russia icebreaker path

Russia’s Risky Billion-Dollar Bet On Arctic Oil

Russia is building what it claims is the world’s largest oil project in the Arctic. Critics rumor that, in view of Western sanctions, it could become the world’s largest construction ruin. But work is currently progressing, as exclusive satellite images show.

“Economy from above” is a collaboration between WirtschaftsWoche and LiveEO. This is a translation of the original article written in German by “Andreas Menn“. Access the original article here.

Dilapidated tenements, a harbor with run-down warehouses, snowmobiles instead of cars – those who live in Dikson, the world’s northernmost settlement on the mainland, have to cope with a meager life. Only about 500 people remain here on the Kara Sea in northern Russia, where winter lasts ten months and the sun does not rise for more than two months.

That’s why Dikson only makes headlines as a curious destination for Arctic expeditions – and with stories like the one in July when a polar bear couldn’t get its tongue out of a discarded condensed milk can and veterinarians from Moscow Zoo traveled to free it.

But 40 kilometers southwest of Dikson, at Sever Bay, a lot is happening right now, as the latest satellite images from LiveEO show. Here, Russian oil company Rosneft officially announced in July that it had begun construction of an oil terminal and port. But footage shows that work began before the invasion of Ukraine last year and is well advanced. 1.3 kilometers long, the facility is to be built near the mouth of the Yenisei River, the fifth longest river in the world. From the end of 2024, millions of tons of oil are to be transported away here every year.

The terminal is part of Vostok Oil, the world’s largest oil project according to Rosneft. The group wants to develop several oil deposits in the Krasnoyarsk region on the Taimyr peninsula. In 2024, the project is expected to produce 25 million tons of oil, and by 2030, it is expected to produce up to 100 million tons. This corresponds to almost one-fifth of the oil produced by Russia in 2021. In total, Rosneft is hoping for a yield of six billion tons of oil.

According to the group, 25,000 piles have now been driven into the permafrost and more than 100 kilometers of pipes welded as part of the pipeline construction. Construction work on the oil terminal has also progressed, as satellite images show. When it is completed, ships will transport the oil from there via the Northeast Passage.

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  • sever bay on the arctic ocean cargo ships expanded
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  • arctic ocean russia largest oil terminal 2022
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Images: LiveEO/PlanetScope SuperDove

In its search for new oil sources, Russia has to work its way further and further north. The deposits that have already been tapped, around 80 percent of which are in western Siberia, have reached their peak in many places, and production volumes are declining. For years, Russia has therefore been targeting the oil fields on the Taimyr Peninsula.

Despite the oil embargo imposed by the USA and the EU, as well as further sanctions, Moscow is pushing ahead with the mega-project. 770 kilometers of pipeline are to be laid, three airports built, two oil terminals raised, and 15 settlements for workers erected. Allegedly, 400,000 people will be employed during the construction work in the middle of nowhere. Estimated cost: $110 billion.

Logistics here in the far north are complicated. In early April, the Sevmorput, the world’s last nuclear-powered cargo ship capable of breaking ice up to one meter thick, transported 150,000 tons of construction equipment and materials to the mouth of the Yenisei River. In the process, the cargo, weighing a total of 6,000 tons, was unloaded directly onto the ice. For eight months, the average temperature here is below freezing.

In the social network vKontakte, the operator Rosatom shows pictures of the nuclear-powered container ship Sevmorput in the Arctic Ocean at the beginning of April. The crew is said to have unloaded 6000 tons of general cargo on the ice of the Yenisei River within a week – construction material for the Vostok Oil project.
Image: Screenshot/vKontakte

In addition, Rosneft is having ten Arc7 class tankers built that can break two-meter-thick ice. Ships already use the same route to transport liquefied natural gas (LNG) from the Yamal Peninsula to Asia.

The oil transport fleet is part of a larger plan being pursued by President Vladimir Putin. He wants to turn the Northeast Passage into a busy trade route. 80 million tons are to be transported along the Russian Arctic coast as early as 2024. In 2030, this figure is to rise to 200 million tons. To this end, the government wants to build twelve new ports in the Arctic, ten icebreakers, as well as hospitals and search and rescue facilities.

Refueling Station on the Northern Polar Sea

Where Russia is building its Arctic oil terminal

refueling station
Source: Own Research Graphic: Konstantin Megas

But doubts are growing that the grandiose plans will work. Since Russia’s attack on Ukraine, Western countries have dropped out as oil customers, and the EU and the US have imposed an embargo on Russian oil. Countries in the Middle East and India are now buying more raw materials from Russia than before the war, according to commodities analysts at Argus Media. China is also to be supplied more. But the buyers can force massive discounts.

In addition, the West has imposed export sanctions on important oil production technology, some of which Russia cannot produce itself. It remains to be seen whether the country will find other suppliers. Important partners are also jumping ship: Dutch commodities trader Trafigura, for example, which had acquired a 10 percent stake in the oil project in 2020, sold it in July to competitor Nord Axis from Hong Kong. On top of this, many men are fleeing abroad to avoid mobilization for the war – the oil industry is also likely to lose well-trained personnel as a result.

According to a report in the Wall Street Journal, analysts at commodity analysis firm Rystad Energy expect the key Payyakhskoye oil field, part of the Vostok Oil project, to come on stream in 2029 instead of 2024. However, current satellite imagery does not yet indicate that construction is stalling – earthworks visibly progressed over the summer. Land has even been filled in. Environmentalists would be pleased by any delay. Greenpeace, for example, holds Rosneft responsible for countless oil leaks. In the Arctic, such spills are particularly difficult to clean up.

Thane Gustafson, a political scientist at Washington’s Georgetown University, even thinks it’s possible that Vostok Oil development could be delayed by a decade. “By then, growing concerns about climate change could lead to a peak in global oil demand,” the author of several books on the Russian economy writes in a blog post. “Vostok Oil could then become one of the world’s largest stranded assets (“stranded” assets whose returns unexpectedly drop dramatically, ed.).” Many billions of dollars would then have been sunk by Russia in Arctic ice.

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