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. Last Updated: 07/27/2016

Trutnev Urges Haste on Offshore Development

Itar-TassNatural Resources Minister Trutnev
The government on Thursday approved plans to develop offshore oil and gas fields until 2020, as the Natural Resources Ministry warned of Russia's dangerously declining hydrocarbon resources.

The ministry, which said that there had been no serious prospecting on the country's continental shelf since 1993, will now have six months to finalize the document and decide on how best to develop the fields.

Natural Resources Minister Yury Trutnev, who presented the strategy, said that it was not a question whether to develop the shelf or not, "it simply needs to be done," Interfax reported.

Russia, the world's No. 2 oil exporter, after Saudi Arabia, is facing exhaustion of profitable oil reserves by 2015, Trutnev said in a report, a copy of which was provided by the resources ministry. In order to sustain this position, it needs foreign investment and new laws, he added.

Over 75 percent of onshore hydrocarbon deposits are already in development and are depleted by 50 percent. Although Russia began to study the Arctic shelf 20 years ago along with other Nordic countries, such as Norway, it has yet to begin its development, Trutnev said.

Out of the 6.2 million square kilometers of the continental shelf, 4 million are suited for further explorations and development. Some 67 percent of the shelf is in the Barents and Kara seas.

Under the ministry's plan, the shelf could become Russia's second- or third- most important hydrocarbon resource by 2020, producing 320 billion cubic meters of gas and 95 million tons of oil per year. Russia produced 634 billion cubic meters of gas and 458 billion tons of crude last year.

However, the government realizes that due to its sheer size and complexity, the development of the shelf without foreign capital would be difficult.

It is estimated that developing offshore would require investments to the tune of $112 billion, in addition to $1.25 billion provided by the government, Interfax said, citing an unidentified government official. By 2020, the project could bring up to $130 billion to the state coffers, the official said.

As a solution, Trutnev is proposing to set up a state company to oversee all research and development that would join forces with foreign energy giants under production-sharing agreements. This would include freeing the companies conducting geological exploration and development from taxes and reducing duties on imported equipment.

Trutnev said that there were a few working versions of the company, but he did not elaborate on them.

The liberal Economic Development and Trade Minister German Gref, however, criticized the idea Thursday by calling it inexpedient, Interfax reported.

His opinion was reiterated by industry analysts.

"We have enough state companies already. ... It would be best to use private investors or set up an alliance with an existing state company," said Stephev Dashevsky, head of research at Aton.

"Setting up yet another state company could be lobbied by some group of people who would like to see their own company in charge of large financial flows," Valery Nesterov, a Troika Dialog analyst said. "Russia has been corrupted by large onshore reserves. In Soviet times, Baku became the cradle of shelf development. Now 20 percent of global hydrocarbon extraction comes from the shelf, while in Russia it is still only 0.5 percent."

Foreign investments will be crucial to the shelf or else no crude will be struck from it for another 20 years, he added.