Publication: Eurasia Daily Monitor Volume: 4 Issue: 199

On October 19 Russian Natural Resources Minister Yuri Trutnev reported to President Vladimir Putin on the progress of the Eastern Siberia-Pacific Ocean (ESPO) pipeline and pledged to crack down on energy companies found to be violating their license agreements.

The use of natural resources in Russia is still regulated by legislation adopted in 1992, which needs to be amended, Trutnev said at the meeting. The ministry has drafted amendments to introduce stricter controls over the use of subsoil resources, he added. The Natural Resources Ministry has long advocated changes in the federal legislation, particularly the “Law on Subsoil Resources.” The ministry argued that the law should be modified to include clauses on geological exploration and revoking licenses (Interfax, RIA-Novosti, October 19).

Last month, the Natural Resources Ministry approved regulations to allow officials to cancel licenses before contracts have been fulfilled. According to the new procedure, the ministry’s environmental watchdog, Rosprirodnadzor, is assigned to discover violations, while subsoil resources agency Rosnedra is due to make a decision on license cancellations (Interfax, September 18).

Earlier this month, Russian law-enforcement agencies also pledged to crack down on license infractions. In the past two years, the authorities have discovered about 40,000 violations by some 20,000 companies that use subsoil resources in Russia, said Vladimir Lapitsky, a department head at Russia’s Prosecutor General’s Office. These violations mainly involve breaches of license agreements or using resources without a license, he said (Interfax, October 9).

Rosprirodnadzor has estimated that more than two-thirds of license-holders in Eastern Siberia have failed to implement their respective agreements. Among the violators Rosprirodnadzor named are Vankorneft and Rosneft (at the West Lodochny, East Lodochny, Nizhnebaikh, and Polyarny deposits).

If license agreements are not honored, these licenses should be annulled and passed to more efficient users, Trutnev told a meeting on licensing policy on May 15. Many energy companies in Eastern Siberia have been slow to deliver on their exploration commitments. Also on May 15, Trutnev discussed the issue with Putin and pledged to pursue a hard-line policy toward license violations in order to fill the ESPO pipeline up to its capacity.

Russia was understood to be pressuring license holders in order to convince potential oil importers that the country will be able to deliver on its export pledges. During talks in China last July, Industry and Energy Minister Viktor Khristenko told his Chinese counterparts that the ESPO first stage would “undoubtedly” be filled with 30 million tons per year, because Russian oil companies had already pledged more crude for the pipeline.

Russia’s state-run Rosneft has promised to supply 25 million tons of crude for the ESPO in 2009 from Vankor oilfield, while 2 million tons are expected from Rosneft/TNK-BP’s Verkhnechonsk field, 2 million tons from the Talakan field of Surgutneftegaz, and around one million from the Dulismin deposit controlled by Urals Energy.

Simultaneously, Russia’s oil pipeline monopoly Transneft has pledged to build the 2,694-kilometer pipeline in its entirety by the end of 2008. But Transneft executives have conceded that some volumes intended for the ESPO could be funneled from Western Siberia due to limited availability of local crude.

Furthermore, earlier this month the region’s leading geologist announced that Eastern Siberia still might not have enough oil resources to fill the ESPO to capacity, adding that Russian energy companies had not been making concerted efforts to find new deposits.

In order to fill the ESPO, Eastern Siberia must produce 56 million tons of crude annually by 2020 and sustain production at this level, said Arkady Yefimov, head of the Siberian Institute of Geology, Geophysics, and Mineral Resources. To achieve this goal, the region needs 1.5 billion tons of reserves, but only 520 million tons of reserves have been discovered in Eastern Siberia so far, he said.

During the Soviet era, oil entities drilled 350,000–420,000 meters a year, a pace that led to the discovery of major deposits in Eastern Siberia between 1985 and 1990, Yefimov said. But in the past two years, only 57,000 meters of deep wells were drilled in the region and four gas condensate deposits were discovered, while in 1991–2005 nothing was found at all, he said.

In order to raise reserves up to 1.5 billion tons, the government should grant some 200 exploratory and production licenses, Yefimov said. But as of 2007, only 70 licenses have been given to energy companies, he said. Eastern Siberia needs 20–25% of the government’s allocated 540 billion rubles ($22 billion) to finance geological exploration, Yefimov estimated (Interfax, October 17).

Therefore, Moscow’s efforts to balance its oil exports strategy by filling the ESPO seem to depend on whether the government would be able to force oil companies to invest in discovering and developing new resources in Eastern Siberia.