Crimea Crisis Has Little Impact Thus Far on Russian Oil Deals
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Version 0 of 1. MOSCOW — The French energy giant Total is in talks with Lukoil to form a joint venture to develop shale oil in Russia, as Moscow seeks to offset declining production from its conventional oil fields in Siberia. The talks began before the Crimean crisis and are continuing, according to an oil company executive close to the negotiations who spoke only on the condition of anonymity. Lukoil and Total declined to comment on the project. Lukoil, one of Russia’s largest oil companies, has a pilot drilling project in the massive, but so far unproductive, Bazhenov shale-rock oil deposit in Siberia, which by some estimates could be the largest reserve of shale oil in the world. Unlike conventional drilling, shale extraction involves forcing oil or gas from tight deposits of rock using new techniques like hydraulic fracturing, or fracking, which many environmentalists oppose. The prospect of a Russian-French deal to develop shale oil in Siberia is noteworthy not only in the context of today’s geopolitical tension, or because of the importance of future oil output for Russia’s economy, but also because France’s resistance to fracking for environmental reasons means that Total would be doing in Russia what it cannot do on its home turf. The executive close to the talks said that “no decision has been reached” between the companies. Word of the discussions was reported earlier by The Financial Times. The limited economic sanctions imposed by the European Union because of Moscow’s annexation of Crimea do not cover Russian oil companies. President Obama has approved but not put into effect sanctions aimed at sectors of Russia’s economy that include those petroleum companies. James Henderson, senior research fellow at the Oxford Institute of Energy Studies, said it was unlikely that the current breakdown in relations between Russia and the West would be sufficient to derail the Total-Lukoil talks. “It would take a much bigger sanctions package — think Iran-type sanctions — for something like this to be sabotaged,” he said. “We’re not there yet.” The companies had been talking long before the Russian annexation of Crimea. Total is in Russia “for the long term,” Christophe de Margerie, the Total chairman and chief executive, said this month at a conference in Houston. Total has been working in Russia since 1991, and last year it produced about 207,000 barrels of oil equivalent a day there. At the current rate of development, the company says, its Russian operations will be among its most important regions of production by 2018. But if Russia were to invade eastern Ukraine, Mr. Henderson said, Total’s joint venture would be in jeopardy. “Things like this would be seriously questioned,” he said, even without the threat of harsher sanctions, because it would sharply raise the perceived riskiness of investing in Russia. Many environmentalists oppose fracking because they fear that the technique, which involves pumping a mixture of water, sand and chemicals at high pressures into shale formations deep underground to free the petroleum trapped inside, pollutes groundwater. There have also been concerns that fracking creates geological instability, causing earthquakes. Total, the largest company in France and one of the world’s oil giants, is one of the pioneers in fracking, but has been stymied in using the technique in its home market by official and popular opposition. President François Hollande’s government has banned fracking, even for the purpose of seeing if France’s own large shale formations are indeed laden with billions of dollars’ worth of oil and gas deposits. Total has nonetheless moved ahead overseas, paying nearly $2.25 billion in 2009 for a 25 percent stake in Chesapeake Energy’s Barnett Shale assets in Texas and $2.3 billion in 2012 for a similar stake in Chesapeake and EnerVest’s Utica project in Ohio. More recently, it took the lead on two shale gas exploration licenses in the East Midlands region of Britain. On Thursday, Total said that exploration on its Xuancheng shale gas project in China was moving ahead with its local partner, Sinopec. Russia’s oil flow of about 10 million barrels a day is projected to decline by about a million barrels by the end of the decade unless companies drill offshore in the Arctic or master the skills to tap shale oil on land. Exxon Mobil is in a joint venture agreement with Rosneft, the Russian state oil company, to drill test wells into Siberian shale oil fields, including in the Bazhenov. Mr. Henderson, who has studied Russia’s shale oil prospects, said such ventures with Western oil companies provided Russia with the technical expertise — much of it gained in the United States — to exploit Russia’s shale oil. “In the longer term, production from offshore oilfields in the Arctic is the big theme,” Mr. Henderson said, “but in the medium-term, unconventional oil resources could help to fill the gap.” Other Western energy giants, Statoil and Shell, also through joint ventures, are testing Russian shale oil beds. These existing joint ventures intended to increase shale oil production are expected to continue. Rosneft said in a statement Friday that its shale joint venture with Exxon was “progressing normally and our plans are not impacted.” The United States Geological Survey estimates the overall supply of Russian shale oil in West Siberia at 80 billion to 140 billion barrels. For comparison, Russia’s reserves of conventional oil total 67 billion barrels. Most of that shale is in the Bazhenov deposit, considered similar in its vast potential to the Bakken shale field in North Dakota, perhaps the most successful American oil shale patch. The Bazhenov is far larger, covering an area the size of Texas and the Gulf of Mexico combined. It is unclear, though, how much of the petroleum locked up there, if any, will be economically viable to pump. Further piquing international oil companies’ interest in Russian shale deposits this year, the Russian government, to encourage drilling, waived its usual $22 per barrel extraction tax when oil is produced from shale. In other signs Russian and Western businesses are quietly reaching rapprochements even as their governments wield threats, the board of Aeroflot, Russia’s national airline, on Friday approved the purchase of 13 new Airbus A320 airplanes. And this month, a delegation of the American company Boeing visited a major Russian titanium parts supplier, VSMPO-Avisma. |