Russia Relying on Offshore for Future Production

Sakhalin Island currently is the oil and gas growth engine for Russia, which will rely on offshore regions for new production after 2010, the Oil & Gas Journal reported. By 2020, offshore fields could account for 20% of Russia's total oil and gas output. However, Russia must implement regulations and taxes before its offshore oil and gas assets can be developed since offshore royalty issues remain largely unaddressed. The Russian Duma is working on the Mineral Extraction Law and on a new subsoil law. The Russian government's anticipated shift to holding auctions for oil and gas blocks instead of tenders now appears unlikely. International oil and gas companies operating in Russia probably will be prevented from taking more than 49% interest in offshore fields. Two-stage tender offers are expected by 2010, involving 32 blocks in the Barents, Okhotsk, and Pechora seas. OAO Gazprom plans to liquefy gas in Russia from Shtokman gas and condensate field, awaiting development in the Barents Sea. Partners for Shtokman have yet to be announced. Royal Dutch Shell PLC, parent of Sakhalin Energy Investment Co. Ltd.'s lead partner, has said costs for the Sakhalin II Phase 2 might reach $20b, twice the original estimate for the entire Sakhalin II project. The project also has encountered delays related to environmental issues. Shell plans to start year-round oil production, which depends on pipeline construction, in late 2007 and LNG sales in the summer of 2008. Sakhalin II produces about 80,000 b/d during summer, with oil moving to Japan via tanker. Two thirds of Russia's future offshore production is expected to come from the Barents Sea and Kara Sea. (Source: Oil & Gas Journal)