Oil field options in Russia's Arctic Circle
With high operating and development costs surrounding many offshore Arctic fields, profit can only be achieved with decreased state taxation rates under current market conditions, says an analyst with research and consulting firm GlobalData.
Domagoj Baresic, GlobalData's analyst covering Upstream Oil & Gas, states that the interplay between potential profit gains and high costs will likely be most evident in the Russian Federation, which has a strong state policy of developing upstream resources in its untapped Arctic frontier.
According to GlobalData, Russia has 27 confirmed offshore oil and natural gas planned fields in the Arctic Circle, some of which are among the last undeveloped large fields in the country, boasting more than 100 million barrels of oil equivalent.
In Russia, developers pay mineral extraction and export duty taxes dependent on oil prices and currency exchange rates, resulting in the state take reaching 90 percent of total revenue.
“While operating and development costs cannot be significantly reduced, the best hope for turning discoveries into profitable producing fields is by decreasing state take through tax alleviation,” Baresic says.
“Projects such as the Prirazlomnoye field, which is expected to begin production in early 2014, could not have been developed without such tax alleviation, which was achieved mainly through reduced export duties and applying Mineral Extraction Tax (MET) relief.”
Currently, a 50 percent reduced export duty applies to oil produced from Prirazlomnoye, and since the field is located north of the polar circle, the first 257 million barrels of oil will not be subject to MET. These tax incentives are projected to reduce the state take from 90 percent to 50 percent and increase the Internal Rate of Return from 2 percent to 11 percent.
“However, even with extra incentives, many fields in the Arctic could prove unprofitable under the current fiscal regime, giving rise to the possibility that the entire present system of tax alleviation measures might be reconsidered in the future,” Baresic says.
Hydrostor receives $4m funding for A-CAES facility in Canada
Hydrostor has received $4m funding to develop a 300-500MW Advanced Compressed Air Energy Storage (A-CAES) facility in Canada.
The funding will be used to complete essential engineering and planning, and enable Hydrostor to plan construction.
The project will be modeled on Hydrostor’s commercially operating Goderich storage facility, providing up to 12 hours of energy storage.
Hydrostor’s A-CAES system supports Canada’s green economic transition by designing, building, and operating emissions-free energy storage facilities, and employing people, suppliers, and technologies from the oil and gas sector.
The Honorable Seamus O’Regan, Jr. Minister of Natural Resources, said: “Investing in clean technology will lower emissions and increase our competitiveness. This is how we get to net zero by 2050.”
A-CAES has the potential to lower greenhouse gas emissions by enabling the transition to a cleaner and more flexible electricity grid. Specifically, the low-impact and cost-effective technology will reduce the use of fossil fuels and will provide reliable and bankable energy storage solutions for utilities and regulators, while integrating renewable energy for sustainable growth.
Curtis VanWalleghem, Hydrostor’s Chief Executive Officer, said: “We are grateful for the federal government’s support of our long duration energy storage solution that is critical to enabling the clean energy transition. This made-in-Canada solution, with the support of NRCan and Sustainable Development Technology Canada, is ready to be widely deployed within Canada and globally to lower electricity rates and decarbonize the electricity sector."
The Rosamond A-CAES 500MW Project is under advanced development and targeting a 2024 launch. It is designed to turn California’s growing solar and wind resources into on-demand peak capacity while allowing for closure of fossil fuel generating stations.
Hydrostor closed US$37 million (C$49 million) in growth financing in September 2019.