The fields and development of Sakhalin 1

Browsing Drumbeat, my eye was caught by a comment by Darwinian about Sakhalin Island production. In essence the article notes that production from the Sakhalin I project has dropped by 14.5% as a result of natural field depletion. That drop needs to be put in context.

For those of you unfamiliar with Russian oil production, and I would recommend Grace’s Russian Oil Supply in that case, Sakhalin Island is the most Easterly of the Russian oil fields.

Location of Sakhalin Island just north of Japan (Google Earth)

It has been just over a year since a new export facility at the island (see map below) transformed oil exports from being a seasonal affair, closing with the ice of winter, into an all-year effort. This was due to completion of an offshore loading facility and thus by July it was possible to report:

“Our 200th oil cargo is clear evidence of Sakhalin’s emerging role as a key energy hub for the Asia-Pacific region,” said Sakhalin Energy Chief Executive Officer Ian Craig. “The increasing frequency of oil cargo shipments will also be matched and then exceeded by the frequency of LNG shipments as we build up to plateau in the second half of this year”.

The oil is from platforms on the north-east end of the island, and the oil is brought onshore, and then piped 500 miles to the southern tip of the island where it is loaded onto tankers at a single point mooring facility at De Kastri. The main markets have been in South Korea and Japan. And, as an aside, the use of tankers does not mean that there is much warming up there (temperatures can reach -40C), there are two ice breakers available to help and guide the tankers.

Sakhalin Island was originally a penal colony and is relatively inhospitable but yet has been seen as promising as an area for further development.

An estimated 45 billion barrels of oil equivalent lie beneath the icy seas off its shores, a figure rivaling what remains in the U.S. or Europe. But developing those resources is proving lengthy, difficult, and expensive. Cost overruns have been huge, and no one knows if the Russians will end up controlling the assets now being built. "This is a frontier project like the North Sea or Alaska [was]," says Ian Craig, CEO of Sakhalin Energy Investment Co. "The industry doesn't know how to do everything" here yet.

It is not that easy to reach.

The island is located seven time zones, and a nine-hour flight, from Moscow. That's the first part of the journey. Expatriate oil workers and visitors then board the train that runs north from Yuzhno-Sakhalinsk to Nogliki, the snowy gateway to the offshore oil fields. Sakhalin Energy maintains its own sleeping car with wood paneling, rugs, and burly, tattooed guards to fend off bandits. Passengers board in the evening and toss and turn on narrow bunks in steamy cabins while the train bumps and clatters for 15 hours through the snowy wastes. Sakhalin Energy's operations in the north are so remote that it had to build a 43-mile road to get there. Bears roam the woods, and the weather is so bad that construction manager John Burn hires 70 people to keep the area clear of snow and ice six months a year.

The development of the fuel fields has been divided into a number of parts. The largest is Sakhalin II which began with the first oil platform Molikpak located at the Piltun-Astokhskoye field in 1999. That set of fields lies north of the Sakhalin I set of fields.

The Molpak rig ( air1Okuzya at Google Earth 52 37’31.77” N 143 26’02.91E)

Sakhalin I - the subject of the Reuters piece I quoted at the top of the post - is located on the north-east side of the island.

The Sakhalin-1 Project is an oil and gas development on the northeast shelf of Sakhalin Island. It was declared commercial in October, 2001. The Project area is comprised of the Chayvo, Odoptu and Arkutun-Dagi fields. Total recoverable reserves are estimated to be 2.3 billion barrels of oil (307 million tons) and 17.1 trillion cubic feet of natural gas (485 billion cubic meters).

The project is being run by a subsidiary of ExxonMobil, with current plans to start production from the Odoptu field in the second half of this year. Production to date having come from the Chayvo field.

ExxonMobil “Hawk: drilling platform at Chayvo (Superparty at Google Earth 52 29’20.08”N 143 14’13.17”E)

ExxonMobil has written a short book on the project of some 9 pdf files. It notes that Phase I of the project reached its peak production of 250,000 bd in 2007. The drilling rig shown above is 22 stories high and is being used to drill extended reach wells that reach out up to 7 miles offshore. The two other fields that are now to be developed are further offshore.

The oilfields and pipeline for Sakhalin I (ExxonMobil )

The Orlan (or Sea Eagle) platform, which is offshore, has a target of production from 18 extended reach wells that extend out to 5.6 miles from the platform. It is expected that the overall production from the three fields will continue in production for some 40 years.

The Hawk rig has just completed the first two extended reach wells reaching out some 5.6 miles with horizontal wells to the Odoptu field, and will drill another five to bring that field into production by the end of the year.

P33. Pick Points

Half-a-dozen or so stories of interest:

Checking in on CERAweek first –IHS Director of Political Risk Terry Hallmark is predicting that crude oil will average $43 a barrel in 2009. (IHS purchased CERA in 2004) . The meeting was opened with Representative Edward Markey telling delegates that $147 a barrel oil was a cause of the current global recession. He is the new chairman of the House Energy and Commerce Subcommittee on Energy and Environment, and the legislation on the Administration program will have to go through him.

Legislators are bent on pushing though greenhouse gas legislation, promoting a cap-and-trade system for limiting carbon dioxide emissions, and looking at ways to diversify away from imported oil wherever possible.

Turns out he is a T. Boone Pickens fan.

OPEC, recognizing the impact of the fall in oil prices is delaying 35 of the 150 planned oil drilling projects by at least 4 years. Dates for the others may also well slip, as OPEC anticipates a 50% cut in income this year. However with oil now apparently stabilized at around $40 a barrel the likelihood of further cuts is growing less. It did however drop below $40 today. If the price drops further Saudi Arabia may lead the move to lower production. Algeria thinks the price will rebound to $60 this year, though Angola would like the price to rise to $75. In the meanwhile Venezuela has been making cuts of around 210,000 b/d (Bloomberg estimate) or 364,000 bd (Venezuela claim) as part of the OPEC cuts. Cuts have now reached around 4.2 mbd and these collective moves make it unlikely that the OPEC will be able to increase capacity by 5 mbd by 2012. However the current cuts have swelled the unproduced capacity of OPEC to an eight-year high.

The cuts in oil company profits will also impact their charitable giving, even to prestigious places such as the Bolshoi. And just as Germany has subsidized car loans to improve their economy, Russia is now moving to try the same, even though sales in Germany have yet to pick up, though they are expected to do so, with the incentive being to replace cars older than 9 years. The Russian economy is still growing, albeit now at only 1.1%. Russia will get into the LNG business next month when the first cargo leaves Sakhalin Island for Japan. Incidentally there is an extensive review of the Nord Stream pipeline project.

Platts is taking a closer look at wind energy since this energy source is looming larger and larger as the renewable energy source. To meet EU requirements the industry will need another roughly 125 GW installed (or more than double current capacity) by 2020. But there are problems since the larger the industry grows the less economic the necessary base load and backup power generation becomes. Jerome argues that the route forward should include wind, though there may be some problems this year.

One of the problems has been in transmission of power from the wind site to the user and ITC is now addressing this with a planned “Green Power Express” to carry 12,000 MW of power from the Dakotas to the MidWest. Texas remains on schedule with the installation of new transmission lines to feed future sites. But as wind farms grow, there are concerns over their impact on wild life, particularly in the East.

While CERA meets in Houston, in Europe it is Sustainable Energy Week, introduced by the Commissioner. Registration for the meeting is now closed, but there are video recordings and live internet broadcasts, which can be reached through the Website. The opening speech has already been posted. The Danes have provided a wind map for Europe. It is slightly different in format to that of the Department of Energy for the USA.

As more drilling occurs in the Arctic regions, there will be a need for more collaboration with the indigenous peoples, one such agreement just having been signed in Russia. Yet there is likely to be more strain between the countries seeking the energy. Russia is looking into adding a new refinery in the region.

For more stories see The Energy Bulletin or Drumbeat at The Oil Drum