American companies such as ExxonMobil have been severely affected by the sanctions on Moscow. In September last year, ExxonMobil and Rosneft announced that they had struck oil at Universitetiskya-1 in the Kara Sea in the Russian Arctic, a region that is fast becoming a geo-strategic hub for Russia.

Under pressure from Washington, however, ExxonMobil has wound down drilling on the project and the company has said that it is facing a $1 billion loss on its investments in Russia due to the sanctions.

Inevitably, others are there to pick up the slack.

In February this year, the foreign ministers of India, China and Russia met in Beijing. The three ministers, Sushma Swaraj of India, Sergey Lavrov of Russia and Wang Yi of China, highlighted the potential for cooperation in oil and natural gas production, which raises the question of whether India and China could partner with Russia in exploring the mineral wealth of a fast thawing and navigable Arctic.

During Vladimir Putin’s trip to India late last year, it was thought that India would sign the first Memorandum of Understanding on partnering with Russia in the exploration of hydrocarbons in the Arctic, particularly the challenging off-shore regions. Putin arrived in New Delhi right in the middle of sanctions against Russia being tightened, prompting him to shorten his visit to less than a day. Many scheduled bilateral signings were left in limbo, including the one on Arctic oil and gas.

India’s interest in Russia’s huge oil and gas industry is not new, and the bilateral relationship between Moscow and Delhi may be the only definitive strategic partnership that India has with another country. In 2002, the state-owned ONGC Videsh (OVL) bought a 20 percent stake in the Sakhalin-I project on the Sakhalin Island in the Russian sub-Arctic North Pacific.

This became India’s first consortium investment in oil and gas outside its borders, and today the project is providing rich dividends for the company along with its other operating partners. In 2008, OVL spent more than $2.5 billion buying Imperial Energy Plc, a U.K. listed firm with energy interests in sub-Arctic Siberia. However, the investment has been an underperforming one due to the fall in global oil prices, low output and high taxation by Moscow.

Both India and China are now permanent observing members of the Arctic Council. While mostly ceremonial, this illustrates how the two Asian economies are spreading their wings in unlikely places. While India still maintains that its interests in the Arctic are largely scientific, China has taken a more assertive stance, referring to itself as a “near Arctic state.” It is reportedly building up to 12 new specialized ice-breaker ships for use in both the Arctic and Antarctic.

China’s CNPC and Rosneft already have a 25-year oil-for-cash agreement which could also include certain fields in the Arctic. Even as media reports portray the region as a “race” between Arctic states to stake claim on the mineral resources, the jury is still out on how lucrative and viable the Arctic is for exploration and production companies.

Iceberg ahoy

Many researchers suggest that global oil companies will not look toward the Arctic as a mass production region just yet.

Garca Ermida, of the Centre for Military and Strategic Studies at the University of Calgary, in Canada, suggests that companies vying for what is possibly the biggest asset in the Arctic — natural gas — would still pick the political risks involved in extracting in places such as Iran, Qatar, other Middle East and North African states, as well as in sub-Saharan Africa, rather than the Arctic.

The challenges of the Arctic listed by Ermida include inaccurate geological data; unreliable communications; and the melting of polar icecaps sending large floating icebergs adrift (other researchers dispute this point saying technology, while expensive, is available to tackle this issue); along with a general harsh operating climate.

The question that arises next is whether India and China, whose 2.7 billion people have a voracious appetite for energy, but which also share a contentious land border and harbor a mistrust of each other, can cooperate on international economic deals such as those in the oil and gas sector. The answer is yes, and they have been doing it successfully for a long time in the Middle East and Africa. Indian companies along with the Chinese have been part of oil consortiums in Sudan and Syria, with the latter investment being temporarily abandoned due to the civil war in the country.

India’s Minister of Commerce and Industry, Nirmala Sitharaman, led the Indian delegation to the St Petersburg Economic Forum in June, and one of the first industries she highlighted for Indo-Russian investment and partnership was oil and gas.

Even as ties between Delhi and Moscow have suffered setbacks in recent years — with the end of the Cold War and India’s increasingly close ties with Washington altering old strategic calculations — there is a renewed effort to bring the historic relationship back on track. Partnering with China, which would bring in both financial heft and a technological edge, could be a win-win situation for all three nations. That is the view in New Delhi, Moscow and Beijing, and the energy world is taking notice.

Source: www.politico.eu

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