Roger Vielvoye
International Editor
Oil and gas field development programs costing $2-5 billion off Sakhalin Island in the Soviet Far East could get a go-ahead by yearend.
International oil companies are being asked to submit bids to take part in three offshore projects, and a Japanese-led group is still involved In long negotiations over a fourth offshore development program. The projects could lead to oil and gas exports to Japan, South Korea, and perhaps North Korea.
Foreign companies are to present offers for development and financing by Nov. 1. The Soviets' Sakhalin Oil & Gas Co., involved in most aspects o f the petroleum industry from exploration to transportation and overseas marketing, hopes other foreign companies will show an interest in development during the year.
The company says fields off Sakhalin Island hold proved reserves of 1.46 billion bbl of oil and 17.65 tcf of gas. Other sources report different figures, but they cover "explored" reserves (see p. 34).
Anatoly Cherny, director general of Sakhalin Oil & Gas, said it has not been decided whether oil or gas will be the first development target. He said a combine of McDermott International, Marathon Oil Co., and Mitsui & Co. will submit a feasibility study for the three non-Japanese developments by Nov. 1.
A similar deadline has been set for bids from international oil companies to finance and participate in offshore development programs. Cherney said he hopes the first decisions on development can be made by yearend.
"At the moment," he said, "we are pinning all our hopes on international cooperation to develop these fields."
Development plans also call for new pipeline links to the Soviet mainland at De Kastri because about 60% of any new gas production will go to the local market. Sakhalin Oil & Gas estimates gas production could rise to 3 bcfd.
About 1.8 bcfd is to be used domestically. That will leave about 1.2 bcfd for export, probably to Japan and South Korea.
Exploration has been under way in the Sea of Okhotsk off Sakhalin Island every summer since the mid-1970s. The four fields earmarked for development lie off the east coast of the island and have been fully appraised with 12-15 wells/field. Reserves lie within 15 miles of the coast in relatively shallow water.
Chaivo-More oil and gas field was found by Sakhalin Oil Development Co. (Sodco), which is led by Japan National Oil Co. Its partners are a number of Japanese trading houses and manufacturing companies.
The three other fields-Odoptu-More oil and gas, Piltun-Astokhskoye oil and gas/condensate, and Lunskoye gas/condensate-were found by the Soviet company without Japanese help.
DECISION FACTORS
A number of factors will govern the final shape of offshore development efforts.
During a visit to the International Drilling & Downhole Technology Centre in Aberdeen, Scotland, Cherny said environmental factors will play a major role because the Sea of Okhotsk is a substantial salmon fishing area that provides large scale employment in the fishing industry.
Environmentalists in the area favor gas development, and there has been a positive response from potential gas buyers in Japan and South Korea.
Sakhalin Oil & Gas also has considered two natural gas liquefaction plants, each capable of handling 1.5 million tons/year of LNG. The preferred option at present, however, is a pipeline system to Japan and South Korea.
Onshore methanol plants also have been considered. This idea might command greater prominence if Japan chooses to upgrade its gasoline supplies.
Development off Sakhalin Island has been delayed in part by problems posed by thick winter ice in the Sea of Okhotsk. The effect of the ice on construction costs is an unsolved problem.
Cherny said at present estimates ice resistant platforms would cost $450 million each, but efforts are under way to reduce the cost and improve the economics of offshore production.
In other parts of the Soviet Union, western oil companies seeking exploration and production deals have run into the problem of conflict between the Soviet central government and local republics and operating companies.
Cherny is in no mood to allow doubts about the Soviet or Russian republic's title to oil hold up development plans. He said the right to export and retain foreign exchange that has been delegated to Sakhalin Oil & Gas gives the company freedom to proceed with projects in ventures with outside companies.
He said in addition to ventures with foreign oil companies, western service and supply companies will have a major role to play in development programs. That's because the Soviet industry has no experience in operating under the harsh conditions of the Sea of Okhotsk.
Offshore platforms are to be built outside the Soviet Union. South Korea and Japan are favored to win construction contracts because they are within reasonable distance of Sakhalin Island ' But Sakhalin authorities are not ruling out any yard that can compete.
OFFSHORE PLANS
Cherny outlined plans for offshore development during a visit by a six man Soviet delegation to Scotland sponsored by the Scottish Development Agency. The Soviets were assessing the capabilities of U.K. service and supply companies and were interested in the structure and regulation of the industry in Britain.
Similar delegations have visited operations in Alaska' Although the Alaskan industry has learned to live with harsh conditions in the state, Cherny said Alaskan ice conditions are very different from those in the Sea of Okhotsk.
Off Sakhalin Island the Sea of Okhotsk Sea has very long periods of ice floes. It usually is floating ice about 2 m thick, moving at a speed of 1 m/sec (2.2 mph).
Estimates by Sakhalin Oil & Gas show the pressure on offshore platforms would be 800 tons/sq m.
The company has been offered both concrete and steel ice-resistant platform designs, but current feasibility studies focus only on steel structures.
Cherny said ice sometimes scours the bottom of the shelf as it plows into the seabed. That rules out the use of subsea equipment. A pilot project for early production using subsea completions had been considered but abandoned at an early stage.
On current costs, each ice-resistant platform would cost about $450 million. The trend toward lower oil prices around the world is putting pressure on potential developers to get costs down.
Seismic surveys and drilling are confined to the summer because of winter ice.
JOINT VENTURES
One of the groups to show its hand in Sakhalin Island programs is led by Exxon Corp. In a joint venture with C. Itoh & Co. of Japan it has offered to develop the three fields outside the Sodco area.
The McDermott-Marathon-Mitsui joint venture has been around longest and has carried out most of the work on ice-resistant platforms.
The Sodco group has been active in Sakhalin Island programs since 1976. The Export-Import Bank of Japan has made $170 million available and has undertaken to finance any development project.
Cherny said he hopes the Japanese oil project will move forward quickly. Japan and the U.S.S.R. have unresolved border disputes in the area, but he said this is not the reason for the long lead time for the Japanese part of the project.
More recently a new player has emerged: Palmco, a joint venture between Ralph M. Parsons and a number of South Korean interests.
The Palmco group is reported to be interested in development of Lunskoye field, construction of a large onshore gas treatment plant, and a pipeline running north to south through Sakhalin Island.
This line could be the first phase of a system to link the southern tip of Sakhalin Island with Hokkaido, Japan's northermost island, with a 50 mile crossing of La Perouse Strait.
Sakhalin Oil & Gas's long term gas delivery plans call for a semicircular pipeline system that would connect Sakhalin Island with Japan and South Korea. Cherny thinks there are enough gas reserves off Sakhalin Island to justify such a system.
Japanese companies have shown interest in the line to Hokkaido because it would provide the first pipeline alternative to large volumes of LNG imported by tanker from Indonesia, Malaysia, Brunei, and Abu Dhabi.
Pipeline deliveries to South Korea would require a more ambitious project.
Gas is currently exported from onshore Sakhalin Island fields to the mainland city of Komsomolsk na Amur through a pipeline system that is to be extended to Viadivostock, 680 miles away.
Gas also could be shipped to North Korea by pipeline. But the most likely project will be an offshore pipeline loop from Vladivostok to South Korea that will bypass the north.
Cherny said there has been considerable interest in South Korea, and the Hyundai industrial group has shown interest in participating in the project as a contractor and gas buyer.
Cherny likened the project to a proposal for a pipeline ring in the southern part of the Pacific Rim that could make Indonesian and Malaysian gas available to growing economies in that area.
MATURE FIELDS
Oil has been produced from Sakhalin Island onshore fields for 62 years. Production, currently about 40,000 b/d, moves by pipeline to the mainland and for refining in Komsomolsk na Amur and Khabarovsk.
The onshore fields are mature and now require spending for secondary and tertiary recovery programs. There also will be opportunities for foreign companies to invest in those areas.
Cherny said operating conditions in Sakhalin's onshore fields are very difficult. Fields produce high viscosity oil requiring steam, gas, and water injection.
"That is why we are interested in all secondary and tertiary recovery methods," he said.
Cherny said for a number of years Sakhalin Oil & Gas has been using the services of companies like Vetco and Cameron Iron Works and J.P. Kenny, London.
In Aberdeen, Cherny said he hoped experience in development of crude oil and natural gas in North Sea conditions would be of use in developing fields off Sakhalin Island.
The delegation was sponsored by a number of service and supply companies as well as the Scottish Development Agency.
Cherny said the group has inspected a number of manufacturing plants. It also is interested in Scottish experience in horizontal drilling. His company has drilled one horizontal well on Sakhalin Island.
The Soviet group also wanted to learn more about the administrative structure of the U.K. oil industry and the way environmental rules are drawn up and enforced.
He said in the light of the economic reforms in the U.S.S.R., the future of the Ministry of Oil Industries is under debate. Should it be kept intact or disbanded and replaced with something else?
"Unfortunately," Cherny said, "what makes reforms in the U.S.S.R. difficult is that decisions to disband something are taken very quickly, but no decisions are taken about what should be set up in its place.
"That is why we are extremely interested in getting to know the administrative aspect of foreign companies and try to emulate or borrow some of the ideas we find."
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
