Page 5 - FSUOGM Week 34

FSUOGM COMMENTARY FSUOGM

Rosneft CEO Igor
Sechin presents
Russian President
Vladimir Putin with a
bottle of oil from the
Vostok Oil project.
Source: Kremlin.ru.

2020 to RUB800bn ($10.7bn), down from an Krasnoyarsk territory. Rosneft estimates that
original target of RUB1 trillion. This makes the the project could yield 2.3mn bpd of crude by
logic of its return to the offshore Arctic all the 2030. If this target is achieved, the development
more questionable. would account for roughly 20% of Russia’s pro-
Meanwhile, the sanctions that forced Exxon jected overall production at the end of the dec-
to withdraw from the Kara Sea remain in place. ade. However, NewsBase understands that many
And doubts have been raised about whether of the Vostok Oil assets are still at an early stage
Rosneft has enough technical expertise and of appraisal, meaning that such production fore-
the access to advanced technologies and equip- casts are premature.
ment needed to conduct offshore Arctic drilling In the meeting, Sechin presented Putin with a
effectively. bottle of oil from of the Vostok Oil fields, Zapad-
So far, Russia has only managed to launch no-Irkinsky. This is the first oil to be recovered
commercial production at one offshore Arctic from the site. It is only 0.02% sulphur, the com-
field – the Gazprom Neft-operated Prizazlom- pany head said, making it “premium-quality
noye deposit. The government has conceded that oil, among the best in the world, the best in the
it does not expect any other fields to come on world.”
stream for at least another decade. Developing Vostok Oil will be no small feat.
Ultimately, Russia will only be able to exploit Besides wells and processing facilities, Rosneft
its Arctic reserves if oil prices recover consider- will also need to build 2,000 km of long-distance
ably. Its energy ministry estimated back in 2017 pipelines, 7,000 km of local branch pipelines and
that offshore Arctic production costs ranged 2,000 MW of power generation capacity, Inter-
between $70 and $100 per barrel. Oil is currently fax reported last week. Its infrastructure will also
trading at $40-45, and the consensus is that it will include a seaport and 50 new ice-class tankers
not reach even the lower end of the ministry’s to carry its oil to markets, as well as three new
range for several years. airports and 10 helipads.
The continuing economic fallout from the State support will be vital to realising Vostok
pandemic is only one factor weighing down on Oil. In addition to grants and loans to fund infra-
the oil price outlook. Another is countries across structure development, Rosneft is also counting
the world fast-tracking efforts to decarbonise on tax breaks. The company reached a prelim-
their economies. inary deal last year with the Finance Ministry
Seeing the writing on the wall, most of the (MinFin) on transferring Vostok Oil to Russia’s
world’s leading oil companies have booked bil- new excess profit tax (EPT) regime. Projects
lions of dollars in write-downs on the value of paying EPT forgo mineral extraction tax (MET)
their assets, to reflect weaker prices over the and their historic losses can be deducted from
coming decades. the tax base.
Ultimately, Rosneft will have to look at ambi-
Onshore tious projects like Vostok Oil and Pobeda to keep
Questions about commercial feasibility also its output stable over the long run, offsetting
hang over Rosneft’s main onshore venture in the decline at easier-to-develop fields further south.
Arctic, Vostok Oil. But as the energy transition picks up pace, the
Vostok Oil comprises Paiyakhskoye, Vankor quest is whether markets will offer a high enough
and several other oilfields in the north of the price for this oil to cover the costs. ™

Week 34 26•August•2020 www. NEWSBASE .com P5