News Column

Russia, U.S. Join Forces in Race for Arctic Oil

Sept. 1, 2011

Benedikt von Imhoff and Daniel Schnettler

Arctic oil rig

Russian and U.S. companies are joining forces to exploit some of the world's largest deposits of oil and gas, which are thought to lie under the Arctic's ice.

As the ice is slowly receding because of global warming, the petroleum fields finally seem to be accessible.

Neither Russia nor the United States wants to miss out on the business opportunity with huge potential earnings. Their alliance leaves Western Europeans out in the cold.

The Russian state-owned oil concern Rosneft and U.S. oil major ExxonMobil are spearheading the Arctic undertaking.

Their partnership is under the aegis of none other than Russian Prime Minister Vladimir Putin, who personally announced the joint venture this week from his holiday residence on the Black Sea.

"New horizons will be opened," Putin said.

The initial investment totals $3.2 billion for oil exploration in the Arctic's Kara Sea as well as the Black Sea.

But Putin is already dreaming of investments of up to $500 billion, a number that is truly "scary," he said.

The deal is significant for Russia, which is dependent on petroleum exports and was the world's leading oil producer last year.

It finally gives it access to cutting-edge sea drilling technology, analyst Denis Borisov told the Moscow newspaper Kommersant.

The Russians' new partner, ExxonMobil, is the oil industry's top company and one of the most valuable concerns in the world.

Russia lays claim to vast mineral resources in the Arctic, which has led to disputes with the other four Arctic Ocean coastal states: the United States, Canada, Denmark and Norway.

The value of the disputed claims is massive. The U.S. Department of Energy estimates that 22 percent of the world's unexploited oil and gas reserves lie in the Arctic.

For ExxonMobil, the deal with Rosneft is a godsend, particularly since production close to home is becoming more difficult.

The explosion on the offshore drilling rig Deepwater Horizon in April 2010, which caused hundreds of millions of liters of crude oil to spill into the Gulf of Mexico and foul 1,000 kilometers of U.S. coastline, has soured the mood for oil drilling.

In the waters off Russia, ExxonMobil can count on the Kremlin to keep environmentalists at bay. But the joint venture is not without risk even for a behemoth such as ExxonMobil.

"The size of the resources in that part of the world is so staggering that Big Oil never seems to learn the lesson that it is tough to work with the Kremlin," the Wall Street Journal quoted Charles Ebinger of the Brookings Institute, a Washington-based think tank, as saying.

British oil company BP Plc, which had announced with much fanfare a similar agreement with Rosneft and even a cross-holding of shares early this year, was reminded this week of Russia's rough-and-tumble ways.

The deal was blocked at the last minute by influential Soviet-born oligarchs, leaving BP empty-handed. On Wednesday, bailiffs raided BP offices in Moscow, seeking documents on the aborted deal.

The dependencies and cross-connections in the Russian business world, which is often opaque to outsiders, constantly pose problems for foreign companies.

ExxonMobil is no novice, though. Since the mid-1990s, it has been producing oil with Rosneft off the Russian Far East island of Sakhalin.

Now it intends to succeed where BP failed.

"Exxon's proposals were better not only than those of BP but also all the others that were made by the world leaders in oil and gas," Russian Deputy Prime Minister Igor Sechin said.

ExxonMobil will bear the high costs of unpredictable Arctic drilling. And as a further sweetener, Rosneft will be able to purchase stakes in ExxonMobil projects in Texas and the Gulf of Mexico.

Source: Copyright 2011 dpa Deutsche Presse-Agentur GmbH

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