4 September 2019
KEY CONCLUSIONS
The Russian Arctic
has incredible resource potential
“By 2035 our
on-land extraction in traditional regions can go down significantly compared to
today. Different estimates give us 50 to 100 million tons decline, depending on
the year and potential fiscal support measures. It means that the shelf is
going to replace our traditional regions,” Pavel Sorokin — Deputy Minister of
Energy of the Russian Federation
“What makes
the shelf so unique and why would investors want to come here, given we provide
something resembling favorable conditions <…>? Actually, it the presence
of the resource potential that is in decline globally. Both the Arctic and the
shelf attract with their resource potential,” Andrey Patrushev — Deputy Chief
Executive Officer, Shelf Projects Development, Gazprom Neft
“Currently, we have 79 licenses for the shelf.
Rosneft holds 31, Gazprom has almost the same number – 29, Gazpromneft has 5,
and the remaining 14 are distributed among other companies. Since 2012, 46
licenses went to state companies. <…> Since 2012, three new deposits have
been commissioned in the Arctic. Apart from the well-known Pobeda, it is
Tsentralno-Olginskaya and Severo-Obskaya. Subsequently, the growth since 2012
resulted in 210 million tons of oil, 670 billion cubic meters of gas, and 16
million tones of condensate,” Denis Khramov — First Deputy Minister of Natural
Resources and Environment of the Russian Federation
PROBLEMS
The shelf is not
thoroughly investigated
“When it comes to the degree of investigation.
<…> It remains extremely uneven. The Barents Sea is best known in the
Arctic with one and a half kilometers of the seismic survey per a square
kilometer of area. For the Kara Sea it’s a half of that, whereas the East
Siberian Sea is the least studied,” Denis Khramov — First Deputy Minister of
Natural Resources and Environment of the Russian Federation
High risks of shelf
exploration
“In recent years, the mining companies regularly
addressed the state about changing the licensing requirements. Business
reported the unfavourable taxation regimen, lack of access to sea
infrastructure construction subsidies, as well as outside factors like
sanctions and currency exchange rate fluctuations. At the same time, global
tendencies attest that starting the exploration the shelf projects in 2030s can
make them uncompetitive in the market,” Magomed Gekhaev — Advisor to the
General Director, Far East Investment and Export Agency
“Western countries carrying out projects in the
Gulf of Mexico or in Africa get funds under 2–3%. They can get listed and get
cheap money there. Our companies face global limitations and have to get
funding <…> under 8–9% if there’s no state support. It doesn’t work.
These are very long-term projects, the risks are too high for such rates,”
Pavel Sorokin — Deputy Minister of Energy of the Russian Federation
SOLUTIONS
State support for
shelf investment projects
“Our investors are not ready to cash out on these
extremely risky projects basically under a promise as a guarantee. That’s why
we need alternate financing tools: whether it’s co-financing, or differentiated
breaks for explorations <…> Unfortunately, in order to attract investors
to the unattractive territory we need to have some ‘honey’ to offer them,”
Pavel Sorokin — Deputy Minister of Energy of the Russian Federation
“Recently, a number of changes have been introduced
into the Tax Code that consolidates exploration expenses with extraction
results in Prirazlomnaya with a 1.5 multiplier. Thus, the state stimulation for
exploration reaches 30%. However, this mechanism only works for greenfield exploration.
<…> First thing the state could do to stimulate extraction is cover the
entire exploration field with 1.5 multiplier. <…> Second, <…> if we
look at the experience of other countries that work their shelf – Norway,
Brazil, China – we’ll see discounted financing to create the infrastructure
around their fields. That would be a key step for us. <…> Next step we
could implement <…> is labelling all Arctic shelf exploration projects as
4th complexity category,” Andrey Patrushev — Deputy Chief Executive
Officer, Shelf Projects Development, Gazprom Neft
“To
intensify the shelf exploration takes three main solutions. First is the
development of competition. <…> Second is stimulus and regulation
mechanisms required to fulfil the projects. <…> We suppose that the tax
regimen needs to be changed for the shelf projects. The preference system we
prepared takes that into account. <…> It includes spreading the 4th
complexity category to the entire shelf without term expiration. We suppose
that the state should intensify investments in technologies required to explore
the shelf in particular and the Arctic in general,” Alexander Krutikov — Deputy
Minister for the Development of the Russian Far East and Arctic
Attracting
investment to the development of the region
“President of Russia trusted us with the
development of the Arctic zone on the Russian Federation. He pointed out three
goals we need to achieve. First is raising the quality of life in the Arctic.
2.5 million of our compatriots live in rather grave conditions. Second is the
economic development of those territories. <…> Third is a notable,
sizeable increase in cargo transfer along the Northern Sea Route. <…>
There is only one realistic way to achieve these goals. It’s attracting private
investment to these territories. There are no funds available to flood the
Arctic with money, thus improving the quality of life. <…> Private
investment means jobs, improving the quality of those jobs, and growth of
regional taxation base,” Alexander Krutikov — Deputy Minister for the
Development of the Russian Far East and Arctic
For more information, visit the Roscongress
Foundation’s Information and Analytical System www.roscongress.org