored by the Russian Ministry of Natural Resources and Environment. Minister Sergei Donskoy, echoed Russian government strategy in the Arctic by affirming, “The Arctic is one of the territories whose development is of key importance for the country and requires the creation of a strong technological base.” (Side note: The conference’s slogan, “Arctic – Energy of the Future!” is oddly not included on the English-language version of the website.)

Unpaid oil workers go on hunger strike in Yamal

It’s not all smooth sailing in the Russian Arctic. On the Yamal Peninsula, employees of several companies associated with the oil and gas industry have gone on a hunger strike in Novy Port, where the temperature is currently -25°C. Approximately 700 workers are now on strike, with some having refused to eat for 10 days. Workers claim that they have toiled in slave labor conditions without receiving payment, with one person alleging to have been paid in 10 cans of corned beef. The situation is now under investigation by regional reporters. According to their report,

• PurGazStroy (roughly translated as Pure Gas Construction) owes 22 million rubles ($337,195) in salary to 157 employees;
• Promindustriia (~Industrial) owes 38 million rubles ($582,427) to 330 employees;
• and TRUST SevZapSpetsStroyMontazh (~Northwest Special Construction) owes 3 million rubles ($45,981) to 80 employees.

The burgeoning industry on the Yamal Peninsula has attracted many workers from across Russia. Russian journalist Tatiana Britske writes in her investigative report in Novaya Gazeta (in Russian):

“Thousands of men moved from all over Russia for a simple reason: loans, family, no work. Northern construction – oil and the military, promising good money, became, as once, a decoy for those who wanted to escape from the swamp. But unlike the Komsomol and the Romantic era of the development of the Far North, a trip to the edge of the earth now increasingly turns slavery.”

Many in the West might conceive of communist development of the Soviet Arctic as a miserable time of gulags and forced labor. But in fact, many Russians willingly moved to the North in search of adventure and to be part of a great mission to develop the region. The government leveraged the enthusiasm of these young people, who often joined the Komsomol (a political youth organization), to carry out the enormous tasks of building infrastructure across the Russian North. It’s remarkable to see how contemporary development of the Russian Arctic is negatively contrasted with the communist era.

The comments on the Novaya Gazeta article reveal the deep frustration among some Russians with the oil and gas industry. A commenter named Igor wrote:

“The only thing that feeds the whole country – oil and gas. Nothing else is done, but only produced, sold, and are displayed in the offshore companies to buy cellos and yachts. The only industry – the core of the entire economy at large, and then manage to overcome it and throw workers … Even those who with their own hands creates the possibility that at least some of the infusion is not part of the embezzled money to the budget and that of the people do not believe that the … we talk about the rest.”

Alaska’s Arctic Oil: Frozen for another five years

While Russia’s “black gold” continues to be dredged up from the Arctic offshore, Alaska’s will likely sit in the ground for a few years yet. A press release from the Department of the Interior concerning the Offshore Oil and Gas Leasing Plan for 2017-2022 delivered the bad news for the many people in Alaska whose livelihoods depend on the industry’s growth. Only a small area around Cook Inlet, on Alaska’s southern coast, will be up for lease. The DOI justified its exclusion of the Chukchi and Beaufort Seas from its five-year lease sales plan as follows:

Alaska: Considering the fragile and unique Arctic ecosystem and the recent demonstrated decline in industry interest, the Proposed Final Program does not include any lease sales in the Chukchi or Beaufort Seas.  Based on consideration of the best available science and significant public input, the Department’s analysis identified significant risks to sensitive marine resources and communities from potential new leasing in the Arctic. Moreover, due to the high costs associated with exploration and development in the Arctic and the foreseeable low projected oil prices environment, demonstrated industry interest in new leasing currently is low.

In making this decision, the DOI went against the wishes of most of Alaska’s politicians and residents. The voices of the pro-oil contingent in Alaska are made clear in a summary of the 3.3 million comments submitted to the DOI during their public consultation on plans for the Outer Continental Shelf (OCS) for 2017-2022. Here are a few examples:

• Alaska Senator Lisa Murkowski: “The Senator requests increasing the number of lease sales in the Cook Inlet and the Beaufort and Chukchi Seas in the Arctic, and to include a minimum of three Alaskan lease sales. The Senator also requests any additional withdrawals not move forward without the support of Alaskans. According to the Senator, utilizing the oil reserves off the coast of Alaska would provide energy security and a bright economic future for Alaska and the Nation.”
• Alaska Department of Natural Resources: “The commenter requests making leases in the Beaufort Sea, Cook Inlet, and Chukchi Sea available as soon as possible. The commenter suggests that the current plan is limiting economic opportunity for the region and the United States. The commenter requests a plan that ensures timely and predictable access to Alaska’s highly prospective OCS lands.”
• Alaska’s NANA Regional Corporation (Lance Miller) (an Alaska Native regional corporation): “The commenter states support for development of oil and gas off the shore of Alaska, and states opposition to any additional restrictions for the Beaufort and Chukchi Seas. The commenter suggests that development in these areas will help provide jobs to the area and locals can incorporate traditional knowledge of the land and water to help carry out monitoring. The commenter encourages collaboration between the Bureau and native Alaskan populations in any further plans for exploration or development in the Arctic Sea.”
• Alaska Trucking Association: “The commenter states support for all proposed leasing areas in Alaska. The commenter asserts that the Beaufort and Chukchi Seas are rich in oil, and the United States should take advantage of this natural resource to support job creation and increase American energy security. The commenter concludes that advances in drilling technology allow for safe drilling with minimal environmental impact.”

The few stakeholders that spoke out against drilling in the Alaskan Arctic were the marine Mammal Commission, which “requests the Beaufort and Chukchi Seas be deferred from leasing in the 2017-2022 Program, as these areas are undergoing rapid change due to climate change and marine habitat should be monitored without the presence of oil and gas drilling,” and a number of environmental non-profit organizations including the Alaska Wilderness League and Greenpeace. A letter put together by the organizations and signed by 15,866 signatories also expressed opposition for similar reasons. Until January 20, they can rest easy that there will be no federal government support for U.S. Arctic offshore drilling.

Unclear path ahead for Arctic oil

The Russian Arctic oil industry enjoys the strong support of federal and regional governments but faces a weak global market for oil and unrest among its workers. Alaskan Arctic oil enjoys strong support from both the state’s political elite and the general public, but faces the same weak global market and a federal government opposed to Arctic drilling. Yet the calculus for drilling in the Alaskan Arctic may change with the Trump administration. An editorial published over the weekend by the Wall Street Journal urged:

“Mr. Obama says there’s no reason to drill in the Arctic because oil prices are so low, as if the government can predict energy prices five or 10 years from now. The Arctic region is thought to hold 90 billion barrels of oil, and up to 30% of the world’s untapped natural gas. Exploration and drilling would create thousands of jobs, and most resources lie in relatively shallow waters fewer than 100 meters deep…More than 85% of area offshore controlled by the federal government is closed to exploration. Mr. Trump can unlock this potential, which would be a gusher for global consumers and American economic growth.”

While Arctic oil may lie in shallow waters, they are extremely risky and dangerous. Russia’s government and industry leaders appear to recognize that the region presents unique challenges to drilling. That is why the country, which already has more infrastructure in the North than any other Arctic state, has poured money into developing technologies to allow it to overcome thick sea ice and insanely cold temperatures. The investment in homegrown technologies is also a response to the U.S. and E.U. sanctions.

In the U.S., there is a strange and pervasive notion among industry boosters that drilling in the Arctic will not be all too different from anywhere as else. The belief that drilling in Alaska’s offshore will be easy once supposedly onerous regulations are lifted is worrisome. It may mean that once companies receive permission to drill, they will rush in unprepared and overconfident – although for now, the low price of oil may still remain a barrier without major subsidies from the U.S. or Alaskan governments.

Come January, Trump’s administration may engender more cooperation between Russian and U.S. companies in the Arctic offshore. At an international level, this could improve political and economic relations between the two countries. Yet as the Arctic oil industry grows, more conflicts below the international level are likely to arise between industry, labor, government, indigenous peoples, and environmental organizations. And despite the narrative promoted by the U.S. media that the country is so very different from Russia, the hunger strike by unpaid oil workers in Yamal and the protests against the Dakota Access Pipeline, where police used water cannons in freezing temperatures against demonstrators, suggest that the U.S. and Russia may share more in common than is typically believed.

Source

Gritsenko, D. (2016). Vodka on ice? Unveiling Russian media perceptions of the Arctic. Energy Research & Social Science, 16, 8-12.