No. 2, 2010
TO RUSSIA’S BENEFIT
Interview of Alexander Zhilkin, Governor of the Astrakhan Region
In the Astrakhan Region, a new page has been turned in the history of the Russian oil industry. LUKOIL has launched industrial development of the Yury Korchagin oil and gas field - the first one on the Northern Caspian. The Russian Government and the Astrakhan Region Administration attach major significance to this event and believe that it will benefit the nation and will likely promote its further economic growth.
Q: What, in your opinion, is the importance of the Caspian Sea as an oil-bearing region?
A: The Caspian is a unique natural water body with unequalled hydrocarbon and biological resources. At the same time, the Caspian Sea is also the oldest oil-producing area. In Azerbaijan, on the Apsheron Peninsula, oil production began over 150 years ago and, in the second half of the 19th century, it was already being carried out on an industrial scale. And offshore oil has been produced here since 1949.
During the Soviet era, large-scale geological exploration was carried out on the Caspian Sea and its hinterland to discover about 50 hydrocarbon fields with estimated resources of 8 to 22 billion tons of oil equivalent. This puts the Caspian in second place in the world (after the Persian Gulf) in terms of oil and gas reserves. The hydrocarbon resources of the Caspian were then regarded as a sacrosanct strategic reserve and oil was produced mainly in Western Siberia. After gaining independence, Azerbaijan, Kazakhstan and Turkmenistan put their Caspian fields on stream.
In November 1995, the Government Caspian Studies Program initiated the geological and geophysical exploration of the Russian sector of the Caspian, and exploration drilling began in 1999. As a result, several offshore prospects were discovered there, with total current reserves of about 1 billion tons of oil and gas concentrate and 800 billion m3 of natural gas.
Most active in the region today are LUKOIL and Gazprom, with a dozen more companies or engaged in field exploration and operation. The Government of the Astrakhan Region is vigorously supporting project implementation by the oil and gas companies through creating an enabling environment for business development.
Q: When will commercial oil production begin on the Russian shelf of the Caspian?
A: This spring, LUKOIL is expected to produce the first Russian oil on the Caspian in the Yury Korchagin field situated 180 km from Astrakhan and 240 km from Makhachkala. Its commercial reserves are estimated at 28.8 million tons of oil and 63.3 billion m3 of gas.
The oil companies have been working toward this for a long time. The preparations for offshore operations required not only tremendous innovative engineering efforts, but also major investments, which were not easy to find during the global financial crisis. The total field development costs amounted to the enormous sum of about 35 billion rubles.
Despite all difficulties, the oilmen reached their goal and, in the third quarter of 2009, managed to transport an ice-resistant fixed platform along the Volga-Caspian canal. This required precision work: a listing of just 2° could have resulted in a dangerous beaching on a sandbank. En route, the navigators faced another problem - high-voltage electricity transmission cables cutting across the canal. Power workers from Astrakhan switched off the current and dropped the cables to the bottom of the canal. Once the platform had passed, they rapidly restored the power supply. As a result, the unique structure reached its destination without incident.
A whole factory has now taken shape on the offshore field. I am particularly pleased to note that, in conjunction with other contractors from different parts of Russia and elsewhere, Astrakhan's own ship-builders have also made a weighty contribution to creation of these offshore facilities.
In December last year, Deputy Prime Minister of the Russian Government Igor Sechin, LUKOIL President Vagit Alekperov and I verified the readiness of the offshore ice-resistance platform for drilling work and made sure that it complied with the design requirements. The drilling complex of this platform was then symbolically handed over to the specialists of JSC BKE Shelf.
The maximum production level at the Yury Korchagin field will be 2.5 million tons of oil and 1 billion m3 of gas. This is Russia's first oil production project on the Caspian shelf envisaging creation of the requisite infrastructure and a complete supply chain - from raw well to wheels.
Q: How would you assess the significance of the startup of Russia's first offshore field on the Caspian?
A: It is a historic event in the country's oil and gas industry and a seminal one, if you like, for the Caspian shelf.
The project has shown that the shelf can and should be developed. The oil companies were put off neither by the crisis, nor technical difficulties or the high cost of the work. And this process will undoubtedly advance quicker if the government is more active in assisting implementation of such projects on the Caspian, as it is in other regions. Temporary release from export duties of hydrocarbons produced in the fields of Eastern Siberia and the Far East has already entered into practice. This is connected with the difficulties involved in working in remote regions where there is virtually no infrastructure and the climate is very harsh. This benefit allows the subsoil users to achieve project profitability more quickly and to reinvest the funds in faster startup of other fields and construction of a new infrastructure, including creation of gas transport and oil pipeline systems. In the Russian sector of the Caspian, the operating conditions on the shelf almost 200 km from the shore are also complex. They require huge investments with a pay-off period of many years. So the Government is considering how to ease the financial burden borne by the companies operating on the Russian shelf of the Caspian.
Russian Deputy Prime Minister Igor Sechin has also stressed the major significance of development of the Yury Korchagin field. He noted that it would be appropriate to roll out the technologies used by LUKOIL in developing it to other Caspian facilities. The experience accumulated might be of use to Gazprom, Rosneft oil and other companies whose interests include hydrocarbon production on the Russian shelf.
We are, of course, pleased that LUKOIL has managed to implement this project. This gives us new hope. Development of oil and gas production on the Caspian shelf opens up serious prospects for the region. I have no doubt that precisely the Caspian Sea region will soon be one of the biggest suppliers of oil and natural gas to the global market.
In addition, the example of the Yury Korchagin field confirms the high level of professionalism of the Astrakhan ship-builders. I hope that they will be able to win the right to participate in implementation of the next large-scale oil project - start-up of development of the Vladimir Filanovsky field.
Q: Are offshore industrial activities friendly enough to the environment and marine fauna?
A: Elaboration of an effective environmental protection system is one of the key conditions for initiating development of the offshore fields in the Northern Caspian. Sturgeon are suffering mainly from poachers. The oil companies are now using state-of-the-art technologies at the hydrocarbon exploration and development stages to preclude sea pollution. These technologies are based on the zero discharge principle, meaning that all production waste is loaded into containers and removed from the industrial facilities to the shore, where it is disposed of.
Our oil producers on the Caspian do not operate according to the principle of "oil at all costs." LUKOIL is a clear example. Over the 11 years it has been operating offshore, there has not been a single oil spill or any other pollution of the water body, and the Company has spent several hundred million rubles on improving the environmental safety programs for the Northern Caspian. The Company's new nature-protection program in the region for 2009-2013 envisages a significant increase in financing for these purposes.
Even though the Russian sector of the Caspian gives no cause for alarm, this does not mean, however, that the other Caspian nations are acting similarly. Until an international agreement is achieved on the environmental principles for hydrocarbon production and transportation, it is unlikely that instances of marine pollution can be fully excluded. The Caspian Sea is a common possession of five nations and if anything goes wrong in one place it will affect all the rest. Effective environmental monitoring of oil operations and the overall situation on the Caspian is possible only if all the Caspian nations collaborate in this process.
