Moscow, 16th April 2012. – Greenpeace Russia today released the report exposing the environmental, social and economical risks of the Russian Arctic offshore projects. The study is published on the eve of the 2nd Annual Conference «Russian Arctic Oil and Gas» that will be held in Moscow April, 17-19 and that is going to be attended by the main Arctic oil companies, including Shell and Gazprom.
In the “Russian Arctic Off-shore Hydrocarbon: Investments Risks” report Greenpeace-Russia’s experts analyzed Russia’s current oil production practices, their environmental impacts as well as technologies and operational approaches Russian oil companies apply. The Report’s conclusions are like a verdict – the damage that could be caused to the Arctic ecosystems by any considerable oil spill there, and, correspondingly, the financial losses related to the clean-up of the spill and mitigation of its impact, will by many times exceed any potential profit from the development of Arctic off-shore oil fields.
Although the report focuses mainly on Russian examples, the issues tackled in it are equally relevant for all Arctic regions, including Canada, USA and Scandinavia. This is confirmed by the The drilling conditions in the Arctic are much more severe and require not only new technologies which Russia is lacking, but also a strict observation of safety norms and protocols. Despite that and following its usual practice the LLC “Gazprom Neft Shelf” – the operator of the first maritime ice-resistant stationary drilling platform “Prirazlomnaya on the Arctic off-shore - has launched the Prirazlomnoye off-shore oil field development project without finally approved oil spill response plans, and with no sufficient resources to secure compensations for the effects and consequences of potential oil spills. The existing insurance for potential ecologic damage that can be caused by the “Prirazlomnaya” platform’s operation is little more than symbolic constituting just 7 million Russian Rubles (or about US$230 thousand), while the Mexican Gulf spill cost BP as much as US$ 41,3 billion which is comparable with the overall Gazprom’s net profit in 2011. Of course, Gazprom is counting on support from international investors, but even massively increased investments will not sufficiently reduce the level of oil spills risks and increase the effectiveness of oil spills mitigation.
Environmental and, primarily, social risks implying suppression of indigenous people’s rights, deterioration of living standards and health of the population of oil and gas extraction territories, high level of imbalanced economic concentration, i.e. “monopolization” of the regional economy, and politics, are all leading to inevitable and grave reputational risks for any responsible company.
There are also purely financial risks related to the dependence of the Russian federal budget on earnings from oil and gas extraction. Taking into account exceptionally high costs of off-shore projects, one of the main ways to make them economically attractive is to provide a special tax relief regime for operating companies. With these tax breaks the federal budget will be losing more than US$ 400 from each ton of oil from the Russian offshore. It will produce quite an impact on the national budget. If we assume that “Prirazlomnoye” oil field will produce for export around 6 million tones of oil annually, the budget losses will amount 2,4 billons of dollars. That is why the RF Government keeps on delaying its decision on issuing tax relief for off-shore projects.
Nevertheless, for the sake of 90 billion barrels of Arctic oil, promised by the US Geology Survey, investors may yield to “oil rush” and turn a blind eye upon endemic Russian corruption risks.
However, reckless assumptions of “huge existing reserves’ on the Arctic off-shore prove to be rather exaggerated. According to the US Geological Survey estimates the Barents Basin may contain as much as 9.5 billion barrels of oil, while the Russian geological estimates indicate just approximately 3 billion barrels (about 400 million tons) for the same basin with only a quarter proven. Under the most optimistic scenario, the Russian Arctic offshore will provide in the coming 20 years a maximum of only around 13.5 million tons of oil annually, while the current yearly oil production in Russia is about 500 million tons.
Is not Cairn Energy’s failure to find production level oil reserves nearby Greenland another reason to once again consider all the pros and cons?
Extremely harsh climatic conditions, absence of effective technologies and related to that unacceptably high environmental and social risks - they all lead not only to extremely high operational costs but also to the loss of one of the very few remaining untouched wild nature places in the world. - Is it all worth sacrificing just for the sake of extracting oil and gas reserves which are not enough even to meet the demands of Russia, leave alone the rest of the world?
Vladimir Chouprov, Head of Greenpeace-Russia Energy Program, is quite sure that “while facing new risks and running into already existing obstacles Russia will sooner or later come to a common sense conclusion to give up the mineral resource-oriented way of economic development and to choose the renewable energy sources. Russia has got all necessary technical and financial capacity in place for alternatives to compensate the Arctic off-shore oil and gas!”