Gas pipeline in northern Russia
Yesterday the New York Times had a story on the lack of pipelines preventing several oil fields in Siberia from capping the natural gas that comes out of their wells. Instead of pumping the gas to markets in Europe and Asia, Soviet era fields like the ones near Usinsk, 1,000 miles northeast of Moscow, are flaring gas. The amount of gas annually wasted by one company, Rosneft, would be enough to power a city the size of Denver (600,000 people) for a year. These gas flares can be seen at night by satellites orbiting in outer space.
On the positive side, Rosneft is trying to raise cash for new pipelines with an initial public offering open (at least theoretically) to some foreign investors.
Tales of waste and inefficiency in the oil and gas sector in Russia are nothing new. However, the article reveals a fact that most westerners outside the oil industry probably didn't know - why Russia dilutes its expensive low sulfur crude with cheaper, higher sulfur oil from the Caucuses to create the mediocre "Urals blend" it sells to Europe.
Source: U.S. Department of Energy
The NYT's Andrew E. Kramer writes:
Politics, analysts say, lie behind the practice. The heavier crude oils are principally drawn from fields underneath the politically restive Muslim enclaves in Tatarstan and Bashkortostan, neighboring states about 500 miles southeast of Moscow. Doing away with the practice of mixing different qualities of oil would effectively end a subsidy to these minority Muslims, a sensitive issue in the internal politics of Russia. This winter, President Vladimir V. Putin said he wanted to eliminate the Ural Blend by separating oils in the pipeline. But no solid plans folllowed...there is easly refined low-sulfur oil, called light sweet crude, outside Usinsk. But there is no incentive to develop those outlying fields in the tundra, because there is no premium on higher-quality oil in Russia.
The U.S. Department of Energy estimates that a deepwater tanker terminal in the ice-free Arctic port of Murmansk could would make it feasible to ship Siberian crude to the U.S. in just nine days. With enough pipeline and tanker capacity, Russia could daily export 1.6 million barrels of oil to the U.S. - about 8% of what the U.S. uses every day. Pipelines for natural gas could be constructed along the same corridor (see above), so that LNG tankers could also serve U.S. Atlantic ports.
Oil tanker cruising in the Barents Sea near Murmansk
For more information on the obstacles to developing Russia's rich natural resources, see this PowerPoint presentation hosted by Rice University's website.