Lukoil’s Arctic strategy moves into shallow waters

Russia's biggest private oil company is moving into Arctic coastal waters. Photo:

Having lost the fight for access to the shelf, Lukoil eyes drilling along the Russian Arctic coast.


Although state-controlled Rosneft and Gazprom won the Russian government’s blessing for continued monopoly rights on the Arctic shelf, Russia’s biggest privately owned company Lukoil is not ready to give up its Arctic ambitions.

The oil producer, Russia’ second biggest, now looks at several projects in Russian territorial waters, near the coast, a representative of the company told newspaper Kommersant.

According to the company representative, the Khatanga Bay in the Laptev Sea is one of the potential areas of operation.

The issue of Lukoil’s offshore engagement was on the agenda in last week’s meeting between company Head Vagit Alekperov and President Vladimir Putin.

Experts from the VNIIOkeangeologia, Russia’s leading shelf geology research organization, confirm to Kommersant that the Khatanga Bay is considered highly rich in hydrocarbons. Also coastal areas and bays in the Barents Sea, Pechora Sea and Sea of Okhotsk are considered very prospective, the researchers say.

As previously reported, Lukoil fought hard to convince the Russian government about its expertise within the development of offshore fields in the Arctic. However, heavy lobbying from Rosneft and Gazprom secured the two state-controlled companies continued carte blanche on the shelf. The new federal shelf regulations are likely to grant other companies’ access to the shelf only in the waters not wanted by Rosneft and Gazprom.

From before, Lukoil has successful offshore experiences from the Pechora Sea where it in 2008 completed the development of the Varandey terminal, a key part of its strategy in the Timan-Pechora province. The company is also operating the Caspian Sea.

By moving into Arctic coastal waters, Lukoil could boost its resource reserves. However, the company will at the same time face unprecedented challenges and complex conditions not only with regard to field development but also witin infrastructure and logistics. Areas like the Khatanga Bay have shallow waters and are covered by thick ice major parts of the year, and Lukoil would most likely have to develop a new unique fleet of icebreaking vessels to be able to operate in the area. In addition, the company will face serious ecological risks in a highly vulnerable environment.