Are Arctic Plans of Oil Producers Frozen?

Are Arctic Plans of Oil Producers Frozen?


Against the background of the growing economic crisis, the last visit to Krasnoyarsk by Igor Sechin, the chairman of the management board of the Russian oil industry major Rosneft, immediately triggered panic and wild rumors. The difficult economic situation was caused not only by the spreading coronavirus pandemic but also by a falling demand for crude oil and, consequently, oil prices.

On March 20, a private jet of Rosneft CEO, was spotted at the airport in Krasnoyarsk, a major industrial city in Eastern Siberia. The rumor makers immediately started spreading the information that he had come there secretly. There were various theories regarding the contents of discussions behind the closed doors of the regional administration.

The Krasnoyarsk territory is relatively new in the list of Russia’s oil-producing regions. In 2009, commercial production started at the Vankor oil and gas field located 130 km west of the Igarka River in the north of the territory. It was followed by several other fields in the Evenk Autonomous Area (Evenkia,) a special administrative and territorial entity within the Krasnoyarsk territory. Oil reserves in the extreme north of the Taimyr Peninsula are next in line. A special project there was named Vostok Oil. It is primarily promoted by Rosneft.

The plans suggest that its implementation will be closely linked to the development of the Northern Sea Route. The oil and gas plans for the Krasnoyarsk territory are inspirational. In fact, there has been no large-scale industrialization of this kind of area since the Soviet times. After it, the north of the Krasnoyarsk territory will never be the same. About tens of thousands of new jobs are expected to be created. In addition, after a long break, housing construction is to be resumed in Norilsk in the near future. That is an important social indicator.

According to the development strategy of the Krasnoyarsk territory through to 2030, oil production there will increase 1.5 to 2 times. Currently, it is around 25 mln tonnes per year, mainly due to Vankor. The territory will become one of the main Russian hydrocarbon suppliers.

Based on the geography of the resources, two large oil and gas industry centers are being formed there. One is the North-Western center, which consists of fields located in the western part of Taimyr and on the territory of the Turukhansk district. The other is the Priangarsk center uniting the fields of the Lower Priangarye and Southern Evenkia.

“Development of the refining sector will be connected with the implementation of investment programme of the Achinsk oil refinery,” the local authorities add. “It is aimed at increasing the ratio of oil refining and creating of the Priangarsk centre of gas processing and then gas chemical production.”

Recently, a package “Arctic” federal bills on benefits for the oil and gas industry was adopted. It is designed to stimulate companies towards investing in oil and gas production in the Arctic regions of Russia. The measures include various options and timing to reduce mineral extraction tax, zero income tax rate and a lot more. However, the notorious “Telegram channels” and a number of media outlets had their own explanation. Allegedly, against the background of cheaper oil and despite the proposed benefits, all Arctic projects have become unprofitable, and this is what Sechin decided to discuss with Krasnoyarsk’s Governor Alexander Uss face to face. A little later, the governor’s press office officially announced that Sechin had arrived in Krasnoyarsk to talk about “joint work and the establishment of a training center for experts working at Rosneft’s facilities.”

“Over the last decade, the oil and gas industry in the Krasnoyarsk territory has become one of the two pillars of the regional economy along with metallurgy,” Viktor Zubarev, a deputy of the State Duma, said in an interview with “Last year, revenues from oil and gas companies to the budget exceeded 25 bln rubles ($331,115,000.) In January and February 2020 alone, the industry’s turnover reached 112 bln rubles ($1,483,395,200.) This is 5% more than in 2019. Among the Russian regions, the Krasnoyarsk territory is holding the fourth position by oil production volumes. In 2019, it accounted for almost a half of all production in the Siberian Federal District. The projects that were in the focus at the meetings of the top executives of oil and gas corporations and Vladimir Putin, as well as at the meeting with Alexander Uss, are strategically important. In fact, they are related to the fields of global significance because the economic future of Russia in the first half of the 21st century depends on them to a great extent. Therefore, they are to be implemented.”

Let us recall that in 2009 and 2014, the plans of oil producers regarding the Krasnoyarsk territory were executed in full, and in this conext Zubarev’s optimism becomes understandable. However, the current situation looks more and more confusing with every passing day. At present, the only thing the experts are confident of is that the situation continues changing, and no one is ready to make conclusions confidently. Especially on such global topics.

“There is high volatility in the markets,” says Maxim Petronevich, a senior economist at Otkrytie Bank. “However, we must admit that the current crisis is not financial. It has an economic and epidemiological nature. Therefore, it is necessary to fight against it with precisely-targeted methods in industries where economic activity is decreasing. The applications of monetary policy are limited here. In addition, there is no detailed description yet of the situation around the outbreak of the coronavirus infection.

In the meantime, the Bank of Russia claims that the situation on global financial markets is getting worse. There is a threat of recession in the world economy amid the ongoing pandemic and a sharp drop in oil prices. As the spread of the virus remains rapid, even a more significant slowdown in economic activity and a drop in oil prices are highly likely.”

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