Arctic // Analysis

27 march 2014

Arctic Offshore Exploration: An International Perspective

Alexei Fadeyev PhD in Economics, Head of the Production Support Department at Gazpromneft-Sakhalin
Photo:
gazprom.ru
"Prirazlomnaya platform", Murmansk

Transport, Logistics and Production Outlook for Arctic Offshore Exploration: An International Perspective

A lecture delivered as part of RIAC Days at Northern (Arctic) Federal University (NArFU) on 5 February 2014.

On behalf of JSC Gazprom Neft I am very glad to greet you all, and I would like to extend my gratitude to the senior management of the Russian International Affairs Council (RIAC) and the Northern (Arctic) Federal University (NArFU) for the opportunity to deliver this speech to you as future experts in international relations.

The focus of our current talk is the Transport, Logistics and Production Outlook for the Arctic Offshore Exploration: An International Perspective.

This lecture is, if anything, practical in nature as I will be using case studies to demonstrate the tools and prospects for international cooperation in Arctic shelf development.

Outline of the oil and gas resource potential

To begin with, I would like to give you a broad outline of the oil and gas resource potential of the Barents and Kara seas. Over the past 30 years, dozens of gas, gas condensate and oil fields have been discovered on the Arctic continental shelf, a number of which can be considered unique. Some of these fields deserve a special mention, including the Shtokman, Leningradskoye and Lunskoye gas fields, as well as the Prirazlomnoye and Dolginskoye oil fields.

The delimitation of the so-called Grey Zone negotiated in 2010 opened up additional prospects. Russia and Norway reached an agreement on dividing the disputed area, viewed by experts as very rich in hydrocarbon content. Norway has already discovered a number of deposits with vast reserves in the area, which puts us in a position to argue that the Russian section of the delimited zone also contains hydrocarbon-bearing formations.

Some Arctic shelf fields

If we consider the distribution of total resources initially in place across Russia’s territorial waters, the Barents, Pechora and Kara seas hold two thirds of Russia’s aggregate continental shelf resources, all of them in the Arctic. Furthermore, some estimates put the Arctic resources at 25% of the world’s existing energy resources.

Despite the promising prospects, projects in the Arctic present a number of challenges. These above all involve the Arctic’s extreme environment. Most of the fields are way beyond the Arctic Circle, with development to be set in harsh weather conditions with a high probability of icebergs, rough seas and strong winds 200 days a year. For a number of fields, drilling is only possible during the so-called ‘weather windows’. For instance, as far as the Dolginskoye Oil Field is concerned, the weather window lasts from June to October, while at other times the field is covered with ice hummocks or sea ice that rule out any chance of normal operation.

Risks affecting competitive ability

Importantly, existing legislation has to be amended to allow for a more auspicious investment climate for offshore field development. It involves setting up entry and customs points, as well as developing conditions that would make investors comfortable coming into the region. I will elaborate on this point later. Furthermore, the Arctic region currently lacks what we call the utility infrastructure required for the efficient development of the Arctic fields. Russia faces a serious shortage of technology and production facilities, and healthy competition between suppliers and subcontractors in the oil and gas industry is yet to be created.

As you can see, some fields lend themselves to categorization based on a number of criteria. If we consider ice conditions, they tend to be severe across the board, or involve iceberg risks. This is largely the main reason behind the design complexity of floating production units, which can now be disconnected from production risers to prevent iceberg collisions. It necessarily pushes up the capital intensity of the projects, making the economic model used in the projects more expensive.

Optimal location for a support base

The challenges we mentioned translate into a whole number of risks, most of which are listed in the slide. The group of risks encompasses transportation and technological risks, which could also increase a project’s costs and further complicate the investment decision-making process.

Therefore, a comprehensive support system for an offshore project is of primary concern for the purposes of efficient exploration. When we say a ‘comprehensive support system’, we do not just mean transportation and logistics, not merely shipping goods from Point A to Point B. It involves a complex integrated model of supply, personnel transfer to and from work locations and rotation during all production stages from geological prospecting to actual operation, and the subsequent transportation of substantial volumes of hydrocarbon resources to destination points. In this context, an efficient sourcing strategy emerges as yet another challenge determined by the need for vehicles which can operate effectively in Arctic conditions. I am referring to special ice class tankers, supply vessels, helicopters, andservice vessels such as cable and pipe-laying ships. The most important element is the onshore structure, particularly a comprehensive support base and a shipyard to build vessels and platforms, which to a large degree determine the project’s research intensity.

Availability of a developed on-shore infrastructure

Choosing an optimal location for the support base is a key success factor in the Arctic. In this perspective, Murmansk and Arkhangelsk claim to become capital cities of the new oil and gas bearing provinces due to their proximity to the reserves, thewell-developed infrastructure and a number of other geographic advantages, which has made them the centre of attention of oil and gas project operators.

If you look at the left side of the slide, you will see a schematic map of the Murmansk Seaport. Gazpromneft-Sakhalin, an operator of oil projects, commands a comprehensive support base in Murmansk. Even now, well before the implementation of projects gets underway on a large scale, a few companies have shown interest in these infrastructure facilities. They include GazpromNeft, Gazflot, Rosneft– which is about to start drilling in the Kara Sea – and a number of other companies. It should be understood that commercial exploration of hydrocarbon, mineral and biological resources of the Arctic region is inevitably set to increase, and therefore, the competition for conveniently located infrastructural facilities boasting high potential will toughen.

Pipe storage example

This slideshows a comprehensive support base. Despite the fact that the base is located on the coast, its main purpose is to supply to offshore venues. It is essentially a port terminal responsible for a whole range of services involved in receiving and handling cargo. A key element of a cutting-edge supply base is a bulk plant. It also accommodates dockside cranes, office and administrative buildings and special drilling fluid storage tanks. The facilities have to comply with international HSE (Health, Safety and Environment) requirements, high standards of occupational health and safety, as well as environmental safety standards.

To recap, the main challenges related to logistics can be broken down into three categories. The first group includes technical issues related to the Arctic environment, a sensitive ecosystem and iceberg risks. The second category embraces economic issues linked to the tight operating schedule determined by the so-called weather window. The choice of an optimal crew transfer and cargo delivery solutions also has a significant impact on the economic model of a particular project and investment decision-making. So do the occupational health and safety issues. With the recent trend towards forming alliances to develop hydrocarbon resources, strict compliance with international labour protection and occupational safety standards becomes a matter of primary concern.

Temporary rotation camp

In general, logistics operations can be divided into two major groups: personnel transfer and rotation; and cargo, equipment and materials delivery. Certainly, as far as crew changes are concerned, the preferred means include air service (according to industry standards, personnelis transferred to offshore platforms by helicopter) and land transport, with the ‘meet-and-greet’ service being among top priorities. As far as cargo delivery goes, transportation by sea and rail (used to carry the main equipment modules) is definitely the most promising solution. Certain minor urgent loads can be carried by air as well. It is also necessary to consider temporary storage solutions, cargo handling and, naturally, customs clearance.

This slide illustrates the storage of concrete-coated pipes. The photo was taken in Nigeria where Total is running one of its offshore projects. The photo gives a clear picture of the area required to store pipes alone, without any functionality of a comprehensive support base. Such needs certainly impose considerable infrastructure requirements.

Offshore helicopter transport services
проектов

This example of a temporary rotation camp used to accommodate construction workers engaged in building some facilities, say, an LNG plant, is also interesting. Scaled down, such a camp could be used as a crew change facility for personnel awaiting a weather windowor connection. This is a photo of Ormen Lange (‘The Long Serpent’), an unconventional Norwegian gas project which operates only subsea installations without a single floating production unit or platform, with everything managed remotely onshore. The camp can accommodate 2900 people and boasts all amenities, including a laundry, gym and even a cinema. When planning for such a camp, it is important to provide for the supply of water, diesel oil, foodstuffs and waste disposal. Local logistics is, therefore, another important factor.

The existing infrastructure and Russian suppliers present another challenge in developing the fields. If you look at the class of the Pechora Sea fields, you will see that they are more than 700km from Murmansk and Arkhangelsk. While the nearest point is Naryan-Mar, its existing infrastructure will not be able to handle a comprehensive marine supply base. Going forward, Naryan-Mar can become a transportation and logistics hub handling personnel transfers by air. Meanwhile, at this point service companies are unable to provide support on an ongoing basis, which calls for personnel and equipment to be moved in from other regions, and hence increases project costs. Furthermore, some providers hold monopolistic positions in their respective markets of goods and services, which also puts operators at a disadvantage.

On-shore transportation

As for helicopter service, it should be noted that there are only so many helicopters that can actually be used in the Arctic environmentand can land on the helicopter pad on boardan offshore production platform. The fact isthat foreign platforms have certain limitations on the capacity of the helicopter deck. For that matter, the popular Russian Mi-8 helicopters cannot land on such decks. I would also like to draw your attention to the helicopter market survey. The problem is that they lack the water landing and anti-icing systems – an indispensable requirement under international safety standards. Helicopters of relatively small size are required to carry heavy loads, and be equipped for night flights. Furthermore, strict requirements apply to on-board navigation equipment and the crew. Flying a helicopter over rough seas during polar nights is a task far more challenging than flying over land in normal weather conditions, so this puts additional emphasis on the qualifications of pilots.

My next point concerns support ships.The situation here is also difficult. At this point, Russia lacks a developed market of support ships. Unfortunately, most of the vessels are quite old – 25 to 30 years – failing to meet the requirements of oil and gas companies. Furthermore, there is a shortage of readily available vessels equipped with on-board dynamic positioning systems. Some owners are reluctant to let their ships enter the Russian Federation due to certain persisting stereotypes. We are low on service vessels under the Russian flag since ship owners are averse to re-flagging because of the weather window problem. No one wants six-month contracts when they can get three- or five-year contracts, or even longer-term agreements. This certainly adds to the difficulties operators are facing when developing projects in Russia.

Snow-covered road

On-shore transportation also raises serious concerns. Unfortunately, roads in the Arctic regions leave much to be desired. This much is confirmed by photos taken in the Murmansk region. This is a run-down single-lane country road leading up to Teriberka village, with bridges and other hydraulic structures along the routethat are in an equally poor condition. There is also a legal difficulty involved since roads on the one hand, and bridges and dams on the other fall under the control of different entities, and the owners of the latter frequently oppose any road reconstruction efforts since they could disrupt the connections. As a result, the lack of agreement between the owners of the facilities renders reconstruction impracticable. Furthermore, such roads tend to have turning radii that make the turns on such roads impossible to manoeuvre, for example, for heavy duty trucks carrying modules. In addition, the roads are subject to snow drifting, which could also impede logistics operations. The photos I took on my way to Teriberka where Shtokman Development was planning to build an LNG plant clearly indicate that basically,the shoulder-to-shoulder width of the road is not sufficient for two vehicles to pass each other. It also has no reflective traffic posts in place, and visual range is just 15 metres. The next photo shows a module and a man standing next to give you an idea of the size. It is hardly even possible to carry such objects considering the current state of the roads.

Now I’d like to say a few words on the existing structure of freight traffic. I would like to cite the Murmansk region as an example here: currently, two thirds of all freight is carried to the region by rail. Since the region depends on mazut for fuel, railway traffic is congested. Consequently, once large-scale hydrocarbon sales projects are launched in the region, suppliers may end up using the same railway line to ship materials and equipment, bringing about hold-ups. Conversely, the Arkhangelsk region enjoys a gas supply, and its railroad is relatively idle, which is viewed as one of the region’s competitive advantages as far as the creation of a support base for oil and gas project operators is concerned.

Freight transportation diagram

Take a look at the diagram outlining freight transportation. It shows that freight could be carried either directly to the field, or indirectly via a support base. Different colours stand for different transportation options: mostly by sea and rail. As far as personnel change and transfers to the Barents and Pechora seas are concerned, Naryan-Mar and Varandei remain the most likely points of transhipment to a self-propelled semisubmersible drilling unit.

Cooperation with the regional authorities is a matter of utmost importance in developing the local infrastructure. GazpromNeft, for one, is engaged in an active dialogue both with the governments of the Murmansk and Arkhangelsk regions, as well as the administration of the Nenets Autonomous District, in a bid to negotiate their support for establishing checkpoints for personnel transfers to the drilling platforms and potential joint efforts to overhaul the infrastructure, as well as creating a favourablelocal investment climate.

Prerequisites of the logistics process include, above all, the possibility of unhindered operations. This involves not only the respective regulatory approvals, but also coordinating vessel traffic with the naval fleet that conducts drills in the Barents and Pechora seas, and thisfrequently poses problems for the operators. Furthermore, it involves the need to rebuild roads and improve the quality of communications, since even mobile networks are not always readily available in subarctic regions. Amending customs legislation, opening up checkpoints and providing foreigners access to logistics facilities are also matters of utmost importance. This, I believe, is especially true of Arkhangelsk, where many facilities that could be successfully used to build a transport and logistics infrastructure are still controlled by the military and are hence classified as sensitive sites with only restricted access even for Russian citizens, let alone foreigners.

Personnel transfer scheme

To recap the discussion of logistics, it is important to highlight the main spheres of international cooperation as far as Arctic projects are concerned. They include: selecting promising international partners and providers; sourcing strategies; creatingaction plans to gain access to key resources and technology; examining opportunities for supply base localization; dealing with organizational matters; and even creating possible synergies with other companies, both Russian and foreign, which will eventually result in production optimization, increased investment appeal of Arctic shelf projects and a boostin their competitive ability.

I would also like to add a few words about transport. Russia boasts a unique nuclear naval fleet that provides icebreaker assistance along the Northern Sea Route. The number of icebreaker escorts is rising with each passing year. Unfortunately, I have no data for 2013, but in the three years running up to 2013 the number of escorted vessels had risen. Currently, the Russian icebreaker fleet commands six icebreakers, with three new vessels in the pipeline.

What’s more, Russia also provides exotic business opportunities such as Arctic tourism. Few Russians are actually aware that they can travel to the North Pole on an icebreaker. It is by no means a cheap trip, but the service enjoys its fair share of popularity, especially among foreigners. A journey on the icebreaker Yamal to the North Pole is just one example of Arctic tourism.

Navigation in the Arctic

The Arctic has long beena region of international cooperation. Murmansk and Arkhangelsk both host regular international forumsaddressing the issues of how to involve Russian industry in the exploration of the Arctic,and resulting in milestone agreements. In fact, Murmansk and Arkhangelsk are essentially the two centres of Arctic shelf development thanks to their geographical location,their developed infrastructure and the reliable connection to other regions of Russia, as well as to unique production facilities that make goods required for the oil and gas industry –steel works, for instance.

Yamal icebreaker

The defence industry is very demanding where product durability is concerned, so the Arkhangelsk region has a considerable competitive edge in this respect. It should also be noted that Arkhangelsk is an important transportation hub, since its port handles a considerable transhipment through put. For instance, it tranships cargo for the Yamal LNG project. The city has also been part of Shtokman Development tenders to create a comprehensive support base. In addition, the Arkhangelsk port handled Total’s freight bound for its Nigerian project. Its railway provides another competitive advantage.

Some experts tend to describe Murmansk as a promising hydrocarbon transhipment port. Potentially, resources produced at various fields out in the Arctic could be accumulated in Murmansk to then be loaded into special tankers and carried to its end markets in Europe or the United States. In addition, the project of laying down an oil pipeline from Siberia to Murmansk still remains viable.

As for companies based in the Arkhangelsk Region, I would like to reiterate that they are much better positioned as potential suppliers for the oil and gas industry. However, notwithstanding the region’s substantial potential,whichoften goes right back to the Soviet era, participation in international projects is only possible on atender basis. And it is not only Russian companies that take part in these tenders, as they often attract foreign providers who often have considerable experience, the necessary certificates, a strong reputation and a brand name. This certainly hampers Russian providers from joining such projects and entering even the domestic oil and gas market, let alone getting in on foreign projects.

Value chain and types of work

Therefore, Russian companies need to enhance their competencies as providers and learn to market themselves wisely in the oil and gas industry. They also need to drastically improve the quality of their products, procure new equipment, retrain and upgrade the skills of their personnel and use their best efforts to become competitive.

Arkhangelsk-based companies are known to be strong in such spheres as shipbuilding and ship repair. The region’s track record includes the construction of the famous Prirazlomnaya platform that is currently operating successfully at the Prirazlomnoye oilfield. Essentially, the delivery of the platform built by Sevmash marked the beginning of Russia’s exploration of the Arctic in December 2013. It should also be noted that companies in the Arkhangelsk region boast considerable potential in steelworks, the production of construction materials, cement and concrete, and, of course, logistics.

I would like to say a few words about clusters and the prospects they open up in terms of international cooperation. According to Michael Porter, a cluster is defined as a geographical concentration of interconnected companies and related institutions operating in a common industry and complementing each other. Indeed, as far as the Arkhangelsk or Murmansk regions are concerned, we are dealing with a burgeoning marine oil and gas cluster located in the new oil and gas-bearing province. In other words, there is an array of companies that are, to a certain extent, competing with each other but which nevertheless interact, help each other, complement each other and thus improve their own competencies. These factors determine a cluster’s innovative ability.

Conceptual model of the oil and gas sector

In general, a cluster is a borrowed word which corresponds to the Russian term ‘a territorial production complex’. Such complexes even appeared back in the USSR; they operated successfully and proved their efficiency. Norway, for one, currently has at least nine clusters where providers of services in a particular area are concentrated. There is a drilling cluster, a cluster building floating production units, a cluster providing metal structures, etc. Take a look at this example of interaction within a cluster. Interaction between contractors and subcontractors eventually leads to cooperation and a growing common network of contacts.

For the purposes of this talk, the conceptual model of an oil and gas cluster can be represented as the interplay of government support (at least on the regional level), a group of companies representing research and educational institutions, providers themselves, downstream companies, icebreaker and tanker fleet services, port infrastructure, geological prospecting and oil production companies. The industrial development of a cluster can be tentatively split into three stages: at the initial stage, companies provide components; the second stage involves assembly of the component parts, that is, the provision of more technologically complex units and elements; and at the third stage, companies are already in a position to provide independent designs and turnkey solutions. I would like to add a few words on the prerequisite conditions for forming a cluster. They include regional initiatives, the availability of the required technology, anational policy favouring local providers and sufficient demand for the type of product in question – exploration of the fields and ongoing mineral development projects, for example.

Cross-border cooperation also gives an impetus to regional development. As far as the north-western cluster is concerned, it opens up the most promising prospects for companies in close proximity to the Russian Federation – those from Finland, Norway and Sweden.

Industrial development of a cluster

In terms of its oil and gas industry, Norway is a unique country: it did not start oil production until 1970, and was able to rise to a global leader in the oil and gas industry within 40 years due to its efficient industrial and social policies. Incidentally, Norway largely owes its success to international cooperation. Forty years ago, Norway started out inviting experts and specialists and entering into alliances with international companies. But in accordance with its laws, it reserved intellectual property rights to all research findings and designs that resulted from such cooperation. Furthermore, it also adopted laws providing for what is defined as local content, which imposed an obligation on foreign companies operating in Norway to engage from 30 per cent to 80 per cent of local Norwegian providers depending on the production stage of a given project. It was achieved by various means, for instance, companies had to be registered in Norway and employ a local workforce, but had foreign management teams. Gradually, Norway grew so conversant in the technology that it is now in a position to compete with such giants as Exxon Mobil and Total.

In order to get a cluster up and running, centres of demand should be formed first. As I mentioned earlier, most Russian companies are facing certain difficulties in the global and even domestic oil and gas markets. They often cannot act as direct suppliers. One of the ways to resolve this problem is to become a supplier to suppliers, or a third-, fourth- or fifth-tier subcontractor, to gradually build up competencies, and to become a fully fledged player in the oil and gas industry. That’s why it’s necessary to create centres of demand around which local companies can to develop independently of the supply industry. This could involve building certain infrastructural elements, such as scaffolding, welding equipment, accommodation, supply of cranes, etc. Have a look at the example geographical cluster map, which shows where the centres could be located. In the case of Arkhangelsk, this clearly involves science and education, machinery, seaports and supply bases. Murmansk has a similar outlook.

Cross-border cooperation

Realization of the available potential requires the active transfer of advanced expertise and knowledge. I would like to give you what are in my opinion two of the brightest and most successful examples of present-day international cooperation in Arkhangelsk and Murmansk: the establishment of the Sozvezdye and Murmanshelf associations of oil and gas industry suppliers. In 2005, Norwegian authorities asked the governments of the Murmansk and Arkhangelsk regions to study the positive experience of the Snøhvit (‘Snow White’) association, which had been established specifically for the development of a local gas deposit of the same name and which brought together local suppliers. When the association was first established, it was envisaged that Norwegian firms would be able to deliver supplies worth around 500 million kroner. After the project was completed, it turned out that they were in fact able to supply six times the volume, worth 2.3 billion kroner. Veterans in Hammerfest, a town close to the field, even compared the development of the oil and gas industry there with post-war reconstruction. Roads were built, shops opened, people were moving to the area, and the region’s economic activity was growing.

Eventually the governments of both regions decided to look into the matter and resolved to set up similar non-profit organizations in Murmansk and Arkhangelsk. The main purpose of these companies is to increase competencies of local industrial enterprises that position themselves as suppliers. The associations serve as a conduit between regional industry and the state, and between regional industry and oil and gas companies. Their work included organizing seminars and conferences that were attended by leading experts from the Norwegian company Statoil. Incidentally, Statoil supplied the associations with two foreign experts who spent 18 months at the office, explaining how they trained staff in Norway, and helping companies to become suppliers.

Example geographical cluster map

More than 20 training seminars and large conferences have already been held over the past two years. The associations have helped spread the necessary knowledge in Murmansk and Arkhangelsk. These regions are now able to present a consolidated position of the region on a whole number of production matters. Suppliers no longer have to interact with the operating company by themselves, as the service centre or the repair sector can act as a go-between. The regional governments’ understanding of small businesses’ problems has improved.

What is more, foreign companies have started joining the organization as well. As far as I know, management of these companies were not supportive of the idea to begin with, but the ban was subsequently lifted, and the presence of foreign companies has become a very strong driver for the development of Russian enterprises. To begin with, they were able to meet representatives of those companies at seminars, visit them, tour their production facilities and learn a lot. As a rule, the presence of a strong partner as a competitor is a very good motivator. Many companies in Murmansk and Arkhangelsk that want access to offshore operations have already retrained their workforce, replaced – as far as their investment capabilities will allow – some of their equipment, and become acquainted with the operating company through these organizations, thus showcasing themselves and their production capabilities. I am confident that once oil and gas projects get underway, the share of local Russian participation will increase.

Take a look at the slide describing the Sozvezdye association. It currently unites 180 regional, national and foreign companies, and is an advisory, educational and information centre. The association conducts regular meetings with operators. It has its own website and publishes periodicals.

Sozvezdye association

The Murmanshelf association is essentially a cluster as well. This photo shows a percentage breakdown of companies that form the association. There is quite a wide range of companies, of which most are SMEs. In terms of headcount, 44 per cent of Murmanshelf member companies employ fewer than 20 staff, with another 20 per cent employing between 26 and 100. I’d like to add that small and medium businesses are the backbone of any country’s economy, including the Russian Federation. It’s the development of small enterprises that can yield substantial economic growth. Foreign companies represent just a quarter of Murmanshelf participants, yet this quarter has provided strong motivation for Russian companies to put in the hard work.

I would like to show you a film now that, in my view, successfully shows the amount of work performed by suppliers when manufacturing lower platform foundations – the so-called concrete legs that support an oil and gas rig. This video was produced by Kernel, an oil and gas project supplier, and is shown for information purposes. This company is not affiliated with Gazprom, but it is very successful in its own right.

I would like to add that platform legs have become a symbol of sorts for Statoil – its head office at Stavanger has been designed to match the volume of a leg of the Troll platform exactly. By the way, the Troll platform has made it to the Guinness World Records as the biggest structure ever transported by humans.

Now let’s talk about the direct and indirect effects of the development of offshore deposits. Deposit development can give a strong impetus to industry by creating jobs, expanding the taxable base and improving demographics. Essentially, industry creates the bulk of a nation’s GDP, and it is industry that determines the technical level of other sectors of the national economy, so the importance of carrying out oil and gas projects in regions cannot be overestimated.

Murmanshelf

This slide shows the key direct and indirect effects that arise during the development of a deposit. It’s worth noting that the resource and innovation approach can become a key area of project implementation: that is, when proceeds from the production of hydrocarbon resources are funnelled into deepening the degree of processing hydrocarbon resources, increasing the technological innovation capabilities of the extracting industry. This helps form the so-called ‘dual-core’ structure of industrial production, where the first core represents traditional commodity industries and extracting companies, and the second represents a sector that manufactures high added value goods and high-tech products. The slide also shows the key effects that can arise in science and education – a huge field of activity. Generally speaking, underwater extraction technologies are developing at the speed of mobile telecommunications technologies.

It is important to create a favourable investment climate. On this slide, I have highlighted the main areas that the government of the Arkhangelsk Region is concentrating on in order to make it more attractive for strategic companies wanting to enter the market. The government’s role in this process is absolutely vital. I’ll give an example. Several years ago, I attended a conference in Kirkenes, Norway, where I listened to the mayor of Stavanger speak about creating a favourable investment climate at home. Stavanger is Norway’s oil capital, home to almost all of its oil companies. In his speech, the mayor told us about how one of his predecessors fought for Stavanger to be recognized as an oil capital 40 years ago. Houston hosts the annual Offshore Technology Conference, attended by heads of major oil and gas companies. Before the conference, the former mayor studied the portfolios and photos of these people and headed to the airport to greet every one of them. When he spotted a company executive walking down the terminal, he opened the door for them saying, “Welcome to Stavanger!” People were puzzled at first – they had come to Houston, after all, and here they were being welcomed to Stavanger. By using this trick, the former mayor of Stavanger planted the idea in their heads. Of course that was not the main factor, but it did help Stavanger get selected as an oil and gas capital.

Direct and indirect effects of the development
of offshore deposits

Speaking of Murmansk and Arkhangelsk, we can say with confidence that these two cities play the same role for Russia’s economy that Stavanger played for Norway and Aberdeen played for Scotland 40 years ago, when offshore production in the North Sea was only just beginning. It’s very important to use international cooperation as an effective tool for transferring and adapting technology. And we need to use the unique international expertise and knowledge in the interests of society, in the interests of the Russian Federation.

Future offshore development opens up new facets of cooperation among the interested countries. In terms of a scientific and technical base, the availability of production facilities in the sub-Arctic regions is a competitive advantage for creating a high-tech service infrastructure and developing the shelf.

The main areas that the government of
the Arkhangelsk Region is concentrating on
in order to make it more attractive for strategic
companies wanting to enter the market

Currently all prerequisites are in place to establish maritime oil and gas clusters in the Murmansk and Arkhangelsk regions. Increased participation of competitive Russian suppliers is a pressing matter for the regional and federal governments, but at the same time it is a challenge for companies that wish to become part of the innovation sector of the economy, which is beginning to develop actively in both regions. Without a doubt, as future employees and leaders of those companies, your task is to apply the knowledge of international cooperation that you are now learning at university in the proper way.

Thank you. I will be happy to answer any questions you may have.

Question: My question is about helicopter transportation. Because of road conditions, this is perhaps the main mode of transportation. I’m interested in the statistics of how different companies are contracted. How are companies selected, and what is the role of the Arkhangelsk aviation group?

Alexey Fadeev

Alexey Fadeev: Transportation of offshore operations personnel by helicopter is required, first of all, because of the lack of roads. Secondly, this is an industry standard. In theory, people can be transported by sea; this answers the first part of your question. But unfortunately, for obvious reasons, not all people are prepared – they will arrive at the platform seasick. The drilling rig market is overheated at the moment. There’s a global boom of offshore drilling. Contracting an available drilling rig is a huge problem because of strong demand, as well as because of the Arctic’s specifics, such as the weather window. Nobody wants to sign a six-month contract. Besides, foreign-made drilling rigs are designed for other types of helicopter that are lighter in weight and have smaller rotors. That’s why the Eurocopter and the Augusta/Westland, etc., are the preferred brands for foreign-made platforms. But Russian operators didn’t need helicopter services until recently either, because the most widely used helicopter, the Mi-8, has a limited landing capability. And a foreign-made helicopter costs upwards of 14 million euros. Buying and leasing one out isn’t viable either because of the long payback period. But this doesn’t mean that Russian equipment is doomed. Fortunately, shipbuilding is experiencing a revival right now; there are presidential programmes [for that]. Heavy-lift helicopters will be able to lift platforms built for the Arctic in the future. The outlook for the Arkhangelsk Aerial Squadron is good, they take active part in tenders. But of course they should strive to modernize, to upgrade their fleet.

 

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Alexei Fadeyev, “Arctic Offshore Exploration: An International Perspective,” Russian International Affairs Council, 27 March 2014, http://russiancouncil.ru/en/inner/?id_4=3396

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