RUSSIA DETAILS WHAT'S POSSIBLE FOR OFFSHORE OIL AND GAS E&D

Russia has disclosed more data on hydrocarbon resources, field development plans, and project priorities it expects to employ in preparing for a "new epoch" of petroleum exploitation on its huge far northern continental shelf.

A Moscow press analysis of studies conducted by the Morneftegaz (Offshore Oil and Gas) Research Institute concedes the Russian Federation may be ill prepared to tap the estimated 50 billion metric tons (365 billion bbl) of oil equivalent believed to lie beneath arctic and subarctic seas.

With the nation plagued by severe political, economic, financial, ethnic, and separatist problems, raising the U.S. $100 billion (at 1992 prices) deemed necessary to achieve Morneftegaz's ambitious long term goals will be extremely hard.

But the program to accelerate offshore hydrocarbon development in environmentally hostile sectors of Russia's far northern seas is dictated by urgent need, not choice.

Moscow was forced to place more emphasis on the arctic shelf when Caspian Sea oil and gas production representing almost 99% of total offshore hydrocarbon production of the former Soviet Union (F.S.U.) fell into the hands of now fiercely independent Azerbaijan and, to a such smaller degree, Turkmenistan when the U.S.S.R. collapsed in 1991,

Moreover, Moscow lost large portions of southern subsea territory when the F.S.U. disintegrated.

Despite the shrinkage in areas under Moscow's control, Russia reigns over more continental shelf than any other country.

The Russian Federation reckons the size of its remaining shelf at 6 million sq km (2.32 million sq miles). Moscow figures that amounts to 20% of the world total. Most of Russia's continental shelf lies north of the Arctic Circle.

The Moscow newspaper Delovoi Mir (Business World) quoted official sources as saving that even with Russia's loss of dominion over extensive proved and potentially petroliferous subsea territory to other F.S.U. republics, it still holds 87% of all offshore hydrocarbon resources previously held by the U.S.S.R. It said an estimated 13 billion tons (94.9 billion bbl) of oil and 52 trillion cu m (1.84 quadrillion cu ft) of gas resources tie on Russia's continental shelf.

Those figures admittedly are very speculative because, Delovoi Mir said, only 8% of Russia's shelf has been explored for hydrocarbons. Other studies say less than 1% of Russia's continental shelf has seen exploratory drilling, and less than 2% of the nation's potentially petroliferous seabed has been extensively explored.

Unfortunately for Russia, whose urgent need is more crude reserves, most of the hydrocarbons found in its best explored offshore areas are gas/condensate. Three supergiant gas/condensate fields have been found in the Barents and Kara seas.

WHO OWNS WHAT

Ukraine now owns most petroleum prone sectors of the Black Sea and the neighboring Sea of Azov. Azerbaijan, Kazakhstan, and Turkmenistan control the biggest and most valuable undeveloped petrotiferous portions of the Caspian.

The three non-Russian republics are trying to attract foreign firms into joint ventures for exploration and development of their sectors of the Caspian without asking Moscow's consent.

The only shelf areas with significant petroleum producing potential that Russia retains in the southern part of the F.S.U. are along the northwest coast of the Caspian and the eastern end of the Sea of Azov. Russia's remaining portion of the Black Sea shelf is regarded as having little possibility for important exploration success.

PROSPECTIVE AREAS

Russia's Caspian Sea shelf off Astrakhan province, the Kalmyk republic to the southwest, and Dagestan, which ties between Kalmyk territory and Azerbaijan's northern border, is modestly prospective for petroleum discoveries. Some large - but mostly small - oil and gas fields are near the coast of Astrakhan province, the Kalmyk republic, and Dagestan.

One Dagestan field, Inchkhe-More, believed at first to be small and only marginally commercial, extends into the Caspian. Lying in no more than 20 m (66 ft) of water, Inchkhe-More is more recently reported to hold 50 million tons (363 million bbl) of crude and condensate and 90 billion cu m (3.18 tcf) of gas reserves.

The non-Russian portion of the Caspian shelf, representing at least 75% of the total area, probably has an even higher percentage of the sea's undiscovered oil and gas. On the Sea of Azov's Russian held eastern coast, a gas field - Beisugskoye - lies offshore.

Farther north, the Baltic Sea is not highly rated for its hydrocarbon potential.

Only a small sector of the F.S.U.'s Baltic shelf off Kaliningrad province belongs to Russia, with the remainder owned by Lithuania, Latvia, and Estonia.

One recent-and perhaps too optimistic-report estimated Baltic oil resources on the shelves of these three nations at 300 million metric tons (2.19 billion bbl). A small Baltic oil field was found off Russia's Kaliningrad province in 1984, but development was abandoned, purportedly for ecological reasons.

Delovoi Mir now says two small fields, not one, with total crude reserves of 9 million tons (65.7 million bbl) have been found off Kaliningrad province. It disclosed that Russian and German firms are conducting a feasibility study that may lead to joint development of the fields.

Deepening Russia's troubles in trying to become an important offshore hydrocarbon producer is its loss of a large portion of industrial facilities that produce platforms and equipment for Caspian fields.

The Morneftegaz Research Institute noted that Russia can no longer count on using the big facility near Azerbaijan's capital of Baku that built deepwater (by F.S.U. standards) drilling and production platforms.

Ukraine owns the Okean shipyard at Nikolayev, near the Black Sea coast northeast of Odessa, said to be capable of building jack up and semisubmersible rigs as well as drillships.

However, Russia has experience building mobile rigs at the Vyborg shipyard near St. Petersburg on the Gulf of Finland. Work on jack ups, semisubmersibles, and drillships, some of them intended for use in arctic waters, was carried out at Vyborg in cooperation with the Finnish firm Rauma-Repola Oy.

At Astrakhan, near the northern end of the Caspian, Russia still has facilities that built jack ups and semisubmersibles, often using foreign parts. This shipyard also installed topsides sections and repaired mobile rigs operating in the Caspian and assembled large foreign-made floating cranes and a big foreign-built pipelay barge towed down the Volga River in sections.

A shipyard at Nikolayevsk-on-Amur in the Far East can build topsides components for platforms. It also is involved in design work on ice resistant fixed platforms slated for use in the Sea of Okhotsk off Sakhalin Island.

PRODUCTION SLIDE

The steep 1988-93 oil production decline in Russia's most prolific petroleum producing region, western Siberia, and the failure to find more giant oil fields there during recent years alarmed Soviet leaders. So did a drop in the nation's reserves/production ratio for crude during the 1980s.

Those factors, combined with meager success in finding major hydrocarbon reserves in the vast territory of eastern Siberia, where some Soviet geologists had predicted huge discoveries, made offshore arctic exploration and development more attractive.

Moscow has few illusions that arctic and subarctic seas will contribute greatly to Russia's oil flow before the end of this century. But it is counting on far northern offshore hydrocarbon development to help slow the decline in the reserves/production ratio for crude so that Russia's status as one of the world's top two oil producers can be maintained after 2000.

What may shatter this scenario is the likelihood that most of the hydrocarbon discoveries on Russia's far northern shelf will continue to be gas and gas/condensate.

Russia's Arktikmorneftegazrazvedka (Arctic Offshore Oil and Gas Exploration) Association has been working in the Barents/Kara sea area since 1981. It employs a 52 unit fleet, including semisubmersible rigs, drillships, and auxiliary vessels.

Delovoi Mir said Arktikmorneftegazrazvedka has drilled nine field discoveries and identified 71 structures prospective for oil and gas (see map, OGJ, Aug. 6, 1990, p. 28).

It's estimated that Russia's arctic seas contain about 11 billion tons (80.3 billion bbl), or 84.6%, of the nation's offshore resources. What's more, Delovoi Mir reported, these far northern seas are believed to have 46 trillion cu m (1.62 quadrillion cu ft) of Russia's total subsea gas reserves.

About 82% of Russia's arctic subsea hydrocarbon resources lie beneath the nation's westernmost seas - Barents and Kara. Exploration for gas has been carried out in 10% of the Barents/Kara area, but only 1.5% of the Barents/Kara shelf has been explored for oil.

Supergiant Shtokmanovskoye field, discovered in 1988 in the Barents Sea, is credited with 3 trillion cu m (106 tcf) of confirmed gas and 23 million tons (168 million bbl) of confirmed condensate reserves. The Kara Sea's supergiant Rusanovskoye and Leningradskoye fields account for 9 trillion cu m (318 tcf) of gas reserves, which are unlikely to be developed before 2000.

ARCTIC BOOM

Enthusiasm for the "inevitable arctic shelf petroleum boom" is growing among officials, scientists, businessmen, and the media as geologists reveal more data about the size of petroleum resources off Russia's northern coasts.

Moscow says at the very least the time has come to assess more precisely the opportunities the region's development can open for Russian business. Here are some examples:

• V. Remizov, first deputy chairman of Russia's gigantic state owned gas industry monopoly Gazprom, declared last month that the nation has 70 billion metric tons of hydrocarbons (511 billion bbl of oil equivalent) on its continental shelf, not just 50 billion tons as estimated by Morneftegaz.

• A paper read last spring by M.A. Kamyshev and R. Sh. Zagretdinov of the All-Russian Pipeline Construction Research Institute in Moscow at a seminar in Abu Dhabi, United Arab Emirates, emphasized that Russia's long term prospects for a big volume of oil and gas production are closely tied to development of fields on the nation's arctic and far eastern shelves. They asserted that these offshore areas "have dramatically great" hydrocarbon reserves.

• Stanislav Vershinin, a top Morneftegaz researcher, expects rapidly expanding development in the Barents Sea north of European Russia to spread to the Kara Sea north of western Siberia early in the next century-The details

The Moscow economic weekly Commersant said large scale development of offshore oil and gas in Russia's arctic and subarctic regions is expected to begin in 3-4 years and continue for many decades. But it asked rhetorically who will benefit most from the huge potential market for planning, design work, construction, equipment manufacture, and delivery of materials.

"At present," Delovoi Mir said, "Russia has no state strategy for developing its continental shelf, unlike, for example, Norway, which in the 1970s formulated the principle of priority for domestic companies. In Russia, by tradition, everything is decided by the alignment of forces representing different lobby groups.

"The lobby of new Russian industrialists with strong links to the nation's military/industrial complex ... foreign interests, which has the ear of President Boris Yeltsin, is doing its utmost to railroad a concept of giving priority to domestic firms.

"This lobby has already scored a big success by being instrumental in backing issuance of a license for development of the Barents Sea's supergiant Shtokmanovskoye gas/condensate field to the joint stock company Rosshelf.

"There are grounds for assuming that Russian industrial and financial entities wanting to participate in development of our nation's continental shelf will get that opportunity. But whether they are prepared for this is a different matter."

Selection of Rosshelf to develop Shtokmanovskoye and the smaller Prirazlomnoye oil field in the Pechora Sea, a southeastern arm of the Barents, was widely recognized as a major coup for the domestic firm, which has no experience in offshore petroleum work and was organized only a year ago.

Until the very last moment, a combine of western companies led by Conoco Inc. was regarded as the favorite to win the Shtokmanovskoye development contract.

Commersant bluntly said granting Rosshelf Barents Sea petroleum development rights is, for the present, "a very tenuous proposition."

The Moscow publication emphasized that platforms intended for use in shallow, ice free waters have never been manufactured in quantity in Russia.

By contrast, Shtokmanovskoye development will require construction of one or more huge, state of the art, ice-resistant platforms designed for use in water more than 1,000 ft deep.

"Of the serial equipment for offshore oil drilling and production, only the drilling rigs manufactured by the huge Uralmash machine building complex (now the joint stock company Uralmashzovod) in the western Siberian city of Sverdlovsk (Yekaterinburg) are more or less on a par with world standards," Commersant said.

"Power machinery and mud circulation systems for the Uralmash rigs, together with pumps, automatic and electronic equipment, subsea components, and other systems are either of low quality or not manufactured at all in Russia.

"Nevertheless, this situation can change rapidly. Rosshelf, which has embarked on its own feasibility study for Shtokmanovskoye development, claims it is ready to handle 80% of the orders for the project."

SHTOKMANOVSKOYE DEVELOPMENT

Rosshelf faces a daunting task in developing Shtokmanovskoye, a project that would challenge western firms with long experience working in offshore arctic conditions. The field is about 360 miles from the mainland in water depths of 919-1,050 ft.

A platform with a compressor station is to be installed in the field to move gas to shore through a 1,016 mm diameter pipeline with 26.8 mm W.T. At least one more pipeline, possibly of larger diameter, will be laid later.

Delovoi Mir said that 8 years after the start of Shtokmanovskoye development the field's gas flow will reach 50 billion cu m/year and remain at that level for 14 years. During the period of peak production 14 billion cu m/year will go to domestic markets and 36 billion cu m/year to foreign customers.

Condensate will be collected on the platform and shipped out by tankers.

Russian observers say the Shtokmanovskoye area's icebergs, polar nights, and severe storms contribute to the problems "which make the project unprecedented with respect to engineering complexity."

Commersant compared conditions that will be encountered in Shtokmanovskoye with those prevailing in other far northern offshore petroleum producing areas of the world. It said water depths in Alaska's Cook Inlet don't exceed 50 m (164 ft), are only 535 m (16-115 ft) in the U.S./Canadian sectors of the Beaufort Sea, up to 50 m in Canada's arctic archipelago, and 70 m (230 ft) on Newfoundland's shelf.

Even waters in Norway's gas prone western area of the Barents Sea are generally no more than 300 m (984 ft) deep, the Moscow report said. It added that water depths where big gas/condensate fields have been found in the Kara Sea, east of the Barents, are about 70 m and 35-50 m in the Sea of Okhotsk off Sakhalin Island, where gas/condensate and oil deposits have been found.

Under current consideration in Shtokmanovskoye development plans are options involving one or several steel platforms, a variant with a subsea manned or unmanned complex and different combinations of options, according to Commersant.

It said design is under way by the Krylov Research Institute and general design by Morneftegaz Research Institute along with the Spetsgazproekit (Special Gas Project) organization.

The Rubin, Malakhit, and Lazurit design bureaus are involved in structure planning, the Ritm Design Bureau in assembly, and the Prometei Design Bureau in selection of materials. Responsibility for on site platform construction has gone to the Severnoye Machine Building Plant, the Kirovsky Zavod Association, the Karasnoye Sormovo factory, and the Izhora plant.

Commersant said a number of research and industrial groups are working on conversion of military electronic equipment to civilian use, including Avrora, Delfin, Agat, and Granit. It also said negotiations are in progress with Brown & Root on technical consultation for the Shtokmanovskoye project.

Rosshelf's feasibility study on Shtokmanovskoye development is slated for completion by 1994. Field development likely will begin in 199697, production in 2000.

Some of the Russian enterprises cited reportedly acquired experience during 1988-90 in designing ice-resistant platforms for use in developing Lunskoye and Piltun-Astokhskoye fields in the Sea of Okhotsk off Sakhalin Island. At that time, plans for exploiting those fields reached the stage of simulation tests in an arctic research center operated by Norwegian and Finnish interests.

But, Commersant reported, nagging questions still remain regarding Rosshelf's ability to shoulder the task of implementing the Shtokmanovskoye development project.

The number of Russian military firms brought into the Rosshelf organization is impressive. However, companies in the F.S.U.'s armament manufacturing sector have generally been sluggish in converting to production of civilian goods.

In the Moscow newspaper's opinion, "Yes, Rosshelf is, in principle, able to develop Shtokmanovskoye. But the originally announced deadlines for carrying out the work will not be met."

Russian observers believe it's likely Rosshelf can obtain the $5 billion in credits it is seeking for Shtokmanovskoye development. On the other hand, western and Russian offshore petroleum specialists think Rosshelf deliberately underestimated the cost of placing the field on stream in order to snatch development rights away from the Conoco group.

Morneftegaz estimated the potential investment in Shtokmanovskoye and Prirazlomnoye fields at $20 billion at 1992 prices. Because Shtokmanovskoye is so much bigger and more difficult to develop than Prirazlomnoye, which lies close to shore in shallow water, most of the $20 billion would be used to place Shtokmanovskoye on production.

SHOWING A PROFIT

Some western sources still doubt Shtokmanovskoye can be developed profitably. Besides probable large cost overruns, Shtokmanovskoye gas likely will have to vie for rather slowly growing foreign markets with rising production from offshore Norwegian fields.

Domestically, Shtokmanovskoye gas will compete for customers with an even bigger gas flow expected to come from giant and supergiant fields on western Siberia's Yamal Peninsula by 2000.

In contrast to marketing uncertainties for Shtokmanovskoye gas, there's much less doubt that oil, gas, and condensate produced by Sea of Okhotsk fields on the Sakhalin shelf will find ready foreign and domestic demand, Russian observers believe. All areas of Russia's Far East, including Sakhalin Island, are desperately short of petroleum, much of which must be shipped thousands of miles by pipeline and railroad from western Siberian fields.

Unlike the Barents Sea's Shtokmanovskoye field, Lunskoye and Piltun-Astokhskoye fields, the first fields scheduled,to go on stream in the Sea of Okhotsk, are far from ranking in the supergiant category.

Delovoi Mir quoted a study by several Russian Academy of Sciences researchers as saying that Lunskoye and Piltun-Astokhskoye likely will produce 100,000-120,000 b/d of crude and condensate plus 10-12 billion cu in of gas in 2000 and 50,000-70,000 b/d of crude and condensate plus 15-20 billion cu in of gas in 2005-2010. Why these fields would achieve a big jump in gas flow but a decline in crude and condensate output between 2000 and 2005-2010 was not explained.

The study by the All Russian Pipeline Construction Institute said Lunskoye and Piltun-Astokhskoye, along with Chaivo and Odoptu fields farther north, are the largest of the seven fields discovered on the Sakhalin shelf. None of the fields is believed to be more than 20 km (12.4 miles) from shore.

Russian and western geologists believe some of the mann, promising structures found in deeper water off Sakhalin may hold larger hydrocarbon reserves than any of the currently identified fields. Most of the undrilled structures are believed to be gas prone.

SAKHALIN ISLAND

According to the pipeline institute study, the first stage of development off Sakhalin Island calls for installation of two ice-resistant platforms in Piltun-Astokhskoye field and a similar platform in Lunskoye field. The second development stage contemplates two additional platforms in both fields.

Delovoi Mir said because Russia has by far the largest natural gas reserves of any nation in the world-and apparently a reserves/production ratio for gas that is more than four times higher than for oil-it must play a more active role in the world gas market. In this regard, it said, Russia must evaluate the advantages of exporting offshore Sakhalin gas to Japan, North Korea, South Korea, and China.

"Specifically, under certain conditions, gas flow in Russia's Far East can be increased to 45-50 billion cu m/year. Of this, 15-20 billion cu rn/year can be allocated for export.

"Gas exports from Russian far eastern fields to Japan and South Korea could be more profitable than exports of western Siberian gas to western Europe. We estimate that hard currency outlays required for development of Lunskoye and Piltun-Astokhskoye can to a large degree be recovered in a fairly short time by exports of crude, condensate, and broad fractions of gas to Japan."

Russian Academy of Sciences researchers estimated Sakhalin Province's proved/probable gas reserves (mostly offshore) at 615 bcm (21.7 tcf). They said Sakhalin's oil reserves in the same categories are about 193 million metric tons (1.41 billion bbl).

This indicates that when measured on the basis of "standard fuel" equivalence, Sakhalin Province has substantially more currently producible gas than oil. Russian explorationists expect far eastern proN,ed/probable reserves of oil and gas to increase "many fold."

The Russian Academy of Sciences cautioned that special attention must be paid to pollution prevention in developing the Sea of Okhotsk's hydrocarbons under the area's icy conditions.

Delovoi Mir said exploratory drilling has been carried out at 26 Sakhalin shelf sites since 1975. Fifty-eight wells have been drilled, and seven fields with proved and probable reserves of 317 million tons (2.3 billion bbl) of oil and 745 billion cu m (26.3 tcf) of gas have been found.

Delovoi Mir said, "This is about one fourth of total hydrocarbon resources in all of Russia's far eastern seas. Plans call for an increase in the Sakhalin shelf's commercial oil reserves by 215 million tons (1.57 billion bbl) and gas reserves by 600 billion cu m (21.2 tcf) before 2000.

"The Sakhalinmornefetegaz (Sakhalin Offshore Oil and Gas) Association has 57 specialized and auxiliary vessels plus mobile drilling rigs. But new type platforms must be built in the brief ice-free seasons and be capable of withstanding not only shifting ice but also high waves and seismic vibrations.

"The feasibility study prepared by the Marathon-McDermott-Mitsui-Mitsubishi-Royal Dutch/Shell group estimates development of Lunskoye and Piltun-Astokhskoye fields will cost $12-14 billion.

"It's proposed that oil, gas, and condensate will be delivered from the ice-resistant platforms to shore by pipeline. Then other pipelines will traverse Sakhalin Island from north to south. A refinery near Yuzhno-Sakha-link will provide the entire island with petroleum products.

"Part of the gas will be piped to the eastern Siberian mainland. The rest of the gas, crude, and condensate will be exported from the port of Korsakov."

Noting that $80 million has been spent on the feasibility study, Delovoi Mir said the Marathon group is promising results in 3-4 years. It said will Russia is still troubled by some details of the Lunskoye and Piltun-Astokhskoye development project, although a Moscow commission has evaluated the study "positively."

Morneftegaz believes total potential hydrocarbon reserves in the Sea of Okhotsk, Bering Sea, and Chukotsk (Chukchi) Sea amount to 116.8-131.4 billion bbl of oil equivalent. Explored reserves in Lunskoye and Piltunskoye-Astokhskoye fields were placed at 1.92 billion bbl of oil equivalent, with estimated development costs of $10 billion at 1992 prices.

"The matter of developing other Sea of Okhosk deposits likely will emerge in another 5 years from now, and projects involving the Kara Sea's 70.3 billion bbl of oil equivalent will come up in yet another 5 years (after 2000). In short, 'the ice has been broken,' Morneftegaz said, 11 and a market for technologies is coming into being and will expand."

Morneftegaz did not estimate the overall potential investment required for Barents Sea or Kara Sea hydrocarbon development. But it said investment to develop the potential 43.8 billion bbl of oil equivalent reserves in the Kara Sea's supergiant Rusanovskoye and Leningradskoye fields would be about $30 billion.

OTHER OFFSHORE AREAS

Russian sources disclosed discovery of a third gas/condensate field - Zapadno-Sharapovskoye - in the Kara Sea. It lies nearly 100 miles south of Leningradskoye, but no mention was made of potential reserves.

East of the Kara Sea, potential resources in the Laptev Sea were placed at 29.2-65.7 billion bbl of oil equivalent, a figure one leading U.S. specialist on F.S.U. petroleum geology suggested was more of a dream than a scientifically based assessment.

Russia has reported no drilling in the Laptev Sea, East Siberian Sea, or Chukotsk Sea farther east. It's believed possible that petroliferous structures in the Beaufort Sea north of Alaska may extend west into the Chukotsk Sea.

Something of a contest is likely between Rosshelf and, presumably, the Marathon group regarding whether the former's Prirazlomnoye oil field in the Pechora Sea or either Lunskoye or Piltun-Astokhskoye field in the Sea of Okhotsk will be the first to go on stream, in the late 1990s.

Gazprom recently said Prirazlomnoye, discovered in 1989, holds 75 million tons (547.5 million bbl) of oil reserves and can produce about 72,000 b/d. Because it lies in only 66 ft of water, it can use Russian made equipment tested in the Sea of Okhotsk '

No matter which of those fields begins production first, overall Russian crude production from arctic and subarctic fields is not likely to surpass Caspian flow before the end of the century.

Azerbaijan alone hopes to boost its Caspian crude and condensate production from less than 170,000 b/d this year to 500,000 b/d in 1996-97. Efforts also will be made to halt the slide in Caspian gas flow, now about 250 bcf/year, and possibly raise it substantially by the late 1990s.

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