Rosneft, Russia’s biggest oil company, has started holding meetings with foreign contractors and suppliers for the project, which is valued at up to $170 billion.
The project is expected to employ hundreds of thousands of workers, create 15 industry towns and build around 800 km of new pipeline.
Given the ongoing renewable energy boom and predictions by the likes of BP that global oil demand is unlikely to recover to pre-pandemic levels, a natural question arises:
- why is Rosneft implementing such an enormous project at a time when much of the West is planning an exit from fossil fuels?
Its economy is thus heavily reliant on oil export revenue, and Russia’s long-term prosperity as an energy superpower depends on the prolonged stability of oil prices and the global demand for Russian oil.
It’s unsurprising, then, that even as blocs like the EU outline plans for an emissions-free future, Russia believes fossil fuel demand will continue to grow in the medium term and Russian companies such as Rosneft are not winding down their production projects.
The oil giant aims to begin shipping oil from the Vostok project as soon as 2024 via the Northern Sea Route.
It is estimated that the project could produce as much as 30 million tonnes of oil in 2024, and annual production could reach 100 million tons by 2030.
Theoretically, the project could compensate for the gradual depletion of Russia’s existing oilfields in West Siberia and allow it to maintain its oil-driven income.
This would naturally require sufficient oil demand around the world, at a time when much of the West is focused on the transition to renewables.
Rosneft CEO Igor Sechin has argued that there is plenty of demand to support the project.
During a panel session at the recent St Petersburg International Economic Forum, Sechin pointed to the manner in which oil demand is bouncing back rapidly in the wake of the pandemic, arguing:
- The long-term stability of oil supply is at risk due to underinvestment
In a recent announcement that was largely overlooked by the international press but could nevertheless have huge repercussions for international energy markets, China said it would drop wind and solar subsidies.
Chinese energy experts also recently drove home the message – a troubling one for the environment – that Beijing doesn’t see a swift energy transition as a realistic path.
Dismissing the IEA’s zero-emissions pathway as failing to differentiate between developed and developing countries, the experts said China would have to match energy demand growth with renewables, while relying on fossil fuels to fill the supply gap.
Beijing’s willingness to place its economic ambitions over environmental concerns is likely, therefore, to drive global oil demand in the medium term.
Even after fossil fuel demand eventually peaks in the transport sector, China’s rise as a petrochemical powerhouse and the growing demand for plastic worldwide go a long way towards explaining why projects like Vostok Oil are still of great importance.
Indeed, China’s economic policy suggests that Russia could be less susceptible to oil price shocks than previously expected in the short to medium term.
Stable oil demand and investments in the new project could also allow Russian companies some time to fill the vacuum being left by other oil giants, such as Shell, which are shifting away from fossil fuels.
A more complicated question is how long China’s economic growth can support parallel growth in oil demand as many countries accelerate their long-term transitions to green energy sources.
Vostok may be a sound investment, but could it be the last of its kind?