Environmentalists blast UK-Russia ‘Bolshoi Petroleum’ deal

BP oil spill picnik.jpg

BP agreed on 14 January to form a joint venture with Rosneft to develop three massive offshore exploration blocks that Rosneft owns in the Arctic territory of Russia. US lawmakers, the UK's opposition Labour party and environmentalists blasted the deal, which has been dubbed 'Bolshoi Petroleum'.

As part of the deal, which comes four months after BP plugged a blown-out well in the Gulf of Mexico that caused the United States' worst ever oil spill, the British company will swap a 5% percent stake in BP for a 9.5% stake in Rosneft.

The blocks, in the Kara Sea, are the size and have the prospectivity of the UK North Sea, the companies said, implying a 60-billion-barrel prize.

Chris Huhne, UK secretary of state for energy and climate change, welcomed the "groundbreaking" deal and called it "good news for Europe, for the UK's energy security and worldwide".

But the deal immediately raised concerns about US economic security from American lawmakers and criticism from environmentalists.

US Congressman Edward Markey, who is the top Democrat on the House Natural Resources Committee, immediately called for a review of the deal by US regulators to see whether it affects the national and economic security of the United States. He noted that in 2009 BP was the top petroleum supplier to the US military.

And Republican Congressman Michael Burgess, who is on the House Energy and Commerce Committee, also said the deal "deserves some analysis and scrutiny" by the government's Committee on Foreign Investment in the United States given BP's ownership of critical oil assets in the US.

Environmental group Greenpeace, noting the fragility of the Arctic, also lashed out.

"Now BP has bought its way into the Arctic by the back door. It seems the company learned nothing last year in the Gulf of Mexico," Charlie Kronick of Greenpeace said in a statement.

Unloved project structure

The Rosneft joint venture will not own the oil blocks but merely a right to develop them, echoing a structure Gazprom agreed with France's Total SA and Norway's Statoil for the development of the Shtokman gas field.

Yet little progress has been made on Shtokman, which sits in the Barents Sea, since the deal was signed in February 2008, partly due to weak gas prices.

Oil companies traditionally dislike structures that deny them ownership of reserves as it limits the upside from high oil and gas prices. Nonetheless, BP's track record suggests it can make a success of them, even where others think otherwise.

Risks remain

BP says Russian oil taxes – which give the government 90% of the upside on oil prices above $30/barrel – makes developments in Russia's Arctic waters uneconomic.

The government has said it will review taxes to foster investment, which is key to avoiding a big drop in Russian oil and gas production and a subsequent fall in government revenue.

BP CEO Robert Dudley said the deal could pave the way for further opportunities in the Russian Arctic and for downstream co-operation in European refining.

BP's reputation in the United States could also be further damaged by the deal. It has already been questioned by US congressmen. And its experience in Russia shows deals often do not offer the upside envisaged.

(EURACTIV with Reuters.)

At a joint press conference with BP CEO Robert Dudley, Russian Prime Minister Vladimir Putin said that his country was aware of the ecological disaster BP had caused in the Gulf of Mexico, but cited a Russian proverb, "one person who has been beaten up costs more that two who haven't".

Putin said that his country would create "the most favoyrable tax and administrative regime" for the joint venture, the Russian press reported.

The BP-Rosneft deal was criticised by UK Labour party leader Ed Miliband as well as environmental campaigners, the BBC and the Guardian reported.

Miliband said that the deal was "worrying", since it came at a time when the British company was still trying to recover from an explosion on its rig in the Gulf of Mexico which killed 11 people and caused the worst environmental disaster in US history.

"I'd be pretty worried about this," Miliband told the BBC's Andrew Marr Show. "I think the lesson of the Deepwater Horizon, the Gulf oil spill, should be that […] the task for all of us, private companies, government and so on, is not to just keep digging and digging deeper and deeper for oil. It is actually to find those alternative forms of energy that can help us move forward in a clean way."

BP was branded the world's "environmental villain number one" by Friends of the Earth, the Independent reported. Environmentalists are dismayed that BP has decided to set up rigs in an area of great biodiversity and treacherous weather conditions.

Mike Childs, head of climate change at Friends of the Earth, said: "BP, a number of years ago, were positioning themselves to be the greenest of the oil companies, promising to go 'beyond petroleum'."

"This latest move positions them quite nicely as environmental villain number one, given the huge impact they had in the Gulf of Mexico as well," Childs was quoted as saying.

John Sauven, executive director of Greenpeace, said: "BP has done little to address the issues raised by the Deepwater Horizon disaster, while last year the Greenland government refused to grant drilling concessions to the company because it wasn't convinced BP has rigorous enough safety. Now BP has bought its way into the Arctic by the back door."

"Oil is already being drilled in the Arctic, in Alaska – but this is now going into pristine wilderness areas," Sauven said.

"As a society, we either deal with the demand and the efficiency of our transportation system, or we will go to more extremes to get supplies in places such as the Arctic," he added. 

The resource-rich Arctic is becoming increasingly contentious as climate change endangers many species of the region's flora and fauna but also makes the region more navigable. Up to 25% of the planet's undiscovered oil and gas could be located there, according to the US Geological Survey.

No country owns the North Pole or the region of the Arctic surrounding it. The surrounding Arctic states of the USA, Canada, Russia, Norway and Denmark (Greenland) have a 200-nautical-mile economic zone around their coasts. 

In August 2007, a Russian icebreaker reached the North Pole and a Russian mini-submarine planted a titanium Russian flag on the seabed there. The move was widely interpreted as a bellicose claim by Russia to the North Pole seabed and its resources. 

Last September, 175,000 square kilometres of previously-disputed territory was finally carved up between Norway and Russia, after 40 years of negotiations with regard to exploiting the area for its oil and gas drilling potential.

In the meantime, the European Commission is engaged in an effort to toughen rules covering accident prevention and liability for offshore oil drilling in response to BP's Gulf of Mexico spill.

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