Most of Russia's oil production originates in West Siberia and the Urals-Volga regions. However, production from East Siberia, Russia’s Far East and the Russian Arctic has been growing. Most of Russia's reserves are located in West Siberia, between the Ural Mountains and the Central Siberian Plateau, and in the Urals-Volga region, extending into the Caspian Sea. [Source: U.S. Energy Information Administration, July 2015 ~]

Russia's oil production by region in 2013 (region, thousand barrels per day): A) Western Siberia: 6,422; B) Urals-Volga: 2,310; C) Krasnoyarsk: 426; D) Sakhalin: 277; E) Arkhangelsk: 269; F) Komi Republic: 257; G) Irkutsk: 227; H) Yakutiya: 149; I) North Caucasus: 62; J) Kaliningrad: 26. Total: 10,425. [Source: Source: Eastern Bloc Research, CIS and East European Energy Databook 2014, Table 6 (2014), p. 2. ~]

About two-thirds of Russia's oil comes from Siberia, mostly from huge fields in the northwest part of the region. Much of Russia's oil is produced in Western Siberia in a harsh environment with high production costs and thousand of miles from ice-free ports, which necessitates the construction of expensive pipelines. As much as 20 percent of Siberia is believed to contain oil and gas. Once the area is completely explored, it could produces more oil that Saudi Arabia. Oil was discovered in Siberia in 1965. During the Brezhnev a lot of money was poured into infrastructure projects to develop oil projects.

The second largest reserves of oil are in Siberia in the swampy Timan-Pechora region northeast of the Urals. There are also large reserves east of the Urals and around the Caspian Sea. There are large oil fields north of Tyumen and Omsk. The vast Tyumen oil fields lie in a vast area of wetlands north of Tomsk. There is also oil in Surgut. The main European oil and gas fields are located in the Volga-Ural region, the North Caucasus, and the far north of the Republic of Komi. Three of the richest oil fields—Langepas, Urai and Kogalym—are owned by Lukoil.

Natural Gas Producing Areas in Russia

The bulk of Russia’s natural gas reserves under development and production are in northern West Siberia. However, Gazprom and others are increasingly investing in new regions, such as the Yamal Peninsula, Eastern Siberia, and Sakhalin Island, to bring gas deposits in these areas into production. Some of the most prolific fields in Siberia include Yamburg, Urengoy, and Medvezhye, all of which are licensed to Gazprom. These three fields have seen output declines in recent years. [Source: U.S. Energy Information Administration, July 2015 ~]

Russia’s natural gas production by region in 2013 (region: billion cubic feet per day): A) West Siberia: 57.7; B) Yamalo-Nenets: 53.7; C) Khanti-Mansiisk: 3.5; D) Tomsk: 0.5; E) East Siberia and the Far East: 3.4; ) Sakhalin: 2.7; ) Irkutsk: 0.3; ) Krasnoyarsk: 0.3; ) Yakutsk: 0.2; F) Urals-Volga: 3.1; G) Orenburg: 1.5; H) Astrakhan: 1.0; I) Others: 0.7; J) Komi Republic: 0.3; K) North Caucasus: 0.1. Total: 64.6. [Source: Eastern Bloc Research, CIS and East European Energy Databook 2014, Table 34, p. 14]

The Yamal Peninsula in northern Siberia holds what may be the world's largest natural gas reserves (about 300 trillion cubic feet, twice the estimated reserves of the United States). The world's largest gas reserves are around Urengoy and Yamburg east of the Ob Gulf on the Yamal Peninsula. According to the Guinness Book of Records, the world's largest gas deposit is at Urengoi Russia. It has estimated ultimate recovery of 285 trillion cubic feet.

Harvesting the gas under the Yamal Peninsula below the permafrost surface can be quite expensive. Buildings are put on stilts and roads are built on several feet of gravel. When the construction of a railroad was hurried to meet political deadlines the track bed sunk into melted ice causing tunnel walls to collapse and rails to sink and bend. Since the damage was almost impossible to repair the train had to be rerouted which but the train five years behind schedule.☹

The Kovytka gas field in eastern Siberia is a huge field with 1.8 trillion cubic meters of natural gas There is also natural gas in Irkutsk and on Sakhalin Island. Gazprom is planning to develop offshore gas deposits in the Barents Sea.

Oil and the Former Soviet Union

Oil and natural gas has been one of the main reasons the post-Soviet Commonwealth of Independent States have remained united in some form. Even counties like Kazakhstan and Azerbaijan that have large energy reserves are dependent on Russia's refineries and pipelines. Other countries like the Ukraine and Belarus are like sick patients on life support, totally dependent on Russia for their energy.

The search for new oil deposits has been a primary force in Russia's foreign policy toward states to the south. Russia has staked its claim to the Caspian oil reserves that Western companies are exploring in conjunction with Azerbaijani, Turkmenistani, and Kazakstani state companies. The presence of Western interests and the strong role being played by Iran and Turkey, Russia's traditional regional rivals, have complicated this policy, which aims to achieve maximum benefit from Russia's position on the shore of the north Caspian. Also a source of international controversy is Russia's insistence that Caspian oil flow northward through Russian pipelines rather than westward via new lines built through Georgia and Turkey. [Source: Library of Congress, July 1996 *]

West Siberia

West Siberia is Russia's main oil-producing region, accounting for about 6.4 million barrels per day of liquids production, more than 60 percent of Russia's total production in 2013.10 One of the largest and oldest fields in West Siberia is Samotlor field, which has been producing oil since 1969. Samotlor field has been in decline since reaching a post-Soviet era peak of 635,000 barrels per day in 2006. However, with continued investment and application of standard enhanced oil recovery techniques, decline at the field has been kept to an average of 5 percent per year from 2008 to 2014, significantly lower than the natural decline rate for mature West Siberian fields of 10-14 percent per year. [Source: U.S. Energy Information Administration, July 2015 ~]

Other large oil fields in the region include Priobskoe, Prirazlomnoe, Mamontovskoe, and Malobalykskoe. While this region is mature, West Siberian production potential is still significant but will depend on improving production economics at fields that are more complex and which contain a significant portion of remaining reserves. ~

The Bazhenov shale layer, which lies under existing resource deposits, also holds great potential. In the 1980s, the Soviet government tried to stimulate production by detonating small nuclear devices underground. In recent years, the government has used tax breaks to encourage Russian and international oil companies to explore the Bazhenov and other shale reservoirs. However, most shale exploration activities in Russia have been suspended because of sanctions. ~

Urals-Volga and the North Caucasus

Urals-Volga was the largest producing region up until the late 1970s when it was surpassed by West Siberia. Today, this region is a distant-second producing region, accounting for about 22 percent of Russia's total output. The giant Romashkinskoye field (discovered in 1948) is the largest in the region. It is operated by Tatneft and produced about 300,000 barrels per day in 2013. [Source: U.S. Energy Information Administration, July 2015 ~]

The North Caucasus region includes the mature onshore area as well as the promising offshore North Caspian area. LUKoil has been actively exploring some of the deposits situated in the North Caspian and has increased proved reserves in the area by 35 percent over the past five years. In 2010, Lukoil launched the Yuri Korchagin field, which produced 27,000 barrels per day in 2013.15 By the end of 2015, Lukoil is scheduled to launch the Filanovsky field that should reach production of 120,000 barrels per day in 2016. Other discoveries in the area include the Khvalynskoye and Rakushechnoye fields. The development of the region is highly sensitive to taxes and export duties, and any change or cancellation of tax breaks may negatively affect development. ~

East Siberia

With the traditional oil-producing regions in decline, East Siberian fields will be central to continued oil production expansion efforts in Russia. The region's potential was increased with the inauguration of the Eastern Siberia-Pacific Ocean (ESPO) pipeline in December 2009, which created an outlet for East Siberian oil. [Source: U.S. Energy Information Administration, July 2015 ~]

East Siberia has become the center of production growth for Rosneft, the state oil giant. The start-up of the Vankorskoye (Vankor) oil and natural gas field in August 2009 has notably increased production in the region and has been a significant contributor to Russia's increase in oil production since 2010. Vankor, located north of the Arctic circle, was the largest oil discovery in Russia in 25 years. In 2013, the field produced about 420,000 barrels per day. ~

There are a number of other fields in the region, including the Verkhnechonskoe oil and gas condensate field, the Yurubcheno-Tokhomskoye field, and the Agaleevskoye gas condensate field. ~

Yamal Peninsula and Arctic Region

This region is located in the Yamal-Nenets Autonomous region, and it straddles West Siberia. This region is mostly known for natural gas production. Crude oil development is relatively new for the region. In the near term, the region is facing transportation infrastructure constraints, although the construction of the Purpe-Samotlor pipeline lessened some of these constraints. Transneft also is constructing the Zapolyarye-Purpe pipeline, connecting the Zapolyarye gas and condensate field to the Purpe-Samotlor pipeline. [Source: U.S. Energy Information Administration, July 2015 ~]

In addition to the Zapolyarye gas and condensate field, the area is home to the Vostochno Messoyakha and Zapadno Messoyakha, Suzun, Tagul, and Russkoye oil fields, all of which will benefit from the additional transportation capacity. On the Yamal Peninsula itself, gas fields such as Yuzhno Tambey, Severno Tambey, and Khararsavey dominate the landscape, as well as the Vostochno Bovanenkov and Neitin gas and condensate fields. ~

Timan-Pechora and the Barents Sea are located in northwestern Russia. Liquids fields in these areas are relatively small, however there is well-developed oil infrastructure in these areas. Two liquefied natural gas (LNG) projects have been proposed for the area, Gazprom's Shtokman LNG and Rosneft's Pechora LNG, both of which have the potential to yield significant quantities of hydrocarbon gas liquids (HGL). However, both projects have been delayed indefinitely. ~

Caspian Sea Oil

The Caspian Sea—the world's largest inland body of water—is rich in oil. Bordering Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran, it is 760 miles (1,200 kilometers) long, 130 (200 kilometers) to 300 (480 kilometers) miles wide and has a surface area of 143,550 square miles (370,000 square kilometers) and is 92 feet (28 meters) below sea level. It is about the same size as California or five times the size of Lake Superior, and 1½ time the size of all the Great Lakes combined in terms of surface area but hold less water than Lake Baikal in Siberia. [Source: Robert Cullen, National Geographic, May 1999]

Oil was noted more than 700 years ago in the Caspian Sea by Marco Polo who wrote of “a fountain from which oil springs is in great abundance." Most of the oil and natural gas was produced from organic matter that has flowed in by regional rivers and been compressed.

The world’s oil industry developed in Caspian Sea around Baku in the 1870s. Large reserves of oil had been discovered in the mid 19th century. Not much was made of the discoveries under czarist Russian rule. The area boomed when t was opened up to foreign investors. Fortune seekers from all over the world came to Azerbaijan in 1872 when the Russian czars opened up the Baku fields to foreign investment. Among them were Alfred Nobel, the founder of the Nobel Prize, and his brothers, and the Rotchchilds.

Some local people got lucky. There are stories of men with nothing more than a shovel finding oil Beverly-Hillbilly-style in their cotton fields. Gushers were given names like “Wet Nurse” and the “Devil’s Bazaar.” Workers toiled in waist-deep muck trying build channel to direct oil into lakes before it dissipated.

Baku experienced rapid development in the last quarter of the 19th century and early 20th century because of the development of Baku’s oil wealth. Thousands of Russians, Caucasus people, Armenians, and southern Azerbaijanis poured into northern Azerbaijan to cash in on the “oil rush” there.

In the early 1990s, when oil prices were relatively high and there was trouble in the Persian Gulf, Western companies rushed into the Caspian Sea area and leapt over themselves, trying to win concessions for the right to drill for oil and gas.

Russia wants its share of profits from oil and natural gas in the Caspian Sea basin. It wants to control the flow of Caspian Sea oil with pipelines built through its territory. Even though Asia is see as the best market for oil from the Caspian Sea the difficulties in getting it there may prove to be too difficult to overcome: trade embargoes in Iran, political instability in Afghanistan and Pakistan and high costs of building a pipeline to China.

Oil in the Caspian Sea

The Caspian Sea basin was expected to be one of the world’s most important sources of oil by the year 2015 but although it is an important energy source it hasn’t turned out to be the gusher that it was touted to be. The United States, Europe and Asia have a keen interest in the area as a source of energy if supplies from the Middle east are disrupted. So far the biggest beneficiary has been China, which has secured much of the oil produced in Kazakhstan.

About 1.1 percent of the world’s oil and natural gas comes from the Caspian Sea. Oil deposits on the Caspian Sea are the third largest after deposits in the Persian Gulf and Siberia. Some have estimated that there are 70 billion to perhaps 200 billion barrels of oils in the Caspian Sea, but more like the figure is between 20 billion and 95 billion, with most of it in Kazakhstan. By contrast Saudi Arabia, the world’s largest source of oil has 261 billion barrels of proven reserves. If the 200 billion barrel figure is true then the Caspian Sea area holds 16 percent of world’s oil reserves. But the consensus seems to be the Caspian Sea has a lot of oil but claims that it oil was going to replace the Persian Gulf were overhyped. [Source: Robert Cullen, National Geographic, May 1999]

The Caspian Sea has proven reserves of 48 million barrels, the third largest reserves in the world, and 292 trillion cubic feet of natural gas. Offshore fields account for 41 percent of total Caspian crude oil and lease condensate (19.6 billion barrels) and 36 percent of natural gas (106 Tcf). In general, most of the offshore oil reserves are in the northern part of the Caspian Sea, while most of the offshore natural gas reserves are in the southern part of the Caspian Sea. In addition, the U.S. Geological Survey (USGS) estimates another 20 billion barrels of oil and 243 trillion cubic feet of natural gas in as yet undiscovered, technically recoverable resources. Much of this is located in the South Caspian Basin, where territorial disputes over offshore waters hinder exploration.

Initially a lot of dry holes were drilled, which lowered some estimates. The high costs of extracting and transporting Caspian Sea oil makes it less profitable than oil from other places such as the Persian Gulf. The Soviets failed to grasp the regions potential because they failed to do extensive deep-water drilling.

Many of the oil fields are deep in the earth or are otherwise difficult to reach and developing them was prohibitively expensive for the Soviets. Only since the collapse of the Soviet Union have the sites been exploited as Western companies with their advanced technology and piles of money have developed them. Billions of dollars has been poured into development. In the 1990s there just as many broken contracts, international lawsuits and swindled investors as there were new oil wells and businessmen who struck it rich. Over time the losers were weeded out and few winners remained.

The EIA—the U.S. government’s Energy Information Agency—estimates that the Caspian Sea region produced an average of 2.6 million barrels per day of crude oil and lease condensate in 2012, around 3.4 percent of the total world supply. Production in 1999 was about 1.1 million a day, or 1.5 percent of the world's total.

Money from the oil boom has manifested itself in an increase in the number of Mercedes and Chevy Blazers but relatively little money has trickled down to ordinary people. Even worse is the fact that money that could be used to build the economy is sent to overseas accounts or spent on trophy developments. Local local people, brought up in the Soviet system, have not learned how to start up new business to exploit the boom. For many Caspian Sea people the only way to make money is to poach caviar-bearing sturgeon.

Oil Fields in the Caspian Sea

Oil is found primarily in three areas: 1) the Baku fields, which extends from east from Baku and is shared by Azerbaijan and Turkmenistan; 2) the Tengiz Field, which is claimed mostly by Kazakhstan and lies under the waters of the northern Caspian Sea; and 3) the Kashagan oil field, a huge deposit discovered in 2000. There is much less oil in territory claimed by Russia and Iran. Large natural gas reserves in the eastern Caspian Sea in Turkmenistan's territory. In the early 2000s, an announcement was made that a large deposit of oil was found in the Severny structure in the north Caspian basin.

Over the past decade, Kazakhstan's onshore oil fields, particularly the Tengiz field, were the biggest contributor to the region's production. As Azerbaijan developed the Azeri-Chirag-Guneshli (ACG) field group between 2006 and 2008, its offshore production began accounting for an increasing part of total Caspian production. Other significant sources of Caspian oil include production in Turkmenistan near the coast and in Russia's North Caucasus region. [Source: U.S. Energy Information Administration, July 2015 ~]

While most current Caspian oil comes from onshore fields, the biggest prospects for future growth in production are from offshore fields, which are still relatively undeveloped. Chief among these is Kazakhstan's Kashagan field, believed to be the largest known oil field outside the Middle East. EIA estimates that the Caspian area produced 2.8 trillion cubic feet of natural gas in 2012, with large portions reinjected back into fields or flared. The large amount and dispersed nature of Caspian natural gas reserves suggest the possibility of significant future growth in production.

Azerbaijan became an important regional natural gas producer with the start of production in the Shah Deniz field in 2006. Other prospects for natural gas production growth include Russia's North Caucasus region, which has the bulk of the Caspian Sea region's onshore natural gas reserves, and Turkmenistan's Galkynysh field, which a 2009 audit suggested may be the world's fourth largest natural gas field.

Caspian oil and natural gas fields are relatively far from export markets, requiring expensive infrastructure and large investments to transport produced hydrocarbons to markets. The Caspian Sea's periodically freezing waters increase the costs of offshore projects, and shifting regulations create uncertainty for foreign companies investing in natural resources in the region.

Oil Wealth and Caspian Sea or Caspian Lake

The presence of all oil in the Caspian Sea suddenly made Central Asia an important place geopolitically. There was talk of the Caspian Sea replacing Iran and Iraq as major sources of oil. How the resources of the Caspian Sea will be divided among the five nation is unresolved. Discussions are expected to go on for some time. The legal status of the Caspian Sea was governed by treaties between the Soviet Union and Iran. But since the collapse of the Soviet Union in 1991 the five nations that share the sea have repeatedly failed in reaching new agreements.

Lying at the heart of this issue is whether the Caspian Sea is a sea or a lake. If it is a sea it resources are divided in accordance with international maritime agreements in which countries are allowed an economic coastal zone that extends 200 nautical miles (230 miles, 375 kilometers) from the shoreline, or if a zone is less than 400 miles between two countries it is divided equally. If it is a lake, the countries control a coastal zone of about 50 nautical miles and all countries are given control of a common area in the middle.

Iran and Russia regard the Caspian Sea as a lake with common resources because it gives them access to oil and gas deposits they otherwise wouldn’t have access to. Azerbaijan, Turkmenistan and Kazakhstan regard it as a sea that should be divided into national sectors so they can control resources that are within the sea shoreline limits rather than lake shoreline limits. During conference in Baku in November 2010, the five Caspian nations failed to agree on the answer.

If it is decided that the Caspian Sea is a lake the area in the middle would be treated as an international sea bed and all five countries must agree on how the resources will be exploited, sold and transported and how the profits will be divided up. Under the International Convention on the Law of the Sea, the Caspian Sea fits most of the criteria to be considered a sea but under the 1921 Treaty of Friendship between the Soviet Union and Iran, the Caspian Sea was treated like a lake with most of its resources—at that time mostly fish and caviar—shared between the two nations. Russia has suggested dividing the sea bed while allowing the waters above to be used by all, which sound good in principal but would allow a country to keep resources in its sector but doesn’t address the issue of how the resources would be transported.

Disputes have broken out as to how the oil wealth should be distributed. Iran wants it be split equally among the five countries bordering the Caspian Sea so that everyone gets 20 percent. Iran currently gets 12 percent. Much of the territory it claims is in Azerbaijan waters. In 2000, an Iranian gunboat drove off BP geologists working for Azerbaijan in an unarmed ship in waters claimed by both Azerbaijan and Iran. Turkmenistan has accused Azerbaijan of looking for oil in its waters. While attempting to negotiate a solution, the black market sales and poaching is rapidly depleting resources.

Sakhalin Island

There is a lot of oil offshore of Sakhalin Island in far eastern Russia. The reserves have been estimated at 15 billion barrels, compared to 22 billion barrels in all the United States. There are also large amounts of natural gas there too (200 trillion cubic feet, 6 million cubic meters). Onshore oil has been extracted here since 1920 but development of offshore oil is relatively recent. The development has been spurred by the large reserves and nearness to large markets in Japan, China, South Korea and Asia. Japan is only a couple days away by tanker, much closer than the Middle East. The Sakhalin-2 project started producing oil in 1999 and natural gas in 2009.

Sakhalin Island is located off Russia's eastern shore. The offshore area to the east of Sakhalin Island is home to a number of large oil and natural gas fields with significant investment by international companies. Much of Sakhalin's resources are being developed under two production-sharing agreements (PSA) signed in the mid-1990s. The Sakhalin-1 PSA is operated by ExxonMobil, which holds a 30 percent stake. Other members of the PSA include Rosneft (through two subsidiaries), Indian state-owned oil company ONGC Videsh, and a consortium of Japanese companies.The Sakhalin-1 PSA covers three oil and gas fields: Chayvo, Oduptu, and Arkutun-Dagi. Production started at Chayvo field in 2005, at Oduptu field in 2010, and at Arkutun-Dagi field in January 2015. Sakhalin-1 mainly produces crude oil and other liquids, most of which are exported via the De-Kastri oil terminal. Most of the natural gas currently produced at Sakhalin-1 is reinjected with small volumes of gas sold domestically. [Source: U.S. Energy Information Administration, July 2015 ~]

The Sakhalin-2 PSA covers two major fields, the Piltun-Astokhskoye oil field and the Lunskoye gas field, and it includes twin oil and gas pipelines running from the north of the island to the south end of the island where the consortium has an oil export terminal and an LNG liquefaction and export terminal. The Sakhalin-2 consortium members include Gazprom which owns 50 percent plus one share, Shell with 27.5 percent, Mitsui with 12.5 percent, and Mitsubishi with 10 percent. When the PSA was originally signed, the consortium did not include any Russian companies and, compared with most PSAs, the terms were heavily weighted in favor of the interests of the consortium over the interests of the government. Sakhalin-2 produced its first oil in 1999 and first LNG in 2009. The project incurred significant cost overruns and delays, and these were part of the justification the Russian government used to force Shell, which at the time owned a 55 percent interest in Sakhalin-2, and the other consortium members to sell a controlling interest in the consortium to Gazprom. ~

Developing Sakhalin Island Oil and Gas

A number of obstacles have to overcome to drill and pump oil off of Sakhalin: snow, fog, drifting ice, earthquakes, tsunami and environmental concerns. Ice flows, with enough power to bend steel fill the sea for six month. Powerful earthquakes regularly occur. The drilling season is only five months long. One oil man told the New York Times, “Take Alaska and the North Sea, combine the worst of both, and you have Sakhalin.”

Developing Sakhalin requires the latest technology and large amounts of capital. Russia has turned to foreign investors to develop it,. As of 2001, 25 percent of all foreign invest in Russia went to Sakhalin and $22 billion had been promised. An additional $35 billion was expected to be spent. Many local people have gotten jobs but the best jobs have gone to outsiders. Sakhalin will only get around 8 percent of the royalties from the oil and gas projects.

Much of the work involves improving the infrastructure. A rail line runs north and south through Sakhalin, making it easier to support oil development there. That and a few roads and airports is all that Russia has provided. In 2003, construction began on Russia’s first gas liquification plant. It will process gas so it can be taken by tanker to Japan and will be one of the largest of its kind in the world.

New ports, roads, storage plants, and housing have been built. Undersea pipelines are being built up to carry oil and gas from the platforms to the shore, where it be funneled into 500-mile-long pipelines built down the spine of the island to terminals on the southern part of the island where the oil and gas will be transported by tankers.

Sakhalin Island Oil, Whales and the Environment

Some American and European companies were attracted to the Sakhalin because the environmental laws are more lax. Companies can dump toxic drilling mud, use tankers in ice-clogged waterways, drill in fish-filled water, and don’t need t have spill-responses teams nearby as they would in the U.S. or Europe.

One of the biggest environmental concerns at Sakhalin is the gray whales that live there. The gray whales off of Sakhalin are one of just two populations in the world. They were thought to be extinct but a 1995 study found 106 of them feeding in shallow lagoon off the northeast coat of Sakhalin.

There around 17,500 gray whales that migrate along the west coast of the Americas. Their numbers are regarded as healthy. But that in not the case with their Asian-Russian cousins on the other side of the Pacific, who spend their summers of the coast of the Russian Far East and their winters in the South China Sea.

About 100 or so gray whales feed during the summer off of Sakhalin island, near where large foreign energy companies are drilling for oil and gas. There are worries that the whales could be harmed by collisions with boats or contamination of their feeding areas by an oil spill. The use of explosives in seismic testing appears ro disturb them and drive them from the area. There are plans to put pipeline and offshore platforms right in the middle of their feeding areas. The oil companies are planning to limit construction while the whales are feeding and other measures.

One of ExxonMobile’s drilling sites is next to the feeding areas for the gray whales. The company has been accused of using seismic blasting only 2½ miles form the site. ExxonMobile killed 15,000 sticklebank and smelt with a faulty culvert in a stream near a drilling site. Near one platform, 900 tons of dead herring spread out over eight miles. Officials said the die off was caused by lack of oxygen due to unusually high amounts of petroleum and heavy metals in the fish.

Foreign Investors in Sakhalin Island

Exxon-Mobil, Texaco and Royal Dutch/Shell are exploring and developing petroleum and natural gas around Sakhalin island. BP is also prospecting there and expects to spend billions there. One oil man told the New York Times in 2003, “If you are in oil and gas this the place to be. This is the biggest oil and gas development happening around the world today.”

Russia needs the technology and know-how that foreign oil companies possess to develop the oil and gas in the harsh conditions at Sakhalin. It has given investors special incentives—namely laws that guarantee consistent taxes and royalties—not available elsewhere to attract them. Still companies have complained about the red tape. Some companies said they needed entire teams devoted to getting permits for this and that.

Royal Dutch/Shell’s project is heavily involved in Sakhalin II and has been hampered by cost overruns and environmental concerns. The Sakhalin project was slated to cost the company $9.6 billion but had cost it $13.5 billion as of 2004. It built Russia’s first offshore oil production platform. Environmentalist want the project delayed because it was in a feeding ground for endangered gray whales. In 2001, Royal Dutch/Shell was pumping 35,000 barrels per day from the region.

The Japanese have been trying to develop Sakhalin since 1975. A number of Japanese energy are involved in projects in Siberia and Far East Russia. Itochu, Marubeni, Mitsui, Mitsubishi and others are involved with Sakhalin 1 and 2. Japanese companies are sought for their expertise and money. Having them and the Japanese government involved in these projects is viewed by the Russians and others involved as a way of reducing risk and having a reliable market for its oil. Japanese companies own 30 percent of the Sakhalin project in part ensure that gas from the project ends up in Japan. There are estimated reserves of 485 billion cubic meters in the Sakhalin 1 project, enough to supply Japan's gas needs for six years.

The first shipment of Sakhalin-2 gas arrived in Japan in April 2009. It takes three to four days to ship LNG from Sakhalin, considerably less time than from the Middle East. About 60 percent of the gas from Sakhalin 2 is earmarked for Japan with the remainder going to the United States and South Korea. Sakhalin 2 gas will account for 7 percent of Japan's annual gas imports and reduce its dependance on the Middle East for energy. The plan is to sell Japan five million tons of liquified gas a year for 24 years, starting in 2009.

ExxonMobile on Sakhalin Island

Mobile Exxon is the leading investor in the Sakhalin project. It own 30 percent of the Sakhalin 1 project. ExxonMobile initially said it planned to invest $12 billion in Sakhalin over 10 years. The Sakhalin-1 PSA covers three oil and gas fields: Chayvo, Oduptu, and Arkutun-Dagi. Production started at Chayvo field in 2005, at Oduptu field in 2010, and at Arkutun-Dagi field in January 2015.

From Yuzhno-Sakhalinsk, the main town on Sakhalin, it takes 15 hours by train and four hours by truck to reach the Chayvo oil field on the Sea of Okhotsk, where ExxonMobile is drilling. To drill wells over 10,000 meter deep ExxonMobile brought in a 22-story oil drilling rig from Louisiana. Platforms have to be that large to withstand the heavy load of ice encases it half the year. ExxonMobile built special housing for its workers.

As of 2002, Exxon had invested $650 million in the Sakhalin 1 consortium but was having difficulty finding buyers in Japan and China. China has had discussions with Exxon Mobile about buying gas from their fields off Sakhalin Island, which Japan assumed was going to go to them. Exxon Mobile is somewhat angry with Japan for not moving faster to build a pipeline from Sakhalin to Japan. Disruptions on the Sakhalin projects and promises by Exxon to give China gas from Sakhalin 1 may mean that Japan gets less natural gas.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated May 2016

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