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Sakhalin success

Print edition : Jan 12, 2007 T+T-
V.I. Trubnikov, Russian Ambassador, handing over a sample of Sakhalin-I crude to Petroleum Minister Murli Deora in Mangalore on December 2.-

V.I. Trubnikov, Russian Ambassador, handing over a sample of Sakhalin-I crude to Petroleum Minister Murli Deora in Mangalore on December 2.-

India receives the first parcel of its share of oil from the Sakhalin-I project.

IT was a moment of great pride for the Oil and Natural Gas Corporation (ONGC) and its subsidiary ONGC Videsh Limited (OVL) when the Russian Federation's Ambassador to India, Vyacheslav I. Trubnikov, handed over a decanter of crude oil from the Sakhalin-I project in far-eastern Russia to Petroleum Minister Murli Deora at Mangalore New Port on December 2. The bold decision taken by ONGC/OVL in 2001 to go in for equity participation in the production of crude oil from the inhospitable Sakhalin island had finally paid off. OVL invested $2.7 billion in that project, the largest investment made by any Indian company abroad.

Sections of the oil industry and the media had ridiculed it then, calling it a "foolish" step. Sceptics had wondered if returns from the project would justify the mammoth investment and how the crude and gas would be transported to India from Sakhalin, considering the distance.

As if in answer to such doubts, the Russian vessel mv Viktor Titov lay berthed at New Mangalore Port - it had reached the harbour with 6,72,000 barrels of crude from Sakhalin. This was the first parcel that India received as its share from the Sakhalin-I project. Capt. Vladimir Popov of Viktor Titov said he had made the run from the Sakhalin island to the Mangalore harbour in 16 days. The crude was pumped to Mangalore Refinery and Petrochemicals Limited (MRPL), another ONGC subsidiary, for refining. The MRPL will receive another shipment of 6,72,000 barrels of oil from Sakhalin-I by December-end.

The Sakhalin-I project includes three offshore fields: Chayvo, Odoptu and Arkutun-Dagi. Exxon-Mobil, which holds 30 per cent equity, is its operator; the Japanese consortium SODECO has another 30 per cent; the affiliates of Rosneft, the Russian state-owned oil company, have 8.5 per cent and Sakhalinmorneftegas-Shell 11.5 per cent; and OVL 20 per cent. India will get oil and gas in proportion to its equity. Crude production began from the Chayvo offshore field on October 1, 2005 (Frontline, November 4, 2005).

Sakhalin-I was "a unique project on all fronts", said R.S. Butola, Managing Director, OVL. OVL's efforts in the last five years to tap the potential of Sakhalin-I for oil-starved India had not gone awry, he said. The arrival of the first tanker with the Sakhalin crude "is a demonstration of our capability" and "the goodwill of the Russian Federation", he said.

R.S. Sharma, Chairman and Managing Director, ONGC, praised "the brave oilmen" of India who worked in "extreme conditions of minus 40 degrees Celsius" in Sakhalin-I. He called them the "energy ambassadors" of India.

Butola explained that the shallowness of the Chayvo offshore field posed a major technological challenge; vertical wells were ruled out as a result. "This project is one of its kind in the world because we have drilled horizontal wells, which are over 8-11 km long, which is a world record," said Butola. Normal rigs including jack-up rigs could not be used. The rigs had to be specially fashioned. A rig from Alaska was refurbished and put to use in the Chayvo field. Besides, the rigs had to withstand the extremely low temperature. "So it is a demonstration of the state-of-the-art technology" in drilling, said Sharma.

Sakhalin island, a forbidding region, is situated in the Sea of Okhotsk. The Russians, the Japanese and the Chinese have fought over the ownership of the big island.

Yuzhno-Sakhalinsk, with a population of about 1,65,000, is its biggest town and has a railway station. It was originally called Vladimirovka and had a settlement of Russians. Later, it became the Japanese town of Toyohara. The town was named Yuzhno-Sakhalinsk in 1946. Russia annexed the region on January 2, 1947.

Alexandrovsk-Sakhalinsky, the district centre of the Sakhalin region, has one of the oldest Russian settlements in the region. It was "the centre of penal servitude and exile".

The famous Russian writer Anton Chekhov visited its main prison in 1890. The house where Chekhov stayed has been turned into a museum in his memory.

In the early part of the 20th century, geologists and geophysicists whom the Union of Soviet Socialist Republics (USSR) exiled to the Sakhalin island discovered the oilfields there.

According to current estimates, about 2.3 billion barrels of oil and 17 trillion cubic feet of gas can be produced from the Sakhalin-I project in over 40 years. Right now, production of oil stands at 1,66,000 barrels a day from the Chayvo field and it can peak to 2,00,000 barrels a day by early next year. OVL's share now is about 33,000 barrels a day and it will reach 50,000 barrels when production reaches its peak. The Odoptu and Arkutun-Dagi fields are yet to be developed.

Of OVL's investment of $2.7 billion, $1.2 billion was extended to Rosneft as a loan. The principal and the interest has been returned to OVL and so its investment in Sakhalin-I now stands at $1.5 billion.

Both Murli Deora and Trubnikov have ruled out India's participation in the Sakhalin-II project. India will also not be able to take part in the Sakhalin-IV and V projects. According to The Russian Energy Weekly, the Russian oil and gas industry news, British Petroleum (BP) and Rosneft will spend $700 million over the next five years to develop fields under Sakhalin-IV and V through a venture they set up in 2003.

The primary business of OVL is to prospect for oil and gas acreages abroad and produce hydrocarbons to achieve energy security for India. Today, it is prospecting for oil and gas through 25 projects located in 15 countries, which include Vietnam, Sudan, Russia, Egypt, Iraq, Iran, Myanmar, Libya, Cuba, Brazil, Nigeria, Colombia, Spain and Syria.

Six of its overseas assets are now producing oil and gas, or free gas. In Vietnam, OVL is getting revenues by selling the gas produced to electricity-generating utilities in the country. Sakhalin-I and the Al-Furat project in Syria are already producing oil and gas. Two projects in Sudan and one in Colombia yield oil. In Sudan, OVL has laid a 741-km-long pipeline to carry petroleum products from the Khartoum refinery to Port Sudan.