THE KARA SEA: A SOVIET OIL RESOURCE FOR THE TURN OF THE CENTURY(GI 88-10032)

Created: 3/1/1988

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The Karaoviet Oil Resource for the Turn of the Century

A Retrarck Paper

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The Karaoviet Oil Resource for the Turn of the Century

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OGIof Soviet Analyii*.

Comm ena no Qucnc* may be directed to the Chief,

The Karaoiicl Oil Resource for (he Turn of the Century

Note

Research Paper assesses the petroleum potential of the Kara Sea and describes the methodology used in this assessment and other assessments of virgin exploration areas. Like the Barents Sea, tbe Kara Sea is an oil frontier that could figure in Soviet oil exploration strategies duringnd into the next century,new discoveries in more bospttablc onshore areas rjcconic less likely and more expensive

paper is theby its nature the mosttheon Soviet Arctic oil frontiers

*

The Karaoviet Oil Resource for the Turn of the Century

iVwiaiA*uafll lanaaer (Ml

trd ia thit rtpott.

Kara Sea could become one of the major petroleum regions in the USSR early in the next century. We estimate that recoverable oil resources in Ihe Kara Sea amount toillion barrels, roughly double (he provedat Alalia's Prudboe Bay. If developed, these resources could in principle support productionillion barrels per day) -about one-sixth of cuircnl Sovietnearlyears. Of tbe remaining oil frontiers in the USSR, only the Barents Sea and perhaps the Caspian region appear to have higher potential

oil production in established areas falls and new onshore oil becomes more difficult and expensive to find, tbe Kara Sea could play an increasingly important role in Moscow's; oillthough the adjacent Barents Sea will clearly remain tbc primary site of Soviet attempts to Up Ihc oil potential of the Arctic continental shelf, we believe Ihe Kara Sea will be neat on the Soviet agenda. Lagging activity in theby five toears. Given the environmental harshness of the Kara Sea and limited eiploralion activity thus far. we sec little likelihood that this area willignificant source of oil until around the lum of the century.

Many factors indicate that development of Kara Sea resources willlow and difficult process This region is one of the most severe and remote environments ever considered for drilling, and the Soviets will have to overcome serious financial, technological, and logistic problems to bave any chance of success Drilling activities in lhc Kara will be more ei pensive than in any currently producing petroleum region in the USSR and could exceed the coats of US and Canadian operations in the Beaufort Sea. The Soviets will need to acquire Western rigs specially designed io withstand ice forces and temperature stress and will hare loupport infrastructure mote efficient than any they have assembled to date- Down the road, produclion activities will be inhibited by high cosl and by distance from major ports and pipelines

The circumstances thai male the Karaoreboding exploration area to the Soviets also make it an excellent candidate for joint ventures with Western firms. US and Canadian oil companies have been operating in the Beaufortarea environmentally analogous to the Karamore thanears and are world leaders in drilling and production in ice-covered waters. Although ihe competitive position of Scandinavian and

Weil European companies is escellenl for join" venture* in lesinonethelessarea* such as ihe Barenli Sea. Northfirm* could be lhc major competitors for Kara Sea joint venture* if the Soviets open the area for Western cooperation. From the securitythe area is not nearly as militarized as the Barents and is so remote that the preaence of Westerners would pose little threat lo Soviet culture or national interests Nevertheless. Moscow will be forced to weigh iu naval securify concerns against iu economic need to develop potential Kara Sea oil resources.

Kara and Barents development could mean billions of dollars ia trade between the USSR and the West over the next several decade* Evert if the Soviels decide to go itno >oiBt ventures and no Wesiernwould still have to spend enormous amounts erauiprnent. control systems, and consulting services. Any effort to restrict such purchases for the Kara Sea would reinforce ihe Soviet'sear lag behind tha Weal in Arctic offshore expertise. Rather, we believe Moscow may consider some form of joint venture arrangement to speed up (he replenishment of its reserve base with Arctic discoveries before the turn of the century. Increased trade would live Moscow more political clout, esrx aatry if Soviet Arctic cVeveSopmentarge share of the worldwide oil services and equipment business targeted to harshJoint ventures, in particular, would give Moscow some importani new economic leverage as Western companies sought lo protect their equity investment in Soviei oil prospects

J

Note

Af Clicoviei Oil Frontier

Petroleum Potential of tbe Kan Sea

and Geographic Setting

Is favorable

Factors; Tough but Possible

for Kara Sea Development

the Early Stages

Joint Venture Candidate

For the USSR

For the United States and the West

The GeochemicalA Tool for Assessing New Oil Areas

The Beaufortuideara Sea Development f

The Karao.iel Oil Resource for (he Turn of Ihe Century

Tbebelargest oil producer. Accord' ipf to opentoduciiontoS million barreli per day)0 percent of lhc world's oil output. Oil currently accounts for about one-third of Soviet domcsix energy use and abouterceni of all noamtlitary hard currency trade earning?

Despite tbe sire of tbe cal industry aad the supporteadership determined lo maiaiata osrrcal ptodoc-troo levels, ibe Soviets "ill be hard pleased to discover enough new oil to hold reduction up throughnd beyond. Although many factors arc at play, the core of lhc problem Ilea in nroduc.ng oil faster than new oil can be discovered Some signs suggest the Soviets are already in thit situation:

analysis indieaiea that produciion is declining inf Ihe USSR'sil-producing regions.

Alter decades of uninterrupted growtb. prcd action has been essentially flat for Ibe laat seven years, hovering between roughly3.recursor to production decline in most world eal industries (figure IV

produclion aa West Siberia- ikeof tbe Soviet oilincreasingwe believe the Sovicu have already found the largest fields in this region, aad ne* beads are geologically more onmidej, smaller,ciore expensive to develop.

Seemingly aware of this growing problem. Moscow ha) significantly incteaied investment allocations for oil exploration during the cuirem Five-Year. We believe thai. In ihe neai fulure. ihe Soviets will continue to devote the lion's share ofthcir

Figure 1

USSR

Sibena

Soviet Oil Production. Selected Years

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rVrlimiaary

exploration budget to onshore areas, notably West Siberia and as area known as the FVe-Caspian Basin. Soviet statements and recent drilling in the Batents Sea, however, suggest Ihat developmenl of tbc oil potential of the offshore Arctic regions will play an increasingly important role la Ike Soviet energyfornd beyond

QUALITY PAGE

-SecrtT

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Mallow's Other Oil Exploration Priorities

production declining in most of the Sovietstablished oil regions, Moscow will need to increase effortsumber of areas to maintain oil produclion. These will Include greater efforts lo exploit:

Untapped oil. Getting more oil out of existing reservoirs -ill require new. expensive, andtechnologies, probably from Ike West.

Untapped fields. Substantially increased drilling in existing oil provinces, especially West Siberia, has already been mandated by Moscow.

Untapped provincts. Exploration In frontier regions such as the Arctic offshore could ttneover huge new reserves, bul the process will be slow and expensive, requiring substantial amounts of Wesiern technol-

Besides Ihe Arctic offshore regions. Moscow Is also devoting more attention to onshore exploration in areas that would have more near term potential:

West Siberia. Afterears of produclion.continued production growth In West Siberia Is becoming Increasingly difficult and costly.

Gorbachev Indicated lhai the reserve-lo-produelion ratio had fallen to the industry'sesult. Moscow Is sleeping up exploration in Ihe region and plans lo double the amount of exploratory drillingrom ihe level achievedVcmtlheless. we believe thai the basic trend In oilfieldmore complicated, ond less productivecontinue.

The Caspian Region. We believe ihe Soviets will devote an Increasing amount ofhe Pre-Caspian Basin. Hopes that this region may be on oil bonansa In, however, may be overly optlminte. The geological conditions of the newdepth, complicatedcorrosiveforcing the Soviets lo annually0 million of Western drilling and well-completion equipmeni. Even wilh this equipmeni. Soviet drillers are taking onealf lo Iwo years loell, compared with aboul six months for completionomparable well In the United Statu. Moreover, ihe Sovieif have experienced drilling disasters In ihe region, including toxic gas leaks, explosions, ond loss of life

Arcticotlel Oil Frontier

We believe lhat Moscow will be forced to consider trading off iu curreni low-risk/low-potential csplora-tion drifting in established areas for higher risk/ higher potential opportunities la frontier regions. fix-cept for the potentially Urge el resources of the Caspian Sea region, we believe the Arctic continental shelf is the USSR's most significant oil frontier. The geology and sheer size of the shelve*-two of the world'sthe Barents and Kara Seas suggest that both regions could be among the largest offshore petroleum provinces in the world. We have alreadyechnical assessment of the oil potential of the Barenu Sea. indicating the'BatenU

may hold aboul JO billion barrels of recoverable oil-placing it in the same league as the North Sea. Favorable geological characteristics alsoa Urge oil potential in the adjacent Kara Sea

Tbe Petroleum Potential of the Kara Sen

Situated directly north of the prolifie West SiberUn Basin, the Kara Sea is aexploration target. Our analysis indicates that it shares several geological characteristics wiih both the West Siberianof the world 'a largest oil

Start'

Dcrtopments Im Ike Barents Sea

The Sovieu began serious ditlltat of 'he Barents In Ihe, resulting I* an oil discovery on Kolguyev Island lhat the Soviets have developed with alarming speed, even though Us production amounts

iny fraction of ihe Soviet total. More recently, the Soviets have claimed three gas finds along the northern coast of the Kola Peninsulaossible discovery In the Pechora Rl*er delta.the amounts of hydrocarbons Involved are not known, our recent geological analysts estimated ihe

poitnllal of Ihe Soviet portion of ihe Barenii Sea at aroundillion barrels, roughly equivalent lo currently claimed reserves In Abun8 billion barrels of potentially recoverable oil may lie in the Disputed Zone, which straddles ihe competing Norwegian and Soviet boundary tlolms

There ore strong indications, then, thai the Barents Sea could hold enormous amounts of hydrocarbons. The eeonomie significance of ihis possibility,depends on the disco-very of accumulations that ore sufficiently large to develop. To date, ihe presence of oil or gas In such quantities has been proved only on Kolguyev Island. Even though the Soviet press reported lhat one of ihe finds off the Kola Peninsula held enough gas lo supply all of the northwestern Soviet Union, the chances lhat the Savins would develop ll are slim given their huge, more accessible

onshore gas resource.1

aemiba cf poHaifol offta thifa. tn* CISt-IOOiltSitTtJuly

IMS. TW Oilat Ik* Blirtliuture Swt

bearingIbe potentially oil* rich Barents Sea. Bated on our geological and geochemicnlof tbe Kara Sea. ne believe it may holdoil resources of aboutillioa barrels.resource estimates in undrilled. litile-known basins such as the Kara Sea arencertainty, we are confident that;

There ismall chance that recoverable oil resources in the Kara Sea are as small as proved reserves at Alaska's Prudhoebillion barrels.

There it an cscctlcnl chance that potentiallyresources arc aboutillion barrels,equivalent to curreni proved reserves in Libya.

There is an outside chance that potentiallyoil resources could approach those of the Northbillion barrels or more

The location of these potential oil resources is almost equally divided between the southern postion of tbe Karaeast and south of Novayathe rrorthcen portion, which stretches north and west from tbe Bynangavailable infer-ma lion is insufficient to further pinpoint prospective oil bearing areas or to estimate the size of potential oilfields within theseut numerous oil basins and foldbell* within the Kara Sea continental shelf are likely to contain ihe necessary straiignphie and structural ch iraCTeTistic* to act as oil reservoirs. Although it is prematureeculate on ihe exact locations of oil in theecent gas discovery on Belyy Island, situated near ihe center of the Kara Sea. confirms thai hydrocarbon* arc-present farther north than was previously thought

Because of tbe severe environmental conditions in tbe Kara Sea and ill remoteness from established supportny effort io develop the Kara will entail enormous invest men is. Allhough we do not know what tbe Sovielsinimum held size to warrant development, discoveries in geographically analogous regions, such as the Canadian Beaufort Sea. must hold atillion barrels forto be economically feasible. Our analysis indicates the Kara Sea containsillion barrels of oil inesource bate large enough 10

' For the paososcs of thisat atvioad th* Un Sea into a

ind iwhcrti nan byine trem the fortbem Up

oT KovayaloaboM tlx mlddk ot the Taynaya Ptafcasula. This OiYisk."Mlh fcefrafky aadfCBfap'-'callr.he ha* teuih ta* vtiiek there ia IrasOparcaat

preOobiHiy of lr<<ice iaally. ll is reagMy contitims wh tW Burieddbdt dividtag ike

ilk cnulncnial shelve

Secret'

(he possibility of several fieldi of thishe minimum threshold foe dcvcropoieni may betower in (he southernmost portions of the Kara, such as Baydaiaiskaya Gulf, where vciy shallow water and relatively mild ice conditions lessen the design lequiccmcnu of eiptorstion facilities The threshold may also be lest in Ibe farthest northern reaches of the Kaia between Franr Josef Land and Severnaya Zcmlya. In this area, the peimaneat io pack Decides atoundation at solid giouod. making tt possible to place drilling rigs above the ice and (educing the requirement for ice resist am designs and engineer ing Because transportation of oil would be veryhese regions, however, minimum field size would nitl be inill-in-barrcl range. Fields of this lire arc eaansidcred very large by world standards, bet wc believe the chances are good thai some reservoirs in the Kara are rd" this

Geologic and Geographic SettingrsMe

The Kara Sea shelf coven panso major plain trial make op the earth's surface In the northern regions. The northern portion is geologically pan of tbe Ha rem Sea Plaie. ike southernwkh ibc prolific Weslontinental shelf thai citcndi from the Siberian Platform. Tbc dividing line between north aad south is calved Ibe Buriedeological feature lhal stretches from ihc northern end of Novayaouthwestern Taymyr Peninsula (figurehe till is probably an ealension of tbc Ural Mountain* and Nrwsyaividing line bet-era the Bait ic-Barcnts Plates to the west and the Siberian-Asian Plates to the easi

Soviet and Western geological btoatarc lesnacaics thai ihe Kara Sea conn ini the three major factors necessary for ihe generation and storage ofrocks, traps, and seal*:

rOain*tMC alt* MH^dHHl*hal <art> lam krone oilfiilfeikIikhiI eet ihr miII acxi b> nwnirt (in

believe lhal source rocks in ibe northern Kara are similar in age and type to Ihose ia the Barents and thai source rocks in the southern Kara ax similarhoseIhe West Siberian Basin '

f bathymclrlc (sratloca) maps and technical literature indicates Ibe presence oflarge geological provinces thai could serve as sites for olbcaiiag struciuirs liippiag anyhydracarbont la ihe southern Kara, theseprovinces generally parallel ihe Urals-Novaya Zcmlya-Buried Sill, treading north-floribweal In the sevtbernmos; portion and changing to cast-west loward tbc center uf lhc Kara. In the nonbcin Kara. Ihe trend reflects the rut of the Barents Sea Plate, roughly parallel to Novaya Zcmlya In the western part, changing to broad and aonb-snuih trending ia the center and neaibcrn pan.

* We have little information on tlir quality of sealing locks, which are necessary to hold the hydrocarbonshe reservoir. On tbc basis of Soviet success in the far northers onshore portions of lhc Wort Siberian Basin and siratigrapbic dataew points around Ihe Kara, however, wc believe thai effective seala eiill

Although technical ir.foir.alion ia acercc oa theliming of rock movemenU, faulting, andof source materials, we know Ibal the' geological province* have some characteristics ihat enhance iheir preapcett for storing targe amounts of oil Theanbei. uplifts, and basins in the Kara Sea are large, ranging up lo several Ihousand squaic aJlornelcrin area, or aboui the same as provinces in Ibe Barents Sea. Most geological provinces in tbe Kara have been stable for millions of yews, which lowen tbe possibilities of cat seepage and lost Some of Ihe provinces in Ihc southern Kara, such as tbc Yamal Sw<ll and the Nurminikiy Swell, arc probable off-shoee ei tensions of onshore trends wilh eaitlntg oil and gai production

'ewhcminlnw* In uhii-ingarea

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Fnilroaswalal Factors: Tough but Peflsibtt The Kara Sea occwpiace ihe lite ofentirely within the Arctic Circlel it bounded by Ihe Byrrangi Mountain* on ihe tail. Sever my* Zcmlya ind Frane Joatf Liad oa tbe north, Newsys Zcmlya on theand ibc rKarthero pUini of Westhe south. According to readily aviilable weaihei dati, the tea ii coinplelely coveted with ice from roughly November through April, and only in the southern portions does pack ice break upew nsonths in the late summer and early fill TcrnperilDres arc below frecDng foronths each year Average temperafor wind chill -rangen the southern Kara in summerC in the north in wimer With low temper itsometime*-ST'C and wiadttcoeds often reachingobe Kara Sea clearly poses icvcre climatic constraints to human activity.

Although inhospitable, the climate coneataoas ia the Kara Sea OO not prohibit petroleumor example, floating ice and severe temperatures are much greater problems In the Kara than In other Arctic offihore petroleum areas, but water depth* are wdl within reach of current drilling technologies, including Soviei technology. Water depths iu the Karaeters overall; by comparison, depths In ihe adjacent Barents Seaeters. The deepest water in which oil produclion has occurred iseters in Braol

Theem moat Kari Sea it cnvii on mentally ihc most favorable for petroleum development, given lis shallow water depths and relative lack of ice during Ihr summer months (figureaterilometers (km) of the coaillirtc are generally less than iOell within Western ind Soviei drilling capabilities Furthermore, while tbe Kiraever completely free of ice, Ihe loutberrtmoii eoasi is generally free of ice from about May to November But ihe short drillingto siawill constrain exploratory drilling In ihc southern Barents Sea. where ice is of little concern. It can still lakeonths or more to. even more lime would be required toell in the Kara

Environmcnial condiliont in ibc northern Kara Sea arc much more severe lhan in the soulh. Average lemperaiuiea rise above frcering for only one month io tbc summer, aad averagea ihc "ialei Winds ia excess ofnots arc frequent, and dangerously high seas occur during the one monlh when the sea surface is not frozen solid. Perennial pack ice dominates the far northern part of this region, and even in the summer the probability of thick ice ilerceni or more. Compounding Ihe ice problem is the generally poor visibility, especially during the summer months, which would Mriouty curb air rcsupply activities. Al Ostrov Vice, for example, visibilily isew km for K> percent of the lime or more, and for iwo-third) of ibe lummcr the sea experiences heavy fog. Poor visibilily can binder petroleum activity because iceibe breakup of pack ice. moving ice, the formation of pressureseriously threaten supply vessels and rigi

Given Iheac harsh conditions and lhc remoteness of tbe Kara Sea. wc believe the Soviets wall have to resolve some serious logistic support prrMctnt before significant oil developmenl can be undertaken in lhc Kara Sea. The mosi pressing problem is the lick of porls thai could serve as supply bases. Tbe closetl major port is Murmansk,m from Dikson As an analogy, using Murmansk as tbc base of operatsons foe Kara Sea driUissg would be similar to using Quebecase of operations for diilling off the southern coast ofajor port ia being built at Knarauvey on the wesl coast of the Yamal Peninsula to support devtlopmeiM pf onshore gasfteldi in ihe region, but it wiB not be fully operatioaal until ihendbe able to support khip activities forew months in the summer and fill. Outside of Murmanskay. only iwo minor pons- -Dikson andcould serve as resupply ind petroleum trartuhirstneni points The Northern Sea Route, which follows the Soviet Arctk coast from the Barents Sea to the Pacatk Ocean, connect! ihe Kara Sea with other resatpplr point! and oil uamshipment and prcceung faciiitiei. However, it only passes through thepart of the Kara, leaving the north isolated

aMc to Kara Sea dc-floreiKii

POOR^

Sea Ice Co noi lion, in (he Kara Sea

loreitlopnwiil In rba Early Stagn

In Ibe Kata Sea itery earlySoviets

have conducted seiimic surveys In the region,first step in an oil cif*xa1iOn programthey <rsH continue eooduciing geologicbeiier understand ihe potential of the Kara butyet focusing on where the most prospectivelie We cannot confirm that the Sovielstest wdls in Ihe Kara,

^ drilling rig previously operating ts ibe Barents wai movedhe Karats actrviiies have not been wined

The Soviei appeal lo b* al ihe lame siage in (he Kan at ihey were in (he Barentsecade ago Initial eiplor alien drilling uiing Western type drill ot ot atari ira ibe BarentsI I' Ibe urn paitcati brads in tbe Karaeasons drilling program is not likely to be mounted until thei ibe eat Ileal. In this case, we bdtoe any oil produclion from the Kara Sea would be highlyuntilfter the iurn of (he ceniury.

Jpcirt

our view. ih< overall pace of development of the Kara Sea mill ultimately depend as much on the amount of oil found there at on the degree of tuecciaSoviets have ia finding ne* oil cuunorc. Tie mott promising potentialrea, according to Soviet claimt. ti the Pie-Caspian Baiin.nter anon Iniea hai already resulted in ihe diioovery of levcral laric fields. Most notable among ihese Ii ihe Tengli field, whkh Ihe Soviets have lUted could become ihe USSR* third million-barrel-per-daySome ttatemenit suggest it may even rival la liu WestpergiaBt Samoilor head. The Soviet media has claimed thai potential oil reserves ia the Prc-Caipian Baiin could approach those ia the Volga-Urali oil province, whkh has producedillion barred sincelOt Although it is loo early to substantiate any figures for ihe oil potential of Ibeasin, our preliminary analysis suggest) that ibc region may be capable of producing upfter the turn of the century. If lhas estimate proves to be reasonably accurate, new oil from the Pre -Caspian Basin may be able lo help of set decline* in West Siberia and other regions In thli event. Moscowoed to move somewhat ilower on development of the Kara Sea. its large oil potentialala ndi ag

In some ways Ihc long-term nature of Kara Sea oal prospects mayenefit to Ihe Soviets. Kara Sea oil ton Id come onitream juti as production fromareas is seriously declining. Although new oil from the Caspian and possibly ihe Barents would add to Ihe USSR's production base during,oubt that the Soviets would be able to maintain tbe IfSOs level of production into the neat century The long lead time before any production from the Kira Sea begins also offers Moscow the opportunity lo eipctiment,anageable pace, wilh joini ventures ind other business arrangements wilh the West

view, this equipment will have to come from the West, ia one form or anoiher. and will require huge financial outlays by Moscow. The shorter drilling seasons in the Kara Sea will necetsilaie mora efficient logisticthan the Soviets have yet ekrnonstrated, covering such iienu as supply vessels, equipmeni stocks, fuel, personnel, and port facilities The Sovietso need more patience, because leudtimea fromto production could beear* or more

For these reasons, wc believeventuresSea offer an attractive opportunity to theThe joini venture isrelatively recentinternational businesses dealing withhas

quickly bocornc one of the rnosl talked aboui methods for using Western expertise lo cilrsei SovietThe joint venture decree passed by ihe Sovklshile ambiguoui on somebusinessgenerally designed loa maximum of foreignhisof joini ventures plays particularly well lo Soviet capital-intensive industries such as lhc petroleum industry. It may be significant ihat the first US joint venture under the new law involved an entity created by Ihe SovietsS company in7 that wiB upgrade Soviet oil redoing capabilities, iocrcasing hard currency ciporis by as much0on annually. Despite this exampee. Western firms remain skeptical about joint seaMures because tbe Soviets lately aocommodaie icane fundamentalrequirement! icgirding profiiaMny, marketing, and managementvert he'-ess. the Soviets appear lo be aggressively pursuing joini ventures, and we believe rSevilopenenii during the next decide could produce business terms much more attractive to Western companies. Including Ihose interested in ei pirating potential oil resource* in the Kara Sea

A Joint Venture Candidate

The Kara Sea Is one of tbc most challenging drilling and producing areas in the world. Drilling andwill require specially designed equipment suited for severe offshore Ice conditions, unpeedKtable subsurface conditions, and lemperalure stress. In our

'The new la* ii amtngvevs. but the basic ehj'acarrinieoint ventvreerceM ScMi/Woicra oaaenain, wall hard

CWrCKypfoTiU sabeeaiaed ihroaeh taecnicrtatu'icipoiUi lots*

Wai Bated oo ihe few ciampta so lar. iheutarv jointIs likely lobe easc-ancciltc. each one shaped by a

comblnailoa od Ibe ne" Soviei joint vtneatt-dl is Wmira and Scrtil bui inns and mi(intent aMneus

Tho Karaaa favorable tile for joint venture* fioen (he suisdpoint of Soviet security.oat* far fewer naval nuncuvcri than (he Barcnta Sea, aad no major mililary bases are in (be area. Although the Sovieto be leary of aay joint veaturca La laa Kara Sea thai wouldeil era pee*-eoee, wc believeesterner* la (he Kara(rouble the Krcralui far lea* lhan inert raeaence la ihe masensitive Barents. Not allowing Wealcra-cri In iblted posilions and matiaf errjcnt wovld dis courage Ike infosioo of foreign technology aad tise. and we believe Moscow woulday lo mollify (he uuliury's security oouccjm while clarify-jitf tnxjeims regulating (be presence of Westerners.

Western financial and technical invotvemcnl inSon couldoon Io lhc Soviets. Thein Ui re scale imports ofears ego worth hundreds of millionsa no dally bul would need Wlicn-doflarKara Sea djvesoranteni projects Canadianprvssdcd Arctk technology fairlynnnh firms West German. Italian,firms have also been infrequeni bulin the energy area. In ihe case of lhcPipeline lo Europe, these countriesof US (cch oology-export sanctions to fillUS firms. Allhough US companies arc aledge of Arctic petroleum technology, firmsother countries can deliver some similar moat of il derived froen US designsheense from US companies aod arcandlo do

"1

]inlarsd aad Canada n use bestto profit frora Soviet Arctk technologybut many other countries could crjauate including other Scandinavtan countries.pvrat Germ*-c fiance, Italy, and Japan

c

I uiFor the USSR

We believe the Sovieu will continue ciptorsliort work in (he Kara Sea, bulery slow pace. With (he bulk of future oil exploration budgets earmarked for more hospitable onshore ateas end offshore wort in (be Barents much farther along, comparatively little invesiment wilt be left over to devote lo ihe Kara Sea unlit well into the neat decade. Al ihis early stage est eipioration. however, only relatively smallwould be required For the next aeveral years, we eipoct Use Soviet* to continue cenducting scientific surveys to belter understand tbe petroleum potential of tbe Kara Sea and to identify specific area* wish the beat praspects We believe the Soviets could beositionent drilling program possibly within Ihe neat five years, bul the rare-gram would probably be on the same scale at the fairly small efTort that has been under way in the Barenti Sea1

We see little chance lhai Moscow will itcp upin the Kara, even If results in ibe early exploration stages help confirm lhat oil is present in the amounts we believe are pouiMc. Wilh some attractive eaploaaiion targets onshore, the Soviets may feel Ihey can afford lo bold aay possible new oil rrom the Kara in reserve until needed Wc believe Moscow would give higher priority lo ike Kara Sea ocaiy ia (hehai national pi eduction begins io worsen dramjiKally. aad if (he cat potential of ihe Pie-Caspian Basra and Baiea.li Sea prove* lo be much lower ihaa raow eerected

orted States and rtvr Want Eipioraticm and development of lhc Kara Sea could translate into potenlially billions of dollars of business for Wesiern firm* Allhough any financial estimates are speculative at ihis tomt,odest lesi drilling effort in the Kaia Sea would rexiuirc several hundred miltion doltaia worth of Western equipment, supply and monitoring systems, and design andservice

Gorbachev In Murmmmik; NATO Concession! for Soviet Oilt

In7 at Murmansk. Gorbachev presented the Nordic countriesackage of proposals that offers substantial economic opportunities forbut coupled with security initiatives distasteful to NATO. Although tht goals of Soviei policy in the area ore clearly linked to the region's geographic position as NATO's northern flank. Gorbachev framed tht proposalspole of peace" concept: although the Arctic regions hold enormous natural resources that could be Jointly exploited for ihe benefit of all nations, regional research and business ventures should be accompanied by ot least partial demilitarisation of the Arctic

The specific proposals covered several topics:

Military. The creationordic Nucltar-Weap-ons'Fret 'Zone INNWFZ) and restrictions on naval and air activity.

Economic. Joint exploitation of Arctic naturalond ihe openingermanent Ailantlc-to-Pacific Arctic sea route.

Scientirk/Social. Cooperation on research ofresources and Arctic processer. cooptratlon in environmental managtment. and Interactionpeoples

The Murmansk package ties old political problemshe possibility for new economic ond socialNone of the security proposals is new; NNWFZ. for example, was first broachedheSpeech was politically shrewd nonetheless In tryinginkage between securiiy and nonsecurlty Issues by supporting Scandinavianon environmental and economic concerns. But ihe linkage of issues clearlyroblem for Scandinavian leaders at they formulaic an official response. They must balance iheir legitimateInterests and tht political forct of theirconscious populations on the one hand, and their concerns about the Soviet military threat on the other. Initial response to the package accordingly ranged from noncommittal to lukewarm. The Finns, who would profit handsomely by Increasing their large trade relationship with the USSR, werefavorable. Norway, coot to Gorbachev'sand scientific proposals, stated that no decision on any military proposals will be made unill it confers with Us NATO Allies

Western companies would clearly be interested in supplyini the Soviei mac lei Competitionlice of the Soviet oil industry business will probably be fierce, and Moscow may have the luxury to pick and choose among many qualified suppliers.US and Canadian firms are recogniied world leaders in the types of technologies needed in the Kara and Barents Seas and can point to facilities already in place in the Alaskan and Canadian Beaufortan area analogous to the Kara in terms of ice conditions, climate, and distance from suppon bases. Unlike ihe Barents Sea. where military sensilivily would probably rule out any direct US involvement, USompanies would probably be on an equal fooling with other Westerners for potential business in (he

Al thou eh ihe Kara Sea appears to offer an epportuni-ty for ihe Soviets io experiment with joint ventures or engage in trade along conventional lines, there is always the possibility that Moscow wfll decide to go it alone. Using US and Canadian experiences in similar Arctic conditionsuide and considering the Soviets lack of expertise in thisolo effort would probablyevelopment cycle of aboutears from the first exploration cflortx to the production of commercial quantities of oil from tbe Kara Sea. With adequate Western assistance, we believe Icadiirnes could be compressed substantially and commercial produciion could begin as early as the turn of ihe centun

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Appendix A

Ccochf micalool for Assessing New Oil Areas

Tbe Kara Seairgin elaboration area, where aliening peiroleumies difficult analytical pioblems Detailed geological and gcc-phyl-ieil data aie limited lor aa area ea* itacb uie aad potential (tif aire S| Became of tbe pa-adit* ofdata fiom actual drilling, our analysis of tbe oil aod gai potential of the Kara Sea reliedot be mi-cal theory toramework for understanding tbe limited empirical information available

The primary clement of the methodology used wai gcocbenjiical analyiii of source rocLi. Thii analysis yields the likely volume of oil generated by, and CJpellcd fiorn. rocks lhat have proper gecxhemical characteristics BecausemaU pentrcsra of Ihe hydrrsrnrbons generated by lhc source recks will ultimately be recovered for commercial use, several steps are needed to arrive at aa estimate of the potential reserves of theeries of calculations is used to determine the likely amount of oil or gas generated by the source rocks that gathers inooncenI rations. This mechanism isto asnd results In what isrccogniied as anactor is then applied io ihe amount of trapped rait or gas, which reflects the best estimate of the rnsarataty lhat can be extracted economically from the oilfield al lie Ulciy time of calraction (figure 6,

The generation, ci pulsion, migration, and trapping of oil and gas arc very inefficient processes. Because of the enormous lengths of time involved millions or hundredi of millions ofevents, such as folding, faulting, fracturing, and erosion, canconditions in which lhc majority of any generated hydiocatboni seep lo lhc surface and escape, tot! forever for commercial purposes Foe cismptr. our geccbemical analysis indicates thai morearrels of cat have been generated by the source rocks in the Kara Sea; of this amount, we estimate that only aboulillion barrels can be recovered, orercent of the oil generated (table Ik

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Figure 5

Comparable Availability of Information

North Sea

Barents Sea

Kara Sen

history

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tod diu

Source Reck Deposition

ormed by ihe chemical decomposition of organic matter under the ianuence of heal. Thb organic matter is initially deposited along wrlh Ihe sediments that bier term rocks,called source rocks. Because of baiin subside nee and sea level changes over time, source rockfact, sediments of anyaceum'-'ale over very large areas and in great tbieknet

Tiblt I

l-Stinaled Oil Resouicea ia ibr Kara Sea

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id mi, on add io lhc unihIS* iminini icftcriled oil ii lan

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Source rocks an typically or gank-rich black shales or carbonates deposited under shallow marine eondiiions ihaichemical rc-formaiton after burial. The presence or absetsee ofne oi* ihe nsost importar* factors In this preen If present ai the time of depenition, oiygen quickly eliminates Use isotsrbiliiy of carbon and hydrogen jrnniag to form hydreea/borss (eril andhe oayten wiE combine instead with the carbon and hydrogen atomsto form caiboo dioalde (COJ, carbon rnorstusdc ftTOk and wateror ihis reason, teccbeemsls look for the occurrence of oiy|cn-poor cavironrnenU at the time of deposition, typically large Inland seal in which the water ii underaaturalcd wiih oiygcn.such eondiiions, the organicess likely lo

decompose. Our analysis indicates lhat significant source rocks were deposited in lhc KaiaSea. lhat ihey were not eroded away by later uplift, and that the Kara Sea experience-*environments in its geologic history *

North Kara

In the North Kaia. Iwo major source rocks are thought to taut. Upper Devonian shales, depositedillion years ago, arc believed io be similar to Devonian rock) in tbe Barents Sea and ihe Pechora Basin south of Novaya Zcmrya. Upper Jurassicshales and limestones, depositedillion years ago, are of equal importance. They are believed lo have characteristics so me-hai similar to -AiiBc Jurassic rocks of the West Siberian Basin.

A third source rock, frommillioo-ycar-old Upper Cretaceousresentot likely lo be an lirrportani potential source reck in the North Kara Sea. These rocks did not experience Ihegeochemical environmentroduce any hydro-car bens by the thermal process They may. however, conlributc significant amounts of otogenic gas. whkh is produced by bacterierJogical, not thermal,Biogenk gas is thought by many open* to contiibutc as much as one-half Ihe total gas reserves of West Siberia. Biogenic gas resources ia lhc North Kara could be rnl. but our analysis did not quantify ibom.i

Burlrd Sill

Because Ittructurally uplifted region, the Buried Sill' never accumulated the necessary sediments or attained the necessary depths to thermally generate hydrocarbons. In one exception, bo-cer. the Upper Jurassic source rocks present in thento the central portions of the Buried Sill, r

' TW tsseiot Sill itutavrfaet fcaaVh or riderpartially closed bulk rotWWyeiiewleai at ihe

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Buried Sill it much more importanttructural point of view lhanource rock perspective. Oecause of its proximity to both the North and Soulh Kara shelves and lis relatively high elevation within ihe basins, lhc Sill Itood position to trap any generated hydrocarbons, although wc do not have detailed information on whether favorable structures exist in thb legion.

South Kara

Two source rock units are present in ihe Soulh Kara. Our analysis suggests ibai mosi of tbe Upper Jurassic source rocks underwent an appropriate geochemical history. This source reck probably has characteristic* very similar to related onshore source rocks that are believed lo produce most of Ihe Oil in Ihe prolific Wesl Siberian Basin, In addition, the Crelaceous-age source rocks in the West Siberian Basin are believed to extend offshore Into the South Kara. They are rich in organic carbon, but the types of organic carbon arc not as ptone to produce oil as those in the Jurassic. Moreover. Ihe Cretaceous source rock* underwent appropriate geochemical processes onlymall portion of ibe Soulh Kara region. Therefore, like Ihe Creiaceous source rock* In ihe North Kara, these rocks are likely to contribute significam Quantities of biogenic gas rather lhan thermally generaied

Ilydiocarboo GeneraGeotherrnal History

The transformation of buried or tart ic mailer into hydrocarbons is at the core of our analysis. This process is extremely complex, but in virgin area* such as the Kara Sea. we believe analysis of the generation process is the roost reliable methodology for making resource assessments. Although technical data on Specific structures and rock strata are limited, enough geological information exitis to make reasonableof geochemical factors and to eslimate past geoenvironment!

Once organic mailer is deposited and buried, two factors afTcct lhc Iran*formation into hydrocarbons: temperature and llnv

Tcm pen luce

The complex molecular chains that make upprimarily of hydrogen, carbon, and oxygen, but including many otherdown, orhen subjected to beat. This process yields hsdrocarbons. simpler molecules eon-laining only hydrogen and carbon, as well as several byproduct, such as sulfurous gases. Our analysis estimated the temperature of the source rocks on ihe basis of the depth of tbe rocks and temperature profile* In Ibelr vicinity. Depth of the rocks was delcrmined from limited geological information fiom several locations In the Kara Sea. Tbe tempera lure profiles were based on beat-how measuremenis at Ihe same sites

Tim.

ufficient temperature is reached, organic hydrocarbons begin forming, but ibe process does not occur instanUneously.eneral rule, high tern-peralureshort time have an effect similar lo low temperaturesong lime. In either case, an enormous length of lime is involved in successfully forming any significant quantity of hydrocarbons. Depending on ihe tcmpcralure and Ibc type of organic material, ibe required lime can range from millions of year* lo hundreds of millions of years. For example, some of the most significant source rocks of the world-In West Siberia, tbe Middle East, the Norih Sea, the Gulf of Mexico-are of Jurassic age,illion years old

Time iscriiical after hydrocarbon* arc formed. If ihe generated hydrocarbons are not expelled from the source rock imo surrounding rock layers, the heat will continue lo crack ihe molecules until only gas and carbon residue remain. Therefore given the tempera-lure of the sourcearrow range of time exposures exists for ihe optimal formation of each particular type of hydrocarbon (oil. condensaic, gas).

m*-TfIndei Me)hodol.ijyauna ri re Ihc criticaletween limeemperature in Ihr for mainsiKlbodolory baled on lhc Time-Temperature Index (TIa mcihodolon proposed by Ruisian scientist! and developed by US geoencmisu im. Tbc TT1 foe rat la com hi no geologic lernpcra-(uie and limeingle indicator, rant ca of whichtc tKCcsMry foe lhc generation of ipedne kinds of hydrocarbons This indicator waa then plotted oa maps of Ihc Kara Sea to idenlify specific arcai whose geologic hiitory ia contiitent with the lencration of oil or iaa. Combining thefe areas with estimates of source rock thickness and density,eitiouied ihe Quantity of potential source rock present

mall fraction of this source rock is organic material. This percentage is arrived at by examining the likely cflvticeanseats of deposition and by dra-iag analogies with present environments, giving anpercentage of deposited material ihat isin nature. This organicTotal Organic Carbon fTOC) -is stored in tbe sediments as they are buried lo greater depth and can rangeoerceni or more of the rock weight Wc judged likely TOC values rnthe Kara Sea source reeks alercent

Only some, of the organic material deposited with sediments, and later buried, hat the biochemical characteristics accessary to become hydrocarbons upon healing and aging. Therefore, of the total car bon-based organic maierial that is in ihe thermally maiure range,mall pcrccnlage is of the type lhal can produce oil or gaa. Thas percentage is estimated by examining ibc environment at tbe time of deposition and lhc likely lypet of organic material deposited in such an environment In Ihe Kara Sea source rocks, leuerceni of Ihc TOC wasbe ofuality to generate oil or 1"

Expulsion, Migration, and Trapping

ExpuUlon. migration, and trapping are poorlyprocesses, but experts generally agree that they arc very Inefficient.esult,mall perceol-age of ibe oil generated in ihe source rock svifl ever be recovered for commercial utc. but estimates of Ihis percentage vary considerably. On lhc highew researchers believe as muchercent or more of the geocraled oal is trapped aat leati in certain basins where few fracture* and fault* cam lhal could serve ai conduits for hydrocarbon seepage and Ioaa. Put inutl cipcrtx believe thai, in an average basin, no moremall percentage of the general -od nilr be recovered Because of that large uncertainly, we made eonaerrativc aasurnptioni lhal tended to limit (heverestimating actual recoveiablc resources

Clays artd associated organic materials are dcprniled on the ses floorterutria. As therogressivelyits organic maierial to the greater depths needed lo generate hydrocarbons -water is SQueeied out' and Ihe clay layer loses considerable volume. Most researchers agiee that as much asercent of tbc totalof the sediments occurs in the first few thousand meters of burial as the result of water km Thus process ii similar loponge: little force is required to squeeze mosi of the water outponge,reat deal ofa strongnecessary to squeeie out the final drops. Since the hydrocarbon generaliorrproeeas doe* not begin until ihe sediments have espcricsvoed nearly all ike eompac-lion ihey win ever undergo, hydrocarbons must escape Ihe source rock by rivethodi other than compaction itself. This can occui through volume expansion of generated gases and liquids and (he nalurlltendency foe lighter oil and gat to migrate upward under pressure from (he heavieronsider able percentage of generated hydrocarbon* will always remain in the aource rock, however, crveeially if ilhale, and will never be recovered.

'Suw<a* lhc oriink mi mill in iberobably carried

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Migrationi Trapping

Once the oilsases have been eaprllcd fiom the sosiree rock, they begin migrating laterally andfollowing ibe casirM routes Along the way. seme of tbe fluids are toil Some fluids are swept along by ursderground waters in ihe beds inio which ihey have migrated, -here ihey remain ineoneeotrations or are carried to surface ipunti and dispersed. In some strata, oil may be lost lo commercial captcataiirui because it dings, in tbe formhin film, to the surface of Use grains lhat male up theut most ii probably lost through seepage When the hydrocarbon fluids reach fractures or faults or strata lhat are not scaled by anlayer, they migrate upward to the surface and seep away Seeps are quite common and to this day are case of thepot ways of exploring for pmublc ne* al regicav

reek led (Henri Drake to drill the first American oil well in Pennsylvania.

Numerousihe la Brea Tarlo the discovery of ihe Los Angeles Bnsia, the richest basin in tbe world in terms of oil yield per volume of sediments

noi Bay of Carnpechr oilfields were explored only literisherman's reportilm of oil on ihe water

Recovery

Ihe percentage of lhc original oil in placehat win be entailed for commercial use is problematic Ultimate recovery can. in the eaiierne. be ai Utileew percent oi more lhanercent,aneeO percent is more common Even when usingequipment and teeh-noiogy and watcrflcroding. US open tees average only JJ percent Tbe Soviets claim as much aserceni recovery using tvatcrflooding Becauseecondary recovery process, ultimate production from (oially natural mclhcdi has lo be much leas. Moreover, we believe ihe Soviet claims arerecovery using waterfloodirtg in the West Siberianrobably closer tooerceni. In lhc Kara Sen stssdy. we assumedercent for primary tree-cry. which we fell was raalisiic and. in lhc Irani run, perhaps conservative

bave had little luck trying to quantify losses during migration. Because of ihese losses,iortion of ibe hydrocarbon fluids win migrateoint where they can go no farther because of an impermeable bed above and oo the sides of the structure. At ihese (ceatiooi. ihe fluids are said to be trapped, and they accumulate in pools that werecognize as reservoirs, or oilfields

Appendix B

Beaufortuideara Sea De*elopnicn(T

Bmw of linUlii ice conditionslhc fadactiviiy has been under way Ihere forBeaufort Sea development may offer alo cversioal dcveloraTteni of the Kara Seahavea ted potrn-

liaiiy recoverable oil resourcea in lhc Beaufort Sea at aboutillionto our estimate of the Kara Sea's potential of sstichillioa has already been identifiedigh level of certainty. But eatracUng and transporting tbe oil hat proved toortrstdable task, as il will be in the Kara.

The Sovieu have little or no eiperience wilh the Arctic drilling technologies used by Westernin ihe Beaufort and would probably have to rely on Western expertise in some form loerious atternpt al Kara Sea operations. Tbe necessaryare widely available from Western Rrmt. with US and Canadian companies dominating the market.ecade of learning, the established technologies are no longer particularly com pies bytandards, bul they are eatremely expensive. Once Use technologies are in hand, oilmen opera ring in the Arctk must tackle three major problems: time, environment, and cost.

siream no earlierhe biggest obstacle to devdosyment at Amauligak is posed by the high cost and technical difficulty of corutnactinc an export system

Lcadtifls*

Drilling began in the Beaufoetilrsarvriers west of Prodhoe Bay, but commercial productiem wai not achieved forears Production began inof tail year, when Alaska's Endicotl field -jusi oeTihore from ihe Pradhoe Bay infrastructure and the Trans-Alaskan pipeline began0 barrels per dayravel island connected io landravel0 year leadllme also seems to apply io Canada's largest discovery in ihe Beaufort (figurehe Amaniigak held in (he Mackenzkreserves of aiet will probably comeCoraStrainU

All Arcire otTshorc areas present severe environments in which ke, temperature, and water depth curnbine lo place citrcrne demands on personnel, equipment design, and ficslitki opeiatioa Tearaperalarea present aa esbvicui problem in any Arctk area, bul the meet ietportant factors affecting offihore operalions are tea ice and water depth. The Barents Sea bone fits from the warming effects of the Gulf Stream current and therefore eiccr knees few ke problems, brat meat Arctic leal arc erne red with ice much of the year

G3.

Iceuu in lhc Beaufort Sea

a few AfCCic seal '.-cludiog the southern por-lioettk fleafori ind Kara Seaperieignificant change in kc cover durini the year.and produciion equipment mutt be designed lo withstand the horiaontat forcei of moving icewhich can exceed the forceery Urgewell as ice lhal forms on equipment sui-faces and ioteriorind lablca these areas, ibe forcei of winds and currents pise up plaies of sea lee upon one another, forming "pressure ridges" of iceeters or more above tea level and eatendingelees below tbe surface. The design of offshore pipeline systems must aceommedale iheae presaure ridges; pipelines mutt be buried deep be Sow the scatloor to prevent dimi ge from iceberg scouting and louging, caused by Ice bodies that are pushed by currents todepths and carve deep ruts into the sediments.'

os ll

In the fleacifort, operators bave drilled from juifidal gravd islands, whichear-round foundation and protect operations from floating ice. Bat ihese stnietuica are economic only in relatively shallow depths,ravel islandeters of water0 million to construct, uscicaiing0 nsidssva or more inmeters depth. Where the water is deeper, tbc only illcrautrn is the use of huge, stcd-rbnfcrrccd gravity stmctures, CoiaMslini of cone-shaped reinforced hulli thit rest on ihe sea botiom and are filled wiih sand or concrete. Deep-water gravity iirsactares coat aa much at J'OO million to construes, alt bough units capable of operatia SO rooters may ecu only0 million

t

Operating coats InBoufori nc eairemely high, bul Irimporuiioo covli mayc*ta higher Mo-ing Ihe oil by surface nusntli caa be very expensive It- iik of Ihe distance from mifoe offloading poru and (he nett-.niy of icebreaker supportrovide leuransportation in ihe longbut require huge amounts of capilal in ihe eaify stagesegion's ocvesoprnciiierls esti-mne at much at TOpcrccnt of lotal development com in ihe Beaufoiibe earmarked for pipeline and

support fadKlies. Current devclopmem plans include ciptions for both tanker shipments to Japan andipeline, at an estimated costillion, that would eiiend from Amauligat souibward to join ihe Canadian pipeline system. This pipeline distance is roughly similar lo thai from the near-shore Kara Sea to thr -carat onshore oil pipeline in West Siberia.

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