The Economic & Social Research Council (ESRC), Swindon, U.K., says economic problems in Russia's far east threaten major oil and gas projects off Sakhalin Island.
ESRC-sponsored research by Mi- chael Bradshaw of the U.K.'s University of Birmingham reportedly makes it "abundantly clear" that the region is unable to develop its huge resource potential to build an export-led economy.
"The future of the planned oil and gas projects there is in doubt," said Bradshaw, "and the region's population is not willing to wait and see. People have been leaving in large numbers, and Moscow is now talking of evacuating entire regions and rationalizing the settlement systems in the Far East."
ESRC said the failure of Moscow to create legislative and judicial frameworks to safeguard the interests of foreign investors hampered the projects from the outset. Then came the Asian and Russian financial crises, followed by extended low crude oil prices.
"Somewhat belatedly, the politicians in Moscow have woken up to the fact that the resource wealth offshore of Sakhalin will be developed only when it is profitable to do so," said Bradshaw. "The necessary production-sharing legislation is now being approved. However, it is unlikely that the projects can provide an immediate solution to the economic problems facing Sakhalin and the rest of the Russian Far East."
Exxon Neftegaz Ltd. is operator of the Sakhalin I project to develop Arkutun-Daginskoye field estimated to hold reserves amounting to 2 billion bbl of oil, 240 million bbl of condensate, and almost 15 tcf of gas. Marathon Sakhalin Ltd. and Shell Sakhalin Holdings BV are leading partners in the Sakhalin II project to develop the Piltun-Astokhskoye and Lunskoye fields, which have combined estimated reserves of 750 million bbl of oil and 14 tcf of gas.
While the long-term development of these two giant projects has not yet been decided, the Marathon/Shell venture expects to produce early oil from Piltun-Astokhskoye in July.
A Marathon official told OGJ the Molikpaq arctic caisson rig was being prepared to produce oil for 6 months this year, although the field would have to be shut in during the winter freeze. The official said full-scale development of Sakhalin II may be affected by the regional economic problems and the global oil industry recession, although early production efforts would proceed as planned.
As for Sakhalin I, an Exxon official told OGJ that the partners had not yet proved up enough reserves to decide on development. The official denied an earlier report that the Sakhalin I group had let contract to Kvaerner AS, Oslo, to build a huge platform for the development in a Russian fabrication yard (OGJ, Feb. 24, 1997, p. 36): "No contracts have been let, although Kvaerner is one of the contractors we have been working with." n
Copyright 1999 Oil & Gas Journal. All Rights Reserved.