(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, July 16 As U.S. and EU policymakers have
imposed targeted sanctions on Russian individuals and firms in
response to the crisis in Ukraine, Western companies have sought
to insulate their own projects from the political imbroglio and
continue developing the country's vast oil and gas resources.
Exxon Mobil and Shell have joint ventures
with Rosneft and Gazprom respectively to
explore and produce shale oil and gas from beneath the swampy
plains of Western Siberia and both want to be allowed to
continue operating there.
It's easy to see why. The West Siberian basin is the largest
petroleum basin in the world, covering 2.2 million square
kilometres between the Ural Mountains and Yenisei River,
extending from Kazakhstan in the south to under parts of the
Kara Sea in the north.
The region contains dozens of super-giant and giant
oilfields, including Samotlor with 28 billion barrels of oil
originally in place, and Urengoy with more than 350 trillion
cubic feet of original gas reserves.
The first oil discovery in the region was made in 1953. Most
of the large oil and gas fields were discovered in the 1960s and
1970s. Since then, new field discoveries have been much smaller,
which helped fuel the peak-oil panic in the early 21st century.
But more than 90 percent of that oil is thought to have come
originally from a layer of black shale averaging just 20-40
metres thick and buried almost 3 km beneath the surface. Now oil
and gas companies are trying to figure out how to go straight to
the source, known as the Bazhenov shale.
Tapping shale directly has revolutionised oil and gas
production in North America. Western oil companies and their
Russian counterparts hope it can do the same in Siberia.
LAND OF OIL
Everything about Bazhenov is on almost unimaginable scale.
It covers an area of almost 1 million square kilometres - the
size of California and Texas combined.
The formation contains 18 trillion tonnes of organic matter,
according to the U.S. Geological Survey ("Petroleum Geology and
Resources of the West Siberian Basin", 2003).
Bazhenov is estimated to hold more than 1.2 trillion barrels
of oil, of which about 75 billion might be recoverable with
current technology, making it the biggest potential shale play
in the world, according to the U.S. Energy Information
Administration ("Technically Recoverable Shale Oil and Shale Gas
To put that in context, Bazhenov contains an estimated 10
times more recoverable oil than the famous Bakken formation in
North Dakota and Montana.
Bazhenov could produce more oil than has so far been
extracted from Ghawar - the super-giant field in Saudi Arabia
that made the 20th century the age of petroleum.
In Soviet times, geologists were well aware of Bazhenov's
oil riches but were unable to extract them owing to the tight
packing of the rock, which meant oil and gas would not flow
freely through the shale to the wells.
In 1980 and again in 1985, the Soviet government detonated
small nuclear devices underground in the West Siberia oilfields
in an attempt to stimulate production.
The experiments were code-named Project Angara and Project
Benzene respectively, and were among 21 nuclear explosions
conducted by the ministries of oil and geology to stimulate oil
and gas production between 1965 and 1987.
"Special explosives were developed by the Soviet weapons
laboratories to meet the unique requirements of stimulating oil
and gas reservoirs," according to one U.S. arms control expert
("The Soviet Program for Peaceful Uses of Nuclear Explosions",
Now Russian oil companies and their joint venture partners
from the West are hoping to produce oil and gas from shale using
less extreme methods involving water, sand and chemicals to
shatter formations and open pathways for the hydrocarbons to
flow to the wells.
Bazhenov is attractive for oil and gas exploration because
it has many of the same features that made shale plays
successful in North America, particularly North Dakota's Bakken.
The parallels with Bakken have been made explicitly by
Rosneft in presentations to investors ("New age of petroleum",
In the central part of the basin, the Bazhenov is buried
about 2.5 km below the surface, similar to the average burial
depth in the core areas of the Bakken.
Like Bakken, the Bazhenov is a black, organic-rich shale
deposited on the bottom of an ancient sea. It was deposited in
an oxygen-starved environment so there was plenty of opportunity
for organic material to be buried before it could decompose
Bakken and Bazhenov have a total organic carbon content of
around 10 percent in their most prospective areas. Bazhenov
contains plenty of Type I and Type II kerogen, which tends to
generate oil and gas.
Most of the oil produced from reservoirs sourced from the
Bazhenov has been medium gravity (29-37 degrees API), which is a
bit heavier than Bakken but still highly prized by refiners.
Like Bakken, Bazhenov is under unusually high pressure for
its depth. The clay content of the shale is low, making it
suitable for fracking.
Similar to Bakken, Bazhenov is a thin formation. Horizontal
drilling will be essential to maximise contact between the wells
and the oil-bearing shale, which means mastering difficult
But unlike the giant oil and gas deposits off Russia's north
coast, most of the Bazhenov is on land, in the same sort of
semi-empty wilderness as North Dakota.
Bazhenov oil could, theoretically, be produced by the same
sort of extensive manufacturing-like drilling and fracking
processes that have been used successfully in North Dakota and
By 2003, some gas had already been produced from more than
200 wells bored down into the Bazhenov at the Salym and adjacent
gas fields, according to the U.S. Geological Survey.
But no significant production from shale had been achieved
in other parts of the West Siberia basin. The entire area
remains comparatively under-explored for unconventional oil and
The attractions of the Bazhenov for Western oil companies
and their Russian counterparts are obvious: an enormous
world-class onshore oil resource that would benefit from Western
expertise in hydraulic fracturing, horizontal drilling and
The obstacles are mostly above rather than below ground.
Russia has proved a difficult financial and business operating
environment for Western oil firms, with abrupt changes in
royalties and taxation, regulations, and asset ownership rules.
Political relations between the Russian government and its
Western counterparts have been deteriorating for some years, and
threatened to rupture completely over the crisis in Ukraine.
In April, the United States imposed sanctions on Igor
Sechin, a close confidante of Russian President Vladimir Putin
and chief executive of Rosneft. Significantly, however, the
United States has not imposed sanctions on Rosneft itself.
Some U.S. foreign policy experts have called for the United
States and the European Union to restrict the transfer of new
oil and gas technology and ban investment in new oil and gas
The immediate aim would be to compel Russia to heed Western
concerns over Ukraine. The longer-term objective would be to
deny Russia access to the expertise - especially in complex
horizontal drilling, seismic and oilfield visualisation - needed
to develop shale deposits, entrenching U.S. superiority in shale
So far, however, Western companies have lowered their
profile and successfully lobbied against the imposition of
broader sanctions on investing in Russia's oil and gas sector.
The stakes are just too big. Bazhenov is one of the most
promising oil and gas plays anywhere in the world and a key
component of future supplies.
With Western oil companies still largely shut out or heavily
restricted from producing oil in Saudi Arabia, Iran and
Venezuela, and struggling to find low-cost projects in other
areas, Bazhenov is simply too important to lose.
(Editing by Dale Hudson)