|July 21, 2000||atimes.com|
The tip of the iceberg: energy from the Arctic
Global Intelligence Update
July 20, 2000
Beneath the frigid seas of the Arctic, a once isolated natural gas field is increasingly within the grasp of Russian companies. If they can tap this resource - and the steady retreat of the polar ice pack suggests that they can - Russia can dominate the natural gas markets of Europe for decades to come.
By most accounts ice in the Kara Sea, just beyond the Yamal Peninsula, is retreating. According to satellite photos, the average coverage of sea ice in the Arctic has shrunk by 6 percent since 1978. Furthermore to sonar measurements taken by U.S. submarines report that ice is thinning from 10 feet in the 1950s to 5.9 feet today.
But the peninsula, so to speak, is only the tip of the iceberg. Until now, the giant Russian gas concern, Gazprom has been unable to prospect, much less exploit, the Arctic Ocean. Currently, icebreakers can navigate the Kara Sea only 10 months of the year. But with the pack ice in retreat, the opportunity arises for Gazprom, and other Russian petroleum firms, to drill in the relatively shallow - and increasingly ice-free - waters. If the Russians succeed here and in finishing a network of pipelines, they can dominate European energy markets for decades.
The diminution of Arctic ice is being greeted in some quarters as environmental disaster. But Russia, victim of many environmental disasters, ironically stands to benefit. With its vast Arctic coast, Russia stands to add new fisheries and short the time to ship goods between Asia and Europe.
But the feature that holds the most promise is petroleum. In 1998, The Economist reported that Russia's Arctic shelf could hold as much as 65 trillion cubic meters of gas - more than the Russian mainland. If the ice continues to recede, Russia will have thousands of square miles of potentially petroleum rich seabed to explore.
The probability of independent offshore fields is high; many of Russia's 25 Yamal Peninsula gas fields have offshore sections. The massive Rusanovskaya field in the Kara Sea may hold as many as 8 trillion cubic meters by itself. Already Russia is planning to drill for gas in the adjacent Barents Sea.
Collectively, the confirmed onshore Yamal fields hold more than 10 trillion cubic meters of natural gas. That's enough to fulfill all of Europe's and Turkey's natural gas needs, 450 billion cubic meters a year, for 20 years - or Russia's current share of those needs for half a century.
But how will the Russians transport this gas, thousands of miles to market? Gazprom, Russia's natural gas monopoly, has been building a pipeline between the Yamal and Europe for several years. The six trunk line system, when completely finished sometime around 2010, will have an annual capacity of 65 billion cubic meters (bcm), at a total cost of $50 billion.
Gazprom's problem has been cost, but even here it has made steady progress. Using a number of joint venture agreements, Gazprom has already built the German, Polish and Belarussian sections of the Yamal-Europe line. Consequently, the line already functions and links to existing Russian fields as well as Russia's vast distribution network. Parallel sections to handle additional capacity are already under consideration.
In order to maximize its profits, Gazprom is taking Western loans - but not Western partnerships - to develop the Russian sections of the line. Russia may be forced to seek foreign technical assistance to exploit the ice-choked Kara Sea, but if the ice continues to recede, Russia can likely handle development on its own.
Once developed, the Yamal project will shift Europe's energy politics decidedly in Russia's favor. Poland will be forced to drop its opposition to a Russian export route that marginalizes Ukraine, trading it for the Yamal line and a fat annual windfall of $900 million in transit fees. Otherwise Gazprom will simply dust off a Baltic Sea route that bypasses Poland as well. Ukraine, for its part, will no longer be able to exploit its position as a transit state for Russian gas exports. The new Yamal bypasses Ukraine altogether.
This will also weaken the long-term export prospects of Central Asia - especially Kazakstan, Turkmenistan and Uzbekistan. While they could still conceivably supply Turkey and Iran directly, Russia's control of their other export routes will limit their access to Europe - especially if Yamal gas grabs an ever increasing share of the European market.
Closer to home, Gazprom maintains its potential to provide a large source of tax revenues. Demand for gas use is expected to slowly increase throughout Europe over the next 50 years as individual states attempt to curb their carbon emissions; natural gas is more efficient than coal or oil. The Yamal line should bring in revenues of $5 billion annually.
(c) 2000, WNI, Inc.
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