Vladimir Ryashin, INTSOK
Release Date: 0000-00-00
The major play for Norwegian companies is in the Barents Sea however, the Shtokman Field still looks like a distant prospect with the earliest possible production date not until 2017. Are Norwegian companies bored of waiting and might they focus their efforts elsewhere?Norwegian companies are patient and are eagerly anticipating starting production on the Shtokman project, which is a strategically important project for the Norwegian industry. The Norwegian side above all can provide all the organizational, technical, management, procurement and logistics solutions for this project.
In Norway there is just one national oil company, Statoil, and the Shtokman field is very substantial for this company purely in virtue of the huge carbon reserves in the field. However, Statoil is also looking for other opportunities in Russia. For Norwegian suppliers, Shtokman is a very important project but they are engaged in other areas in parallel such as the Vladimir Filonovsky in the Caspian and in the Sakhalin-3. These are really promising opportunities for the rest of the Norwegian industry as well.
A year ago you stated that there were 90 Norwegian companies seeking opportunities in Russia and 30 of them had already established themselves. One year later, how have the other companies done in entering the market?
Since the last year around 10 companies established themselves. However, there are now around as many Norwegian companies in the Russian market as there will ever be. There is little reason for the other companies to enter this market on that stage. The companies which are present are looking for the real development of the offshore industry from the Russian side. At this time Russia is seriously considering this option and Norwegian companies are ready to give assistance.
Russia is now demonstrating more interest in safety following the Gulf of Mexico disaster. Several delegations from major Russian oil companies came to Norway and they were all interested in safety regulations and practice for offshore projects. One new player to the Russian market, Add Energy, participated in the Macondo operations and their experience is sought after. Russian companies are seeking to draw on this experience.
The Arctic is a very sensitive area and development is complicated by ice and irregular shallow waters. This makes a big difference when compared with developments in the North Sea where the water level is stable and deeper at 300-400 metres. This is why INTSOK on behalf of the Norwegian industry is launching a new programme for the development of special technologies for arctic conditions. The programme will be implemented in cooperation with the Russian side.
Some of these projects are beyond the frontiers of what any company has so far dealt with. Therefore how would you sell Norwegian capabilities to Russian companies?
Russia itself has the best experience of onshore production in arctic conditions. During Soviet times Russia was developing fields inside the Arctic Circle. Russia also had good experience of sailing in arctic conditions through the Northern Maritime Route. This is one factor suggesting that they would be capable of developing the arctic deposits independently.
However, it is much better for them to use a Norwegian partner. Norwegian companies have spent a lot of money and efforts studying exactly that which is necessary for projects in arctic conditions. Many Norwegian research centres study operations for offshore fields in arctic conditions and as a consequence, the Norwegian side is very well prepared to move forward with these developments.
Following Medvedev’s visit to Oslo in April 2010 would you say that all geopolitical complications been removed from Russo-Norwegian energy relations?
Last year was also a very important year in the relationship between Norway and Russia. The border issue concerning Grey Zone was settled and Norwegian companies are now very active because of this agreement. Companies need clear and stable environments in order to prosper and now this has been achieved.
Norway will now develop several fields in the Northern part of the Barents Sea. There were very important discoveries both last and this year. The demand for innovative technologies is therefore not just coming from Russian companies but also from the Norwegian oil industry.
Norwegian companies have a lot to offer but is there a risk that Russian companies would seek to develop arctic resources on their own, making use of the international supplier’s market?
There is little risk of this. Russian companies have expressed a strong interest in the services provided by experienced Norwegian companies. The only barrier is whether Russian companies will invest in these developments in the first place. There are a lot of resources in the arctic but they are not very easy to develop because they are high cost. Furthermore, the tax situation in Russia is far from perfect at the moment and the government must do more to motivate companies to explore the arctic. The motivation comes from creating an economically friendly environment to attract investments from the foreign side and encourage Russian oil majors to spend money.
The understanding of Russian authorities is that it is no longer possible to maintain control over all of Russia’s resources without giving access to foreign players. This understanding should usher in solutions to make it more attractive for foreign companies to operate on Russia’s Arctic Shelf. On the other hand Russia is always interested in the matter of Russian content. This means that the domestic industry must be prepared for these projects. Their standards must rise and this is only possible through involvement with foreign companies.
Norwegian companies are very open and the objective of INTSOK is to demonstrate capabilities. We are ready to help transfer knowledge to effective Russian companies.
The main problem for the Russian industry at the moment is that it has the heritage of soviet times trying to coexist with a modern Western oil and gas industry. The inherited system from the Soviet Union makes it difficult to accept new inputs and ways of doing things. Indeed it is necessary to change the entire system in order to achieve progress in the Russian oil and gas industry.
A new system is needed to adapt to a modern economy and a rapidly changing global market. Management systems need to be altered. Russian companies are currently vertically integrated meaning that any decision must be done at the very top level. In the West, companies value flexibility and shy away from vertically integrated structures.
How much of a challenge is it for smaller more flexible Norwegian companies to operate with these monolithic Russian giants?
It is very difficult because there is an entirely different business logic. Every level of a Norwegian company implies a certain level of competence. They can come to a decision quickly and do not need to address top management for every problem. In Russian companies everything comes from the top. Unfortunately, in the Russian industry high levels are sometimes even disconnected from lower levels.
INTSOK works to build better relations between these very different sets of companies. The association demonstrates new technologies appropriate to Russia’s arctic environments. The part of our work is to demonstrate management, organization and project implementation mechanisms in order to foster understanding on the Russian side on what is necessary to make a huge offshore project successful.
The difference is not only in management systems but in the system of standards and accounting. To conclude a contract with a Russian company, the Russian accounting system always requires a lump sum. However, it is much more common for European companies to establish a framework agreement and work within the framework of this agreement without an upfront payment. This is not acceptable from the perspective of Russian accounting.
Tuan Hai Ewe, Intsok’s representative in Malaysia told Focus Reports that Norwegian companies had sometimes failed to understand that things take time in Malaysia. In Russia patience is also needed, what would you advise Norwegian companies seeking to enter the Russian market?
Sometimes it takes a long time for things to happen in Russia. Sometimes it is simply a matter of being in the right place at the right time. Companies should be patient, persistent and must be present all the time on the market. It is like a baker’s store: if one time you go to the baker’s and there is no bread you lose trust in that baker. Norwegian suppliers must maintain their reliability. Clients must know that Norwegian suppliers are always there with an offer.
| Company: | INTSOK |
| Position: | Country Manager |
| Country: | Russian Federation |