Bazhenov formation

From Global Energy Monitor

CO2 Emissions

The Bazhenov formation is estimated to hold 1.243 trillion barrels of "risked shale oil in-place," of which about 74.6 billion is the "risked, technically recoverable resource," and 1,920 Tcf of "risked shale gas in-place," of which 285 Tcf is the "risked, technically recoverable shale gas resource,"[1] The size of the resource makes the Bazhenov the biggest potential shale play in the world, according to the U.S. Energy Information Administration.[2] Burning the recoverable oil would release 32.25 billion metric tonnes of CO2, based on the US EPA estimate of 0.43 metric tonnes of CO2 per barrel of oil. Burning the recoverable gas would release 15.675 billion tonnes of CO2, based on 0.055 metric tonnes of CO2 per thousand cubic feel of gas.[3]

Strategic Significance

The Bazhenov formation is the largest shale oil formation in the world. So far it has not been developed due to Russia's lack of fracking technology. The Bazhenov could produce more oil than has so far been extracted from Ghawar - the super-giant field in Saudi Arabia that made the 20th century the age of petroleum.[2]

Companies Involved

Gazprom Neft and Rosneft are the only companies eligible to own and operate drilling ventures in the Russian Arctic.[4]

Before economic sanctions were imposed in 2014, ExxonMobil, Shell, and Schlumberger were providing technical expertise and equipment for drilling in the Bazhenov.[4] And because these sanctions did not then apply to hydraulic fracturing, ventures involving Exxon Mobil, Total and Royal Dutch Shell continued into 2015.[5]

Norway's Equinor is exploiting a loophole in western economic sanctions to help Russia locate and recover unconventional deposits, and BP has considered doing so.[6]

In the area of drilling equipment and technical expertise, U.S. companies Halliburton and Schlumberger have been reluctant to touch the Bazhenov for fear of being sanctioned, but this may change after Schlumberger bought a 51% stake in Russian peer Eurasia Drilling Company (EDC) in July 2017.[7]

Potential ESG Risks

Environmental

The Bazhenov's history offers an extreme example of attempted fossil fuel extraction, with the former Soviet Union detonating a small nuclear bomb underground in 1980 and again in 1985 to stimulate West Siberian oil production.[8]

NGO's Involved

Since 2013 and Russia's annexation of Crimea, NGO's such as the U.S.-based Pacific Environment and Russian Baikal Environmental Wave have increasingly been declared "undesirable organizations" and have been forced to register as "foreign agents" with the government, despite Baikal Environmental Wave's past success in convincing President Putin to reroute a Siberian pipeline away from a nature preserve. This registration forces them to announced their "foreign agent" status on their materials and communications, limiting their effectiveness.[9][10]

Local Opposition

See NGO's Involved and Domestic Political Situation.

Status of Project

Gazprom Neft estimates that it can potentially extract 400 million tonnes of oil equivalent (8 million barrels per day) from Bazhenov, with significant production beginning in 2025.[11]

Following the imposition of sanctions Western oil and gas companies withdrew support from any projects to exploit shale reserves requiring fracking technology, and as a result firms like Gazprom Neft, the oil division of state-controlled Gazprom, have been forced to go it alone in developing the technologies and practices necessary to exploit shale rock containing oil and gas resources.[12]

Infrastructure

Despite the high costs of retrieving its oil, the Bazhenov is located in "the heart" of much of Russia's existing drilling operations, and the area has numerous pipelines and other infrastructure in place.[13]

Domestic Political Situation

Domestically, there are few if any checks on President Vladimir Putin and oligarchs allied with him. Putin is determined to press ahead with exploration of the Bazhenov and other fields to demonstrate that U.S. and western sanctions against Russia's oil and gas industry will be ineffective.

Project Economics

The Bazhenov's tight oil has a relatively high break even price of approximately $80/barrel.[4] Tight oil projects, including the Bazhenov, Abalak, Khadum, Domanik Suites among others, are exempted for 15 years from paying the mineral extraction tax. Moreover, in case the oil is exported and Urals oil is below $50/barrel, the export duty is nullified. If Urals oil is above $50/barrel, producers will still pay a mere fraction of what they would pay for “regular” crude.[4] The Bazhenov's tight oil is more viscous and resistant to flow than U.S. ultralight tight oil formations.[14]

In Russia, upstream investment in natural gas has been historically concentrated in onshore production in the northern West Siberia region. However, significant new investment will be required to reverse declining natural gas production from maturing fields. In the midterm, upstream investment is expected to support development of the new mega-field in Bovanenkovo (within the Yamal production zone), which has a projected production increase from about 6 billion cubic feet per day (Bcf/d) in 2016 to about 11 Bcf/d by 2025.[15]

International Dynamics

In August 2017 the U.S. expanded sanctions against Russia to cover oil and gas export pipelines.[16]

In February 2018 a bipartisan group of U.S. Senators introduced the DETER Act, which would impose further sanctions on Russia's oil and gas industry if U.S. intelligence agencies found evidence of further Russian meddling in U.S. elections. The bill gained eight additional senate sponsors after President Trump's denial of Russian meddling at his July 2018 summit with Russian President Vladimir Putin.[17] U.S. oil companies including ExxonMobil oppose the bill and argue that foreign energy rivals such as Royal Dutch Shell and BP are gaining an unfair advantage to operate in an area that is the world’s biggest oil producer.[18]

Financing

Gazprom Neft is currently providing all the financing, but is partnering with an array of domestic experts, including those from the Moscow Institute of Physics and Technology, the Skolkovo Institute of Science and Technology, the Moscow State University and the Gubkin Russian State University of Oil and Gas.[7]

Articles and resources

References

  1. "Technically Recoverable Shale Oil and Shale Gas Resources: Russia," U.S. Energy Information Administration, September 2015, Table IX-1 and IX-2, page IX-2
  2. 2.0 2.1 COLUMN-The Big One: Russia's Bazhenov shale: Kemp, Reuters, Jul. 16, 2014
  3. "Greenhouse Gases Equivalencies Calculator - Calculations and References," U.S. EPA, accessed September 2018
  4. 4.0 4.1 4.2 4.3 Can Russia Develop Its Shale Reserves?, Oil Price, Sep. 5, 2017
  5. Gazprom pursues production from Bazhenov shale amid U.S. sanctions, World Oil, Jun. 2, 2015
  6. Exclusive: Sanctions gap lets Western firms tap Russian frontier oil, Reuters, Aug. 2, 2017
  7. 7.0 7.1 Don't hold your breath for Russian shale, Petroleum Economist, Sep. 21, 2017
  8. Russia Anticipates Boom in Oil Extracted From Shale, New York Times, Nov. 13, 2012
  9. Russia Moves To Restrict U.S.-Based Environmental Group, Labeling It ‘Undesirable’, Radio Free Europe, Aug. 28, 2018
  10. Russia's growing NGO crackdown turns to environmental, cultural groups, The Christian Science Monitor, Jun. 10, 2013
  11. Russia's Gazprom Neft sees Bazhenov shale oil commercial output in 2025, Reuters, Mar. 1, 2018
  12. When is a Shale Resource Not a Shale Resource? When it’s Russian Shale Oil, Metal Miner, Jan. 4, 2017
  13. ‘Red Lenin’ leads Russia’s oil revolution, Financial Times, Mar. 31, 2013
  14. Opportunities and Challenges Confronting Russian Oil, Carnegie Endowment for International Peace, May 28, 2018
  15. Capital investment in upstream oil and natural gas industries, EIA, Feb. 15, 2018
  16. As Trump Signs New Russian Sanctions; Old Ones Don’t Stop Oil Exploration, Oil Change International, Aug. 3, 2017
  17. Russia sanctions bill gains bipartisan traction in Senate, Politico, Jul. 20, 2018
  18. U.S. oil industry lobbies against tighter sanctions on Russia, Reuters, Jul. 20, 2018

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