It’s a barren place, but that doesn’t make the Arctic any less interesting for world powers like Russia. Moscow is now driving a gigantic oil project there. But it is far from clear whether Putin’s plans will work.
The company Rosneft is known to many Germans at least since Gerhard Schröder’s (SPD) engagement in Russia. The former chancellor sat on the company’s supervisory board for several years. In May of this year it was announced that he was leaving his post.
It is also the company Rosneft that is driving a multi-billion dollar oil project in the Arctic. It is called the “Vostok Oil Project” and, according to the company, is the largest oil project in the world. In 2024, 25 million tons of oil are to be produced, and in 2030 up to 100 million.
Overall, the project is expected to cost $110 billion and include 770 kilometers of pipeline, several airports, helipads and two oil terminals. In July of this year, Rosneft announced that it had started construction of an oil terminal and port.
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Today, almost four months later, progress can actually be seen. Satellite images from the startup LiveEO show the gigantic construction site and also that an oil transshipment point is slowly but surely developing.
As the “Wirtschaftswoche” reports, 400,000 people are involved in the construction work. In addition to airports and terminals, Rosneft is also to have ten Arc7-class oil tankers built.
These are ships that can break ice two meters thick. It is also their acquisition that suggests that Russia is pursuing a larger plan with the “Vostok Oil Project”.
Kremlin boss Vladimir Putin apparently wants to turn the Northeast Passage into a busy trade route, several media report unanimously. The focus is primarily on the Asia-Pacific region.
This is not surprising given the war in Ukraine and the oil embargo that the US and Europe have imposed on Russia. Numerous western countries have jumped off as oil customers.
China, on the other hand, continues to be a loyal buyer of the Kremlin’s raw materials. Data from the Beijing customs office show that business relations with Russia have actually intensified in recent months. In August, Russia was China’s largest oil supplier for the third month in a row. In July, Russian oil imports totaled around 7.15 million tons, up 7.6 percent year-on-year.
With the Northeast Passage, this cooperation could be further intensified. Also because of climate change. According to the latest report by the Intergovernmental Panel on Climate Change (IPCC), the Arctic will warm up more than twice as fast as the rest of the world.
Trading conditions are tricky there at the moment, especially in the colder months. Ships find it difficult to get through the thick pack ice. But if that melts – because of climate change – the polar routes can be used more intensively.
According to Rosneft, 25,000 piles have now been installed and more than 100 kilometers of pipeline welded. “The project will continue according to the previously announced schedule,” Russian politician and Rosneft CEO Igor Sechin said a few days ago.
Nevertheless, there are doubts as to whether the “Vostok Oil Project” and Russia’s efforts to establish a new trade route can be implemented that easily. Because not only the current oil embargo could be a hindrance.
Export sanctions imposed by the West, which include important oil production technology, are also likely to weigh on Moscow. For example, the tankers designed to transport Vostok oil from the Sever Bay terminal to world markets contain foreign technologies that are difficult to replace.
“Foreign companies play a leading role in important technologies. Her departure will be painful,” Russia expert Thane Gustavson analyzed in a blog post in early October. He also writes that 60 percent of the software used in the Russian oil industry comes from abroad.
In addition, more and more investors are turning away from Rosneft. For example, partner company Trafigura sold its stake in the Vostok Oil Project to Nord Axis, a Hong Kong-registered company. And the company Vitol also wants to get out of the cooperation.
But Gustavson, who works as a political scientist at Washington’s Georgetown University, sees two other problems. “Vostok Oil is on near virgin territory. It lacks roads, pipelines, derricks, houses, airports, ports, canals – in short: almost everything needed for the production and transport of oil,” he writes.
The climate in the Arctic is one of the harshest in the world. Permafrost can cause new pipes to rupture, roads to buckle, or facilities to sag. Because Russia is financially stricken by the war, oil companies like Rosneft are also supposed to fill up the state coffers, so they have to pay higher taxes, for example.
According to Gustavson, all of this could delay the Vostok Oil Project. “That would be the likely effect,” he writes in his blog post. “That Vostok Oil’s development will be delayed by almost a decade.”