For both Western majors and the emerging world’s national companies, the Arctic is the hottest spot on the planet. A good place to meet?
In the icy waters of the Russian Arctic, a cold war is heating up. Alliances are being drawn, the rhetoric grows bitter, and obscure rulings seek to intimidate agents of the enemy. Yet this time the protracted conflict does not oppose Russia and America; it puts face to face BP and ExxonMobil, two Western oil majors anxious to secure a share of the possibly largest remaining fuel reserves.
Clearly BP has lost the first battle, and in humiliating fashion. Earlier this year the company had agreed a share swap with Rosneft, the Russian state oil group, in a partnership to develop Arctic exploration. The deal collapsed, and BP’s Arctic ambitions were being held in limbo. But this week Exxon, in a strategic coup, stole the bounty by sealing an alliance with Rosneft - and on better terms than BP originally did. A bit more than a year after its inky disaster in the Golf of Mexico, it looks like BP’s being cursed - and Exxon blessed.
Yet the big winner here could well be Rosneft - and Russia. The company may not be getting shares in Exxon this time, but it will benefit and learn from the technology of the world leader. And it will be offered a joint venture role in exploration projects in the Gulf of Mexico, where it will observe further Exxon’s operations, particularly in ‘tight oil’. A lot of Russia’s own oil is indeed ‘tight’ - trapped between rocks and hard to pump up to the surface - and so far it has lacked the skills to extract much of it. Plus Russia will get other goodies as well, including the creation of a R&D centre in St Petersbourg.
All scores settled then, what do we learn? Well, we learn that despite their growing power and economic clout, national oil companies of emerging countries like Petrobras (Brazil), Pemex (Mexico) or Saudi Aramco (Saudi Arabia), are still in need of the technologically advanced Western majors’ expertise. They might have risen to a high degree of technological aptitude, hold three quarters of the world’s reserves at home, and deploy an increasingly aggressive strategy abroad, but are still unable to go it alone. Especially as untapped reserves are increasingly challenging and costly to extract, in the form of shale gas, tight oil, deepwater fields and the likes.
Outside Russia another example this week was that of Pemex, seeking to invest in Repsol to gain skills in deep water extraction. So maybe the clash of the oil titans may be for a bit later after all, as in the meantime we’re likely to see more instances of cooperation.
We also learn that relations between Russia and the US may finally be set to improve. The deal is backed by the Kremlin, and greeted by the White House. Yes, the current deal is still fraught with risks, and without a share swap both parties can turn their back overnight. But digging under icy waters together will help a welcome thaw in frosty relations.