Breaking into Russia's frozen assets
  from: Offshore Engineer
  by: Darius Snieckus
  Wednesday, September 01, 2004

Now that the skies are finally clearing over long-iced plans for the Prirazlomnoye and Shtokmanskoye developments in the Russian Arctic, the big question has become how to convey the hydrocarbons produced in this vast offshore region down to European markets. Darius Snieckus speaks with Kimmo Juurmaa, head of a government-industry R&D project looking into establishing a 'fully fledged' year-round supertanker route between the Timan Pechora area and continental Europe.

Prirazlomnoye, an oilfield with reserves of 610 million barrels, will now be brought onstream via the former Hutton TLP, presently being upgraded for its new incarnation at the FSUE Sevmash yard in Severodvinsk, while Shtokmanskoye, thought to hold more than 850bcm of gas, was given a jumpstart by operator Gazprom's announcement in June that Norsk Hydro had been brought in reignite development plans there (OE July).

Progress on these two fields remains a newsworthy detail within the larger picture of future Russian oil and gas production. After all, estimates put the Federation's hydrocarbon resource at around 470 billion barrels of oil and 180 trillion m3 of gas, 75% of which lies offshore in the Barents-Kara 'superprovince'. As output from the UK and Norwegian continental shelves begins its inexorable decline in the next decade, the Russian Arctic - home to the world's largest reserves outside of Opec - will be instrumental to the security of Europe's energy supply - and Russia's long-term economic aspirations.

Though oil and gas production in what is one of the most hostile environments on the planet (ice-locked waters and temperatures that plunge to -60°C in the winter) has been hamstrung by marginal economics, for Russian and international oil companies keen to exploit this hydrocarbon resource the midstream part of the equation has been no less problematic. Onshore pipelines, transportation across the Baltic Sea and direct shipping along the western reaches of the so-called 'Northern Sea Route' have all been put forward in partial answer to questions of security of supply and costefficiency. These 'options' have remained just that.

Enter Arcop. Funded by a combination of private and European Union finance, the Euro5.2 million Arctic Operational Platform project has as its three-year mission to find 'technology-based costefficiency for [an] entire transport system' linking an offshore loading terminal at Varandey in the Pechora Sea - potentially via Murmansk - with the seaboard terminals feeding in to Europe's energy network. Such a transport system would not only help clear the way for the numerous offshore developments in the Barents, White, Pechora and Kara Seas that are currently without a means of export, it would also offer an alternative to ageing cross-country infrastructure linking Siberia with central Russia.

Given the multifaceted dimensions of the task at hand, and varying aspirations of its 21 member companies, Arcop has been broken out into seven 'work packages', with a special focus on issues related to 'technology and the environment; legal frameworks, and industry interests', explains Kimmo Juurmaa, Arcop project chief and manager of the Kvaerner Masa-Yards Arctic technology centre in Helsinki.

'This is a very big project. And everything is linked together,' he underscores. 'So there is no sense in developing new technology if you don't have the right legal framework, for instance. This is why we need to have all issues brought together under one umbrella before moving discussions ahead.' Arcop's fourth meeting, in Brussels in June, was the first to look at the 'whole project as one'.

Supertankers will necessarily be the centrepiece of any large-scale transportation set-up in the Russian Arctic. Presently, around 15 million boe is shipped out of the region each year using 20,000dwt vessels only capable of operating in the summer months. The Arcop vision is a year-round integrated transportation system involving 'double acting' vessels of around 100,000dwt, shuttling in the region of 110 million boe/yr along the western edge of the Northern Sea Route and guided through icy waters by new satellites such as Cryostat and IceSat.

Juurmaa says he expects to be able to table full specifications for such supertankers by year-end. Tanker traffic, in Arcop's plan, would be managed by a vessel management and information system, something not in place at the moment.

The other key component in such a transport system will be an offshore loading terminal at Varandey. This facility would be located 'a short distance' from shore in 22m of water, a deep enough draught for tankers of up 120,000dwt to pull alongside for loading.

'All aspects of the transportation system would have to be considered on a equal basis,' points out Juurmaa. 'The costs of the infrastructure needed would be enormous. The project specific infrastructure including the transportation vessels, the assisting fleet [of icebreakers] and loading terminal will need to be optimised considering the planned production rates and the latest technology.'

Voyage of discovery
Arcop is not working from a standing start. In 1998, under the aegis of the Arctic Demonstration & Exploratory Voyage (Arcdev) project, a 16,000dwt, icestrengthened Baltic tanker carrying a single load of gas condensate produced in the Yamal peninsula set out for Murmansk via the Kara Strait and Barents Sea. Testing 'everything from ice-breaker assistance to vessel and crew performance to administration issues like the permit process', Arcdev proved one thing beyond a shadow of doubt, says Juurmaa: 'Technically you could do it, but the economics couldn't be justified'. Transport cost came in at around Euro70/t - around Euro10/barrel.

For Arcop, the transportation scenario is more elaborate; and the cost/barrel ratio more ambitious. In its vision, flow from seven onshore fields in the Timan Pechora region - Roman Trebs, Varandey, A. Titov, Central Khoreiver, Toravey, Naul and Labogan - will be combined to maintain a plateau production rate of around 328,000b/d of oil and meted out over the economic lifetime of the transportation system.

'This scenario would get a large-scale transportation system such as we are proposing off the ground,' he suggests. 'The sea area has enough water depth to allow the use of large vessels and the ice conditions in the area are sufficient to reveal the influence of different technological solutions. And, after all, the need for this transportation is real.' Whether Arcop can conceive of a business model that would bring transportation costs down to its target Euro2/barrel is less certain. Assuming it can, a 'validation voyage' with a supertanker newbuild is on the cards for spring 2005.

Planning for this voyage is aided by the fact that there is no shortage of experience to be drawn on when it comes to marine operations in the Russian Arctic, as Juurmaa points out. 'Regular traffic has taken place in the Russian Arctic for an extensive period of time. And this provides the basics for operating both cargo vessels and the assisting icebreakers,' he says, noting that there is only a two-month window during which the Northern Sea Route is ice-free.

Year-round tanker operations would also further offset capital intensive development costs in the Russian Arctic only just now being cut down to size. Along with recent progress on bellweather projects such as Prirazlomnoye and Shtokmanskoye, a large-scale north-south transport route would bring a score of previously uneconomic offshore oil and gas fields into the realm of real possibility. Ledovaya and Fersmanovskaya in the Barents Sea; Varandeyskoye, Pomorskoye and North Gulyaevskoye in the Pechora Sea; and Rusanovskoye and Lenigradeskoye in the Kara Sea are all seen as 'top priorities' for development if and when the infrastructure issue is sorted out.

All things being equal, Varandey - where tankers have been loading at Lukoil's 'temporary' Arctic Submerged Loading Terminal since last September - will be a lynchpin to future transportation plans in the Russian Arctic. Some 11 million barrels are currently handled yearly by the facility, with plans to double capacity by next year. There has even been a proposal from a Russian consortium to build a deep-draught, 150 million barrels/yr capacity offshore loading terminal 15km further out from Lukoil's existing loading facility. Arcop's plans involve an ice-resistant offshore loading point being developed by Italian project member Tecnomare.

'What we are trying to develop is something on similar technology to the ASLT,' explains Juurmaa. 'Tecnomare has been looking at different locations around Varandey that can handle the ice-loading common in the winters in this area.'

'The offshore loading scenario is realistic and needs no changes,' he underlines, 'although the selected terminal location does not lie within the officially defined boundaries of the Northern Sea Route. The Northern Sea Route administration has indicated, however, that there is a clear wish to include the Pechora Sea within the area to which the Northern Sea Route rules apply.'

Keeping the sea green
Environmental protection and management finds itself as a necessary cornerstone to the Arcop project because of the 'highly vulnerable' nature of the offshore areas that the Northern Sea Route will cross through on its way to market. In keeping with the spirit that saw the Norwegian government only reopen its sector of the Barents Sea to exploration and production after the comprehensive ULB report (OE April) - and to avoid the complications potentially presented by any of a number of eco-pressure groups that doubtless have an eye on the project - Arcop has been looking 'very closely' at the environmental impact issues attached to year-round tanker traffic between the Russian Arctic and Europe.

On one front this has meant identifying and quantifying impact factors linked to shipping routes, vessel types, regular discharges to the sea and emissions to air. Accidents and oil spills occupy the other.

'Based on the inherent dynamics of the environment, in combination with key characteristics of shipping activity, we have been trying to estimate the likely impacts on regional ecologies,' offers Juurmaa. These estimates, he notes, will give Arcop insight into 'temporal and spatial distribution of resources at risk' and their relation to planned shipping routes, and help in identifying environmental risk 'hot spots'. Relevant baseline data will ultimately be systematised and entered in the INSROP Dynamic Environmental Atlas.

'The findings within Arcdev showed a certain gap with respect to oil spill response solutions for the area,' Juurmaa continues. 'Development of methods and technologies for oil spill response - mechanical recovery techniques, oil spill dispersants, in-situ burning and bioremediation - will help fill this gap.'

New Year 2005 marks the deadline for all detailed designs - supertankers, icebreakers, offshore loading terminals - to be in, so that economic modelling can begin. Preliminary discussions have taken place with Fortum to use one of its Japanese-built, Aframax-size tankers as the vessel for its 'voyage of validation', in order to holistically compare the experience of the Arcdev expedition to that of the larger vessel.

That few doubt the eventual commercial prospectivity of the Russian Arctic shelf - covering five million km2 and accounting for 30% of global oil and gas reserves according to many estimates - can be seen in the fact that finance has been forthcoming to cover the cost of this 'pilot northern supertanker voyage'. Nor is the private sector alone in its faith in the Russian Arctic. The governmental funding, some Euro3.2 million, has been channelled by the EU directorate-general of energy and transport from the coffers of the 5th European Community Framework Programme for Research & Technological Development.

'This journey should show us what the differences now are regarding many of the processes that we have to go through, and validating the economics of using a larger vessel for oil and gas transportation from the Arctic,' states Juurmaa. 'We need to see how the industry has developed in the last five years and how this voyage has changed.'

Inside 10 years Arcop reckons up to a dozen 100,000dwt supertankers could be ploughing their way between Murmansk and Rotterdam carrying from 300,000b/d in production from Timan Pechora. The Russian Federation is overdue to hold licence tenders on 22 blocks in its sector of the Barents Sea said to contain reserves of some 15 billion boe. Arcop isn't even looking at calculations of what that leap in production - and transportation - development of this acreage might add to the supertanker equation. As if the reminder were needed that the oil and gas industry continues to chart a voyage of change for itself. OE

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