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Round table organized by Kommersant Publishing House, Shell and CERA (Cambridge Energy Research Associates), 26 June 2012

“Oil and gas potential of the Arctic shelf: meeting the energy challenge, or questions without answers?”

Elena Lazko: “What’s the cost? The investment needed for Arctic projects”

Elena Lazko, oil & gas practice leader at Deloitte CIS, delivered a speech on behalf of our firm at the latest annual round table organized by Kommersant Publishing House, Shell and the Cambridge Energy Research Associates (CERA), entitled “Oil and gas potential of the Arctic shelf: meeting the energy challenge, or questions without answers?”. Elena spoke on the level of investment required for Arctic projects, and in particular she talked about how exploration of the Russian Arctic shelf is still in its initial stages in comparison to other countries. The area covered by the Russian shelf is six-times larger than Norwegian and Brazilian shelves; nevertheless the number of drilled wells is ten- and eight-times smaller than in Norway and Brazil respectively. Similarly, there are ten- and twenty-times fewer discoveries made in the Russian shelf than in the Norwegian and Brazilian shelves. These statistics arise from the fact that most of the projects on Russia’s Arctic shelf take longer, as greater exploration is required, which in turn means that, despite changes to legislation on mineral extraction tax and export duties, the cost of capital in cost structures can be as high as 30%. To resolve this issue, governmental bodies will have to take further steps towards using budgetary funds to directly invest in infrastructure, introducing accelerated amortization, reducing corporate property tax and possibly subsidizing interest rates.

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