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. Last Updated: 07/27/2016

An Arctic Outpost and a Plan to Ship Oil to U.S.

APA truck driving through the frozen sand amid the oil tanks and debris at LUKoil's export terminal at Varandey on the Barents Sea.
VARANDEY, Far North-- Workers at the arctic oil terminal of Varandey cling to their wind-blasted beach on the Barents Sea like castaways marooned on an alien shore.

Deliverance from this remote outpost in the Far North comes only when helicopters drop from the leaden skies to disgorge fresh engineers and technicians in monthly personnel rotations. Even the name implies isolation. Varandey translates as "Land's Edge" in the language of the indigenous people here in the Nenets autonomous region.

Yet the oil workers take pride in their contribution to exports of crude from the country's burgeoning production, and activity at this tiny cluster of storage tanks and pumping stations resonates far across the Atlantic. U.S. politicians and oil executives envision Russia as a strategic source of petroleum that will help reduce U.S. energy dependence on the turbulent Middle East.

Russia is eager to oblige, and Varandey is one sign of its potential to do so. LUKoil, which controls the export terminal at Varandey, has eyes for the United States.

"The U.S. is the largest market in the world. For us, it's target No. 1," said Leonid Fedoun, LUKoil's vice president for strategic development.

Varandey offers oceangoing oil tankers their only direct access to oil pumped from beneath the tundra of northernmost Russia. An icy wilderness in winter and a soggy bog in summer, the Barents coast forms the northern lip of the Timan-Pechora basin, a promising oil frontier in a country that already ranks as one of the world's largest producers of crude.

"All of LUKoil's growth in production will occur in this particular region," Fedoun said in a recent interview at LUKoil headquarters in Moscow. "And the main thing is that Timan-Pechora gives us access to other markets, in particular the East Coast of the U.S.A., as transport from here is cheaper than from the Persian Gulf and production costs are only a little higher."

A major constraint on exports to the United States is Russia's lack of a port large enough to handle 250,000-ton oil tankers, which would make such shipments more commercially attractive.

To help ease the bottleneck, LUKoil has joined with Yukos -- which shipped its first oil directly to the United States over the summer -- and two other companies to try to interest investors in a multibillion-dollar project for enlarging the terminal in Murmansk, the only port in northern Russia free of ice year-round.

For now, Varandey is the sole outlet for crude piped to the Barents coast, and it only provides enough oil from two nearby fields to fill a single 20,000-ton tanker each month. These ice-resistant tankers carry the crude to Murmansk, a three-day westward journey, where they transfer it to larger vessels for delivery and sale in Rotterdam, the Netherlands.

LUKoil subsidiary VarandeyNefteGaz is developing more wells around Varandey, and it foresees a surge in output. The company is weighing a plan to expand the terminal so that bigger ships can load crude and transport it via Murmansk or Europe to the United States, where LUKoil already owns the Getty chain of filling stations.

"We can't let the economy of a big country like the U.S. become dependent on another region like the Middle East because of political or terroristic tendencies," VarandeyNefteGaz director Igor Norko said. "If there were a critical situation in the Middle East, of course we could supply the U.S."


AP

Nikolai Voitsekhovsky

Despite its limited capacity, Varandey represents a minor triumph of logistics.

Heavy ice close to shore for much of the year forces ships to load their oil 4 kilometers out at sea, at a buoy connected to an underwater pipe running from the terminal itself. Ice breakers often must cut a path for the tankers.

Oil pumps, storage tanks and living quarters for Varandey's 320 workers were all built from scratch over the past two years. The facilities, including helicopter landing pads and a sandy track that passes for a road, hug the frost-covered beach.

Supplies arrive here mainly by sea, but only from July until November when the water is free of ice. Temperatures can plunge to minus 47 degrees Celsius, and workers must heat the oil to keep it flowing through the offshore pipe.

Employees here say they earn up to 10 times what they would get elsewhere in Russia. But money isn't their only reason for toughing out each monthly stint.

"This is a new challenge _ new fields, new opportunities," engineer Nikolai Voitsekhovsky said.

Voitsekhovsky began his career in 1964 in the Carpathian Mountains of western Ukraine. Now he monitors operations at Varandey from a kitchen-sized office built on stilts above the beach.

Oil has always held a romantic appeal for him, whether he worked for a state-run company during Soviet times or, as today, for a private business.

"There is one difference," he said. "We are praying to different gods now."