18 May 2022

Rosnedra chief Yevgeny Petrov: Russia could switch to input-output analysis, starting with minerals

Yevgeny Petrov

Yevgeny Petrov
Photo: Press-office

Any crisis lays problems bare, and, against the backdrop of what is happening in geopolitics and economics, Russian subsoil users have had to contend with difficulties that have remained unresolved for years, and have now become a real stumbling block. A country with unique natural resources is suddenly experiencing a shortage of certain types of solid minerals, and isuncovering difficulties with exploring, extracting and process its own resources simply because most of the technologies and equipment are foreign.

​Yevgeny Petrov, head of the Federal Subsurface Resources Agency or Rosnedra, told Interfax in an interview about howRussia is rethinking systems for the use of subsurface resources, what role the idea of a return to input-output analysis andtransition to management based on big data might play in thisprocess, on why oil storage facilities are not in demand but CO2 sequestration is, and about exploration projects by oil and gas companies.

Q: The mineral resource potential is the foundation of Russia’s economy. But many are now turning their backs on Russian minerals. Have the changed conditions been reflected in the revision of the state's attitude to the country's resources?

A​: Russia plays too important a role in the world economy, attempts to reject Russian supplies cannot succeed - everyone will realize this very soon. Yes, we can be replaced in a number of areas, and, of course, many companies, Chinese or Indian, for example, will try and take our place. But will Europe be happy with Asian monopolies? Russia, as a country with a huge resource potential, provides a balance of optimal prices for energy resources on a global scale.

​Now more than ever it is clear that the technological priorities imposed by the West are a threat to the independence of Russia, which increases dependence on foreign technology and supplies. An understanding has come that the country should develop its own agenda based on the peculiarities of its reserves and at the same time shape industry trends itself.

​Russia is rich not only in natural resources, but also in professional resources, we have many qualified specialists with fundamental knowledge, many good schools. In geology, our country is one of the leaders in scientific thought. Speaking diplomatically, we might say that we did not give proper attention to the development of Russian technologies. Domestic ideas often did not find support, did not develop to the level when they could become a part of the single service chain. There have been cases when Western companies took Russian unique developments and used them to develop their own high-tech services. Now we must build our own technological chains of services.

​The natural conditions of Russia and its geography represent almost all of the planet's climatic zones, and the country can create equipment which will not fail under a wide range of temperatures and weather, the harsh geological conditions of Timan-Pechora, Western Siberia or the Far East. By the way, technological development in the subsoil and outer space industries go hand in hand. It is not without reason that Roscosmos is engaged in the development of the hydraulic fracturing fleet - because deep in subsurface areas we deal with the same extreme temperature and pressure regimes as in space.

​On a national scale, the resource base should become the foundation for technological development, and the geological service of Russia should become the focal point of technological competencies. Advanced domestic developments from all spheres coalesce around subsoil use. Interagency work has also changed noticeably. Today, the Natural Resources Ministry and Rosnedra together with the Industry and Trade Ministry and the Energy Ministry are not simply updating the Mineral Resource Base Strategy through 2030, but linking it directly with the Energy Strategy through 2030. A single comprehensive document will be drawn up with detailed figures, powers, and stages - from state exploration of subsoil resources to licensing, production, exports, and state revenues. These figures will play the role of KPIs in state programs.

​Q: What is Rosnedra’s role here? 

​A: Rosnedra’s task is to ensure the country’s resourcesovereignty, the sustainability of the geological sector and to move it successfully onto a new track. Yet we should not missthe opportunities that are opening up amid the current intensive changes. The sector needs a strategic management body, a headquarters to systematically program its development. This, inmy view, is where the Russian geological service’s role lies.

​Rosnedra is responsible for the mineral resource base, which is at the beginning of all industrial chains. Our agency must become a guarantor of uninterrupted supply of mineral feedstock to any point in the country at the request of business and in light of market conditions. To do this, we need mechanisms for cross-sector strategic planning with respect to demand: what types of raw materials will be in demand and how competitive our reserves are.

​Russia is well studied geologically, today we understand our resource potential precisely. But we do not know the main thing, where in the country and how many tonnes of metal or other minerals are needed and at what price. We often talk about insufficient financing of geological exploration, but we must remember that it is not fundamentally about money - the resource base today exceeds consumption. It's about the economic connectedness of industries: many areas are economically unprofitable due to low domestic demand.

​The key lever here should be the transition to input-output analysis. The state needs systematic mechanisms to analyze cross-sector production chains, both in physical and monetary terms. A comprehensive vision of bottlenecks and potential points of growth on a cross-sector scale is needed. In the absence of input-output analysis, we cannot really raise the question of the economy's security of strategic raw materials and, more broadly, of Russia's sectoral sovereignty. 

​Input-output analysis will make it possible to analyze the real margins of technological and infrastructural chains. This, in turn, will ensure the calculation of the real resource availability of the country and will provide the basis for a program to reduce the cost of final products. It will allow us to quickly respond to changes in external trends.

​For example, right now we are evaluating the prospects for lithium batteries, but the global industry is already discovering sodium batteries. It is long-term planning that is the key to profitability. The changes taking place in the world open us up to fundamentally new opportunities, new markets. And at the same time require us to make accurate long-term forecasts. So that reserves prepared today will be competitive not only in the domestic, but also in the international market in 5, 10, or 20 years.

​The idea of switching to input-output analysis is actively supported by various agencies. There are also critics who claim that it is a return to Gosplan. Therefore, it is important to emphasize that input-output analysis are a modern economic strategy. The largest industrialized countries build their economies on input-output analysis. In the U.S. there are more than 150 input-output tables, in China this information is closed, but we can assume that there are even more input-output tables.

​Without this, effective development of industry is impossible. Especially since modern digital technologies allow us to take many indicators into account and quickly build mathematical models of probability. Rosnedra is already running several pilot projects to create a "life cycle" for certain products, which allows us to see the costs per unit of production, assess the margins of certain links in technological chains, stages of formation of added value.

​Q: How does Rosnedra assess the information component of mineral resources management?

​A: Our task is to switch to managing the sector on the basis of data. It's obvious that the introduction of effective analytical work, including input-output tables, is possible only on the basis of comprehensive analysis of big data. Therefore, the question of developing the digital capacities of our agency is of paramount importance to us. And here, of course, there's something to work toward. 

​In particular, there are difficulties with access to geological information received at the expense of the government in previous periods, including Soviet times. Large service companies and production associations were privatized, merged, disappeared, or transferred into private hands - along with a large volume of geological information that is today unavailable to the government. At the instruction of the president, we're carrying out work to create a register of all data sets outside of the Unified Fund of Geological Information. 

​Future discoveries, effective use of the state budget, and scientific and technical development priorities are contained in the set of primary geological prospecting data. Analysis of big data will allow critical uncertainties to be determined, the removal of which will raise the level of reserves assessment. Further, geological study will be harmonized at the expense of the federal budget and mineral developers on the basis of integrated data, which will ensure more comprehensive study of mineral resources. The consolidation of data plays a huge role in the technological refitting of the sector: the more primary geological information there is, the easier further work with reserves will be, the more effective the selection of technologies.

​Q: We're seeing instances of refusal to purchase Russian gas amid harsh sanctions and geopolitical standoff. There were also moments of difficulty with oil sales in 2020 due to the pandemic and a drop in demand. Why have initiatives to create underground oil storage facilities that were brought up a decade ago still not been implemented?

​A: It's true that the system of underground gas storage in Russia is very well developed, but there's no such system for oil. It's simple: the Russian economy was never in severe need of oil storage, and it's often cheaper for domestic companies to lower oil output than to store it. 

​Why, for example, did the United States create a huge oil storage system, the so-called Strategic Petroleum Reserve? Because a large volume of refining is concentrated on the domestic U.S. market. By creating an oil reserve, the U.S. guarantees constant availability of feed for its refineries. Emergency oil reserves simultaneously allow the authorities to smooth over changes in price.

​Russian oil output has been to a considerable extent oriented toward export, domestic consumption for own refineries hasn't been large. That is, we've always had pretty predictable, linear demand for oil, and therefore, the need for oil storage facilities hasn't arisen. And even now, I'll repeat, it's easier for companies to reduce output, purely for economic reasons. 

​Russia has experience creating oil storage facilities, great geological potential in terms of abilities for stationing underground storage facilities. Construction of such a storage facility will take one and a half to two years. But an underground storage facility is an expensive pleasure. Who's going to finance the preparation and construction of the facility? There are a lot of nuances, like, for example, the oil recovery factor. Not all oil pumped can be recovered later, losses will inevitably crop up. And, finally, maintenance and monitoring of oil storage facilities also costs money. 

​In order to create an oil storage facilities system, it's first necessary to make this process an effective business that will be able to guarantee energy security and with time will be able to play an ever greater role in regulating the global oil market. 

​Q: Russia beginning in 2022 introduced the first legislative initiatives to develop a new industry in the country - carbon dioxide capture, injection and sequestration. Several major companies have announced projects in this sphere. But the situation has changed abruptly. Is ССS/CCUS still as relevant in the new reality?

​A: Today the emphasis has somewhat shifted, but this topic still needs to be dealt with because the need to care for the environment has not disappeared. And our work continues, together with the Natural Resources Ministry we have already done a lot, we have repeatedly reported on the results. 

​This year, eight applications for CO2 subsoil sequestration rights have been filed, and Rosnedra is now analyzing the materials. It is interesting that three applications were filed by Novatek, but five more applications were not filed by mining companies, but by representatives of small and medium enterprises who see this as a new type of business for themselves. Thus, there is a demand for CO2 sequestration, and this is a very good trend. Despite the new circumstances, business sees prospects here - it means the game is worth the candle.

​Q: Let’s move on to hydrocarbon production. The northern Krasnoyarsk territory is turning into a new oi and gas province. Is it capable of making up for declining production in West Siberia?

​A: I'm not ready to write off the potential of Western Siberia. This is a unique oil and gas basin. A clear Cretaceous interval is currently being developed there, Neocomanian and Cenomanian complexes, and complex Jurassic deposits that still haven't been fully studied are more actively being engaged in output. And there's also Paleozoic with colossal potential in my view. Gigantic shale reserves haven't been touched at all. Western Siberia will supply oil for decades still thanks to comprehensive infrastructure.

​Enhanced oil recovery methods will ensure the further development of even water-cut and already depleted fields. As is known, Soviet scientists pioneered enhanced oil recovery methods. But in our country, this area was undervalued, while Western companies, in contrast, developed enhanced oil recovery methods. And until recently, the chemical solutions for carrying out tertiary and quaternary methods of impacting layers were brought into Western Siberia on planes from another continent. That will stop now, but I know companies that I won't name yet that have already achieved a good technological level and have equipment and specialists. They can provide services to increase oil recovery cheaper than Western offers. It seems to me that we'll be able to solve the problem of import substitution here already in the shortest term possible, and what's more, it's already been solved in a number of areas of polymer flooding.

​New oil and gas regions are emerging in Russia, including Taimyr. The resource base in the north of the Krasnoyarsk Territory is fairly large at 2 billion tonnes of recoverable oil reserves and 152 billion cubic meters of recoverable gas reserves. Recent significant discoveries include Payakha with approximately 1 billion tonnes of oil, Zapadno-Irkinskoye with 511 million tonnes, and Zinichev with 384 billion cubic meter of gas.

​There are currently 116 licenses valid for the use of subsoil in terms of hydrocarbons in the Krasnoyarsk Territory’s Arctic zone. They include 69 licenses for the exploration and evaluation of mineral deposits, the bulk of which were granted in 2019-2021, as well as six for exploration and production and 41 combined licenses for geological exploration, exploration and production. The results of work under these licenses will appear in a few years - new fields will be discovered, new hydrocarbon reserves will be booked. I think there is no doubt about the results: large companies are working in the region, they are interested in developing their resource base and are working intensively.

​Q: Eastern Siberia?

​A: Eastern Siberia will play the most important role in the future, "but as of today, it still hasn't been sufficiently studied, evaluated. And for completely natural reasons: Eastern Siberia has the most difficult climatic and geographic conditions. Even carrying out geological prospecting and exploration work in such a short surveying season is an extremely difficult and risky endeavor, let alone laying pipelines along mountain ridges in 50-degree frosts. Of course, the development level of infrastructure in Eastern Siberia is a key limit, but I don't for a minute doubt the potential of this region.

​Q: Russia has a very big gas resource potential. However inthe new conditions the issue of rethinking transport and logistics arises. What tasks have been given to Rosnedra in this regard?

​A: The most important project is the Northern Sea Route. Its development should not be halted under any circumstances. This is essential for the competitive performance of Russian resources on global markets. Thanks to the Northern Sea Route and the development of LNG projects, we will always have an alternative: we will be able to supply Yamal gas both to the west and to the east. And the Northern Sea Route itself will promote the development of connected sectors and whole regions. And our task today is to provide projects along the Northern Sea Route with economic resources.

​Q: How is work going to defend the results of exploration at the Tambey cluster? Are plans to develop it being put back at all?

​A: Gazprom carried out an appraisal of reserves at the Tasiyskoye, Severo-Tambeyskoye, Zapadno-Tambeyskoye and Tambeyskoye fields in 2017. The total reserves of the Tambeyskoye field amounted to about 5 trillion cubic meters of gas. In 2021, a trial production project was submitted for the Severo-Tambeyskoye area, which envisages a priority development plan for the next seven years. If no external factors interfere, commissioning of the field should take place no later than in 2028 [these are the terms and conditions of the license agreement]. In 2022, Gazprom submitted information on a number of reservoirs of the Tambey area for prompt assessment, there are no fundamental changes.

​Novatek is also working in the Tambey cluster [at the Zapadno-Tambeyskoye field]. "According to the information available to Rosnedra, work on the Tambey cluster is still underway, companies are not abandoning their current plans, they are carrying out additional exploration and preparing for operation. And whether something will change - those questions should better be put to companies.

​Q: Novatek has asked to reserve 10 federal blocks on the Yamal and Gydan peninsulas for LNG production. Auctionshave already been held for seven of them. When will the rest be put up for auction – Vostochno-Yavaisky, Mamontovsky, Yarachoitsky? On what terms?

​A: Rosnedra approved with Order N0. 366 of June 1, 2015- prior to the adjustment of the General Plan for the Development of the Gas Industry until 2030 and the Energy Strategy until 2030 and its prolongation until 2035 - a list of subsoil plots containing natural gas reserves or resources located in the unallocated subsoil fund of the Yamal Peninsula and the Gydan Peninsula and excluded from licensing plans and programs. At the moment, the Vostochno-Yavaisky, Mamontovsky, Yarachoitsky prospects remain on the list. Rosnedra has not received proposals to remove them from the list and hold auctions for them.

​Q: Are there any results from drilling by Novatek at the Bukharinsky block? When should the company carry out exploration at other bocks it has received on the Yamal and Gydan peninsulas?

​A: A deep well has been drilled to 2,875 meters at theBukharinsky block, and 12 test zones have been earmarked this year.

​It’s hard to talk about the other Novatek blocks: plans thathave been out into the projects could be reviewed. Novatekplans to drill six wells on Gydan in the coming years. We workon the assumption those targets will be achieved.

​Not one oil and gas company has approached Rosnedra with a view to changing its exploration plans. But we are seeing a significant reduction of the work load of service companies. It is difficult right now to say to what extent exploration will be reduced in the current season and next winter.

​Q: What is the status of Rosneft’s major offshore projectsin the Arctic and Black Sea?

​A: The Pobeda field in the Kara Sea requires further study until geological exploration is completed, it is difficult to talk about the prospects. In the Fedynsky and Central Barentssky areas in the Barents Sea, the company [Rosneft] is exploring, extensive seismic surveys have been carried out, detailing geological exploration is also ongoing at the structure of the Vostochno-Prinovozemelsky-2 area, where the gas fields named after marshals Zhukov and Rokossovsky were discovered.

​As for the Laptev Sea, Rosneft has now focused in detail on additional exploration of the Central-Olginskoye field located in the Khatanga area. The further development of exploration projects in this region will significantly depend on the results.

​Additionally, Rosneft has licenses for Val Shatsky in the Black Sea, which has been the most promising facility since Soviet times. Today, large structures with high oil and gas potential have been identified and studied. However, of course, there are also problems associated with great depths, hydrogen sulfide, which imposes serious restrictions on the use of standard exploration and production technologies. We do not see any changes yet.

​The main problem in developing Russia's offshore deposits is the lack of domestic technologies. There are many good deposits in the Barents and Kara seas, but in the absence of technology, they remain just a resource base. However, it is very important for the government to look to the future, to continue developing the shelf, and to develop technologies for exploration and production on the shelf of the Arctic seas.

​Q: Has Lukoil submitted a request to register the reserves of the new field it has discovered at the Titonskaya structure in the Caspian Sea? The company estimates recoverable reserves at 140 million-150 million toe.

​A: An official application from Lukoil for an appraisal has not yet been submitted, although the company has announced the discovery of a major gas condensate field, and we have no reason not to trust this announcement. Lukoil does high-quality appraisal, especially in the Caspian.

​Q: Gazprom Neft has applied for the rights to the Nizhnepurinsky and Taimyrsky blocks in the north of the Krasnoyarsk Territory, and has also submitted an application to carry out exploration of the Ust-Yeniseisky block in the Yenisei Bay. Have decisions been made?

​A: There has been no decision regarding the Nizhnepurinsky and Taimyrsky blocks. The Natural ResourcesMinistry is reviewing the Ust-Yeniseisky application, with recommendations soon expected to be passed the government.

​Q: Gazprom Neft has in previous years discovered the Neptune and Triton fields in the Ayashsky block offshore Sakhalin, and continues to study then. Is the company reportingany new results in the Sea of Okhotsk?

​A: Gazprom Neft has done a lot of work in the Sea of Okhotsk and has proven productivity at the Ayashsky block. But as the result of follow-up exploration new inquiries require study. The company is currently evaluating the profitability of the project in the cluster format.

​Q: Surgutneftegas has several blocks in the Timan-Pechora province at which production was due to begin back in 2018. Why hasn't this happened yet? Is the company violating the terms of the licenses?

​A: The company has not surrendered licenses for Timan-Pechora, and we have not registered any violations under them either. Surgutneftegas is working according to the approved schedule and is conducting exploration.

​Q: The Taimyr is a new region for Surgutneftegas. Has the company had any success there?

​A: The company received three Taimyr blocks, Dudinsky 1, 2 and 3, by request last year. It has seven years to explore them so it is too soon to talk about results.

​The company has received three other Taimyr blocks inrecent years. Drilling has begun at the Kubinsky structure at the Agapsky block, but the company has not yet submitted any information to Rosnedra. I have no doubt at all that the company’s results will be positive.

​Q: Is the date of the Mikhailov gold field auction known yet? What other auctions for solid minerals can be expected in the foreseeable future?

​A: The list as of May includes 86 auctions, some of them with the aim of substituting imports.

​Auctions for the Kolmozerskoye and Polmostrundrovskoye fields in the Murmansk region, which are predominantly lithium fields, are expected in the third quarter. Auctions are expected to be held in the fourth quarter for the Goltsovoye (beryllium, lithium, niobium, and tantalum) and Bolshetagninskoye (niobium) deposits in the Irkutsk region. A rare metals mining cluster could be created in the Irkutsk region as a result.

​Moreover, Gazprom and the Irkutsk Oil Company are forming a cluster there to mine lithium and hydrominerals associated with the bottom waters produced in hydrocarbon production. Demand for lithium in Russia today is more than meager, but this is in demand on the international market.

​We're talking about mining raw materials and initial processing in the Irkutsk region so far. If the domestic battery industry develops there, enterprises for deep processing of raw lithium could spring up, which would give a colossal economic impetus for the development of the region.