Formation of oil and gas clusters and special economic zon in the Euro-pean Russian Arctic

This article analyzes problems of oil and gas clusters’ creation and a special economical zone (SEZ) in Arkhangelsk and Murmansk regions according to the problems of hydrocarbon de--‐ posits’ exploitation in Arctic. A practice of already existing port--‐based special economic zone in Murmansk, opportunity of oil SEZ appearance and a sustainable participation of all stakeholders in European pert of the Russian Arctic are on the carpet. Researches in this field are considered to be current because of the present situation in this area: after declaration of Sea of Okhotsk Shelf to be Russian, on the agenda appears a question about legal recognition of Lomonosov Ridge Shelf to be Russian one. Moreover, with the beginning of crude production on “Priraslomnaya” problem of shelf field development control becomes really current and it demands an urgent solution, includ--‐ ing management problems and interregional cooperation.

Problems of Oil and Gas Field development in Arctic

Firstly, when studying this research, it appears a problem of volume of Arctic gas and oil re--‐ sources determination, opportunities and challenges by Arctic exploitation in the European part of Russia. Fractional oil and gas content in world energy consumption will remain in gauge up to the year 2040 --‐ 53,6% in year 2010 and 51,4% to year 2040, there with oil content will reduce from 32 to 27%, though gas content will increase from 21% in year 2010 up to 25% in 2040. In base case of world and Russian energetic development forecast up to the year 2040, global demand for liquid fuel will increase by mean of 0,5% annually and will comprise 5,1 bln. tones, in other words it will increase 26%, notably oil and natural gas liquids will comprise from traditional sources 77% 1.

Oil prices will also remain unchanged. According to the statistic--‐analytic department of American Department of Energy estimates, oil price on trademark “Brent” will reduce a little – to 96 dollars pro barrel to year 2015, and later will spiral up and to year 2040 will amount 163 dollars pro barrel 2. According to the Russian researchers’ estimates, balance oil prices in 2040 will not derate 100--‐130 USD.

According to probabilistic ecological analysis of different greenalite rocks a group of USA Geological Survey (USGS) researchers within their research «Circum--‐Arctic Resource Appraisal: Es--‐ timates of Undiscovered Oil and Gas North of the Arctic Circle» again came to a decision that in the nearest future Arctic can become the biggest petroleum bearing province of the world. Com--‐ mon approximate volume of unexplored oil and gas reserves in Arctic is in the order of 413 bln. barrels of oil equivalent (b.o.e.) or of about 22% of common unexplored reserves of conventional hydrocarbon in the world.

In the light of this analysis an energy potential development of Arctic zone of the Russian Federation can be considered to be economically self--‐supporting and potentially productive. Rus--‐ sia has practically 15 bln. b.o.e. (9,4 bln. — in southern part of Barents sea and 5,3 bln. — in Eni--‐ sey--‐Khatanga Bay). Speaking about non associated gas, pattern for Russia looks much better: 70% of common volume of Arctic non associated gas reserves is here (there are shelf reserves mostly in the southern part of Kara Sea and in the eastern part of Barents Sea) 3.

The problem here to be studied is following: all the estimates of hydrocarbon reserves in Arctic are conventionalized because deep--‐sea floor of the Arctic Ocean still considers being under explored. For Russia it is current mostly: «Russian shelf is characterized with extremely low degree of exploration — ten times less then American shelf of Chukchee Sea and twenty times less then Norwegian shelf. Coverage density with seismic experiments in the most long--‐range surface areas of Arctic seas, except Barents and Pechora seas, doesn’t overshoot 0,15 km pro square kilometer, and of eastern — less than 0,1 km pro square kilometer. There will be no important discoveries without essential upgrading of shelf, but perspectives of large--‐scale exploitation are ranged over the year 2030»4.

One of successfully implemented projects for today is exploitation of the reservoir “Prirazlomnoye”. All in all during the year 2014 it is planned to produce not less than 300 thou--‐ sand tones of oil, and after 2020 it is planned to come to a level of 6 mln. tones of oil per year. The first batch of oil with trading mark ARCO from “Prirazlomnoye” was landed on the 18th of April 20145. But the development of the reservoir prompted strong protests by ecological organization “Greenpeace” and journalists in the West6. OAO “Gazprom” became the second company who could start commercial exploitation of oil--‐gas fields of the Russian Arctic shelf, where from the year 2003 OJSC “Novateck” extracts in Yurkharovskoe field at Tar Bay of Kara sea. Not less sensa--‐ tional but unfortunately left--‐off project was Stockman field in Barents sea.

An expectation from the broad--‐scale project of Arctic fields’ exploitation is — appearance of new working places, building of infrastructure objects, gas infrastructure development in re--‐ gions, input of foreign skills, increasing of consumer goods and services’ production, tax revenue, funding of other fields and population growth [1, 2014]. Synergetic effect can also take place: a successful development of oil--‐gas exploitation can give an impulse to NSR development, which in their turn will influence the increase of hydrocarbon production. For a successful being of NSR fol--‐ lowing is important: production of more mild decision support system of state competent struc--‐ ture, working under creation of positive image of NSR, address work with potentially concerned business and state parties [2].

Though there is also a number of risks during Arctic field exploration: hard ice conditions, high possibility of iceberg appearance, which predetermines a constructive difficulty of maritime winning complexes; a short--‐term period of work on shelf (the so--‐called “weather window”), cargo--‐ carrying technological hazards; susceptibility of the region’s ecosystem, shelf’s under--‐exploration; potentially high business expenses, its infrastructure’s organization and protection against indus--‐ trial accidents; difficulty of employees logistics for its life support. In this context a complex system of shelf project assurance must constitute an integrated model of supply, transportation and turn--‐ over of staff in the places of work performance at all times from geologic exploration to exploita--‐ tion and further transportation of hydrocarbons in considerable volumes in market places [1].

Organization of such a difficult system in the European part of the Russian Federation de--‐ mands both financial expenses and other resources, creation of oil--‐and--‐gas clusters and special economical zones, but mostly it demands coordination of this work, effective management and balanced participation all concerned parties — stakeholders.

Oil--‐and--‐gas clusters formation in the European North of Russia

For effective exploitation of oil--‐and--‐gas fields in the western part of the Russian Arctic it is current a balanced participation of all concerned parties while conformance with priorities of the Russian national interests. Such an approach has a direct relationship to formation of oil--‐and--‐gas clusters in the European north of Russia in Arkhangelsk and Murmansk regions.

A conceptual framework of oil--‐and--‐gas cluster — is a State support on the regional level at least; group of companies who provide research--‐and--‐development and educational organizations; directly suppliers themselves; petroleum chemistry recycling facilities; services in icebreaking and tanker fleet, port infrastructure; exploration and oil producing companies [1].

We can notice a formation of sea oil--‐and--‐gas clusters in Arkhangelsk and Murmansk re--‐ gions. A concept of cluster politics in Murmansk region includes signing of an agreement (memo--‐ randum) with companies and organizations of field clusters; creation of industrial, technological, transport--‐logistic and tourist--‐recreational parks with involvement of small and medium--‐sized businesses; creation of resource centers in field and territorial clusters with participation of educa--‐ tional establishments of higher secondary vocational education; buildup of complex investment plans of municipal structures development taking into account development of territorial clusters and parks in municipal structures of Murmansk region [3]. An Association of oil--‐and--‐gas industry suppliers “Murmanshelf” works here. In strategy of Murmansk region social--‐economical develop--‐ ment up to the year 2020 and during the period up to the year 2025 it is supposed the creation of innovational infrastructure, including technological cluster of shelf exploitation providing in Arctic. Its specialty is that it is oriented on investment demand, inside Russia at first, born by means of hydrocarbons’ exploitation on the Russian continental shelf in Arctic. After 2020 this cluster must become the chief supplier of services and staff for Arctic development in Barents region, thus achieving global competitive power7.

8 years ago Association of oil--‐and--‐gas industry suppliers “Sozvezdye” (director – S.V. Smirnov) was founded, a regional cluster of suppliers and contractors of oil--‐and--‐gas industry really functions. Highly qualified engineering companies are engaged in the region, a base of these com--‐ panies is kept, contacts with state and foreign oil--‐and--‐gas operators are strengthened8.

A cluster approach gives an opportunity to focus not on different branches, but on connec--‐ tions between branches and companies and on presuppositions of competitive power, thus on development of the system of factors of production and business struggle, reduction of transpor--‐ tation costs, increasing of workforce productivity and achievement of another system advantages from improvement of changes between companies and fields. It is considered to be the biggest advantage of cluster approach [4]

Pic.1. A. Fadeev [1]. URL:

A cross--‐border cooperation and international practices usage played its positive role in cre--‐ ation of clusters in the European north of Russia. For example, Norway invited specialists and ex--‐ perts, executed agreements with foreign companies, but all the researches and scientific research results during cooperation became its intellectual property, what was captured in country’s legis--‐ lation, as well as any foreign company, which came to Norway must hire on different stages from 30 to 80% Norwegian suppliers. Today Norway is considered to be one of the leaders of oil--‐and--‐ gas industry. Norwegian experience is passed to Russian companies within the associations of oil--‐ and--‐gas industry suppliers “Sozvezdye” and “Murmanshelf” during special seminars, organized by Norwegian party. These association put together both foreign companies, representatives of small and medium enterprises, that’s why we can speak of clusters’ creation based on these two associ--‐ ations [1].

The importance of clusters and cluster politics for Russian Arctic includes its opportunity to infuse scientific character for territory development, to encourage diversification of the northern economy, to contribute to transport, energetic, communicational infrastructure and to small and medium enterprises development. One of the advisory documents on realization of cluster politics in the North is “Methodical recommendations on realization of cluster politics in the northern sub--‐ jects of the Russian Federation”9. A cluster approach is especially important for development of Arctic shelf fields, because companies have to use cluster potential, including technology and technique, basis of geological prospecting works, infrastructure objects and social development of regions [5, 2009]. Creation of special economical zones when cluster approach usage is also cur--‐ rent.

Port special economic zone in Murmansk

Special economic zone — a part of territory in Russian Federation, which is appointed by the Government of the Russian Federation and where special regulations on pursuit of income generating activities take place, and here it can also be applied formality of duty--‐free zone 10. Par--‐ ticular, free or special economic zone (PEZ or SEZ) — one of the types of financial resources in--‐ volvement in border districts, which comprises a special terminated territory with special legal po--‐ sition according to remaining territory and privileged economic conditions for national and/or for--‐ eign businessmen.

According to the law No 116FL— on the territory of the Russian Federation following spe--‐ cial economic zones can be created: industrial, technological--‐innovational, tourist--‐recreational and port. 2006 for realization of legislative draft it was created OJS “Special economic zones”, 100% of its capital stocks belong to state. Today OJS “SEZ” through making of subsidiary companies, sister branches and taking part of supervisory committees control 17 special economic zones of four types, when being the biggest developer of industrial and innovational parks in Russia. From 2006 to 2012 in special economic zones in Russia came more than 340 investors from 23 countries. Vol--‐ ume of declared by residents’ investments compounds more than 400 bln. rubles or 13 mln. dol--‐ lars 11.

Today one of the most interesting for research of special economic zones is considered to be the Port special economic zone of Murmansk City. It was created after signing an Agreement for creation of port special economic zone (PSEZ) “Murmansk” on the 17th of November 2010 by Ministry of Economical Development of Russia, administration of Murmansk region, Murmansk City and Kola district of Murmansk region. A building of container terminal, modernization of al--‐ ready existed and creation of new port capacities for powdered and liquid cargo reception, trans--‐ shipment and embarking. Moreover, fit--‐up of boring rigs is possible, what plays an important role for successful reclamation of oil--‐and--‐gas shelf fields. Investors of port SEZ “Murmansk” got tax and customs privileges, and also involvement to infrastructure objects. Regularity of tax privileges is guaranteed for investors during all the period of special economic zone existence12.

Though the delay of Stockman exploitation and lack of enough money in region’s budget for creating an engineering infrastructure led that in 2013 there were no residents in PSEZ. It man--‐ aged to prevent the liquidation of PSEZ by regional authority by reorientation it for fish processing. Representatives of Fishery branch welcomed such a decision because reorientation of PSEZ will liven Murmansk port and fish processing. Though the representative of the Institute of Demogra--‐ phy, Migration Policy and Regional development Yury Krupnov took a dim view of that fact: “The problem is connected with the fact that in both oil--‐and--‐gas and fishing complex there are no stra--‐ tegic investment projects”13. Thus, specialists recommend developing the strategy of Russian North development, which contains concrete projects with funding, what usually put aside.

Murmansk can be considered to be an outpost in Arctic exploration in Russia, perspective and promising region according to energetic, trading, war--‐strategic and political branches.

The exploitation on the Russian shelf is usually done by OAO “Gazprom” and OAO “Ros--‐ neft” together with the state participation, who provide among other state insurance from risks, what is considered to be one of the key factors during exploitation. Participation in exploration of Arctic fields mostly by governmental companies supply economic safety of the Russian Federation in Arctic, and in some way it prevent the opportunity of foreign countries’ economic initiative in--‐ terception. At the same time there is still a problem of usage of modern technologies and positive practice of the world community in the branch of shelf exploitation, in cluster approach and in--‐ vestment opportunities of private business, which could be involved by tax privileges or other preferences for the better realization of a project. Summarizing all the written before, we can make a conclusion, that there are currently not enough foundations for functioning of a special oil--‐ and--‐gas economic zone.

Balanced participation of stakeholders

As the main stakeholders in the European part of Russian Arctic we can name Arctic re--‐ gions and municipal structures, formed by them oil--‐and--‐gas clusters and special economic zones. Murmansk and Arkhangelsk regions for creating of oil--‐and--‐gas clusters objectively become not on--‐ ly partners, but also competitors for the base supply of Arctic hydrocarbons’ exploitation. “Mur--‐ mansk and Arkhangelsk apply for the role of the capitals of new oil--‐and--‐gas provinces because they are situated near raw hydrocarbon deposits, possess intensive infrastructure and have a number of geographical advantages, which let them appear in the focus of oil--‐and--‐gas projects operators’ attention”, — underlines A.Fadeev, Head of Department of production support LLC “Gazprom--‐Sahalin”, expert RSDM[1]. Experts consider Murmansk to be more promising port when shift of hydrocarbon products. Potentially products from different fields of Arctic seas can mount up in Murmansk and then with the help of special tankers be transported on world consumer markets. Moreover, a project of creation of crude oil line from Siberia to Murmansk didn’t lose its perspectives. Congestion of railway for Murmansk region can be disadvantage (the main source of raw transportation from shelf) because of its usage for black strap transportation in the region [1].

Arkhangelsk region has rather big competitive information in such branches as shipbuilding and ship repairing, the region is gas--‐fired, and railway is loaded less. But sea port of the Arkhan--‐ gelsk region is considered to be less hospitable from the point of view of logistic operations, navi--‐ gable depth and price of services, and functioning of all transport--‐logistic infrastructures. Naryan--‐ Mar, Varandei in Nenets Autonomous Area are more prosperous for staff transportation.

Рис.2. Fadeev A. [1]. URL:

Another severe problem is a balance of state and private oil--‐and--‐gas companies’ participa--‐ tion in Arctic fields’ exploitation. Question of private companies’ licensure for working at the Arctic shelf was discussed at the end of 2012 – beginning 2013. But currently this issue is left aside be--‐ cause of difficulty of investment guarantee in shelf exploitation for private companies14. Deputy PM of the Russian Federation A. Dvorkovich considers state corporations to be chief participants of shelf projects, but suggestions of under what conditions and private companies could gain clearance. Foreign companies will be involved as partners, but not as licensers’ owners15.

Such an approach is more balanced because of importance of appropriation of great funds for Arctic region development, and private companies not always possess enough funds. However Russian Federation’s control over Russian part of Arctic is maintained, it also guarantees political and economic safety. At the same moment it is important to remember about the problem of modern technologies’ and world practice usage while shelf exploitation not to repeat foreign mis--‐ takes and to provide works’ optimum efficiency on Arctic shelf.

A great volume of investments and existence of political will is needed for social--‐economic development of Arctic zone in Russian Federation because each project in Arctic is usually accom--‐ panied by a number of ecological, transport--‐logistic, infrastructural, financial and social threats. Development of Arctic region is considered to be economically, politically and socially ambitious project. Though during the turf fights there is an intense competition with both foreign stakehold--‐ ers on a nationwide level. So, Canada sent an application in the UN about expansion of Canadian shelf in Arctic, including there also North Pole16. China constantly enlarges zone of its interests, in May 2013 it achieved a status of Arctic Council permanent observer. China actively develops its own icebreaking fleet, concludes contracts with Russia and Iceland on joint development of min--‐ eral recourses and scientific investigation of Arctic17.

In the context of sanctions, temporary freeze connection in Arctic Council because of re--‐ turn of Crimea back in Russian Federation and usage of USA and NATO instruments of Cold War, implementation of economic and political safety in Arctic region becomes more current. Up to the end of 2014 a new war structure will be created in Russian Arctic, which will include Northern Fleet, Air Force establishment, Air defense, Arctic brigades and regulatory bodies. This structure, created for Arctic regions of Russia safety, will be named Northern Fleet – Consolidated Strategic Command (NF--‐CSC). Chief of the Northern Fleet, who reports to Minister of Defense, will lead this new war structure18.

There are also a number of problems in sustainable and balanced development of Arctic region. And it suggests further continuance of research.

Conclusion

Perspective of regional clusters’ appearance in the European part of Russian Arctic is over--‐ viewed and some current problems of oil--‐and--‐gas exploitation on the continental Arctic shelf are analyzed in this article. The main conclusion is that creation of a modern state governance model in Arctic supposes a balanced participation of all concerned parties – stakeholders in Arctic fields’ development, including federal, regional and municipal government authorities, business organi--‐ zation, scientific and educational establishments, creation of oil--‐and--‐gas clusters in Arkhangelsk and Murmansk regions, while providing economic and political safety of Russia.

A question of creation of federal and interregional structures, who will be ready to provide coordination and progress of all this work in Russian Arctic, interconnection of field ministries and departments, still remains open. A question of creation of a balanced management of oil--‐and--‐gas exploitation in the western part of Russian Arctic model still isn’t depleted.