Russia extracts oil in the North, but it can also process it

Russia extracts oil in the North, but it can also process it

In an interview with correspondent Kristina Khramtsova, General Director of the Institute of Regional Problems Dmitry Zhuravlev describes the situation in the Russian Arctic.

Kristina Khramtsova: Is the Russian Arctic a special territory, a mega region?

Dmitry Zhuravlev: Of course, it is. We can call it a mega region for two reasons. First, because of its importance. The Russian Arctic abounds in undeveloped wealth, and is a key to our regions beyond the Urals. Many Trans-Ural transport arteries are part of the Northern Sea Route (NSR).

The second reason is its peculiar nature. The geographical and climate conditions are common to all northern areas regardless of what Russian region they are a part of. The North is different from all other areas. It requires different approaches to management and funding. In this sense, it is unlike any other region in terms of life and economic activities on this territory.

Kristina Khramtsova: What do you think about the strategy for the Socio-Economic Development of the Russian Arctic adopted last year?

Dmitry Zhuravlev: Only those documents that determine tax or AZES benefits are important for life in the North. Strategies are like vectors.

Say, a decade ago it was clear that oil production had the most potential for development. But which area is the most important today? It is very difficult to fix this in a strategy. After all, any strategy is drafted as a broad outline; this is how it is planned. True, it will be difficult to go into details until general points are made. However, it seems that in the North we have approached the point where a broad outline of a plan does not do the job.

Kristina Khramtsova: How can this problem be resolved?  

Dmitry Zhuravlev: We need to thoroughly analyze the content of the proposals from the regions to develop their own territories. So, planning must go from the bottom up, to some extent.

We must collect, analyze and pick out the truly useful proposals from the local level and compile a program for developing the Arctic macro region. In so doing, we must proceed from the premise that it is bound to be oriented towards the extraction of minerals. It just cannot be to pursue any other purpose for the time being.

For example, under Stalin Russia began building a railway along the Arctic Ocean, but we gave up on it without discussing whether it was the right decision or not. Anyway, it doesn’t exist anymore. It would be expensive to build a similar one and even more expensive to maintain it. So, it seems we will have to focus on the development of NSR ports for transport in and out of these regions.

As for the port of Sabetta, there is no demand in the North for the liquefied gas processed there. So if it is a raw materials base, it is of secondary importance because it is not developed for its own purposes but for other places that use its raw materials.

Kristina Khramtsova: So it is possible to call the NSR the main integrating element of the Arctic regions?

Dmitry Zhuravlev: Yes, today it is. In principle, expanding the production and processing of raw materials could also be a common goal, but regional capacities alone are not adequate for these objectives.

Kristina Khramtsova: Can the regions manage the development of the NSR infrastructures Do they get enough funding form the federal center for this purpose?

Dmitry Zhuravlev: Russia has done much to develop the NSR. Navigation runs half the year – this is a rather long period. But now there are limits that will not allow further development. This is not just about funding, although it is clear that not a single region can manage NSR development without support from the federal center. Today, icebreakers can only navigate sections where the ice situation allows it.  

Many people dream about ships sailing this route one after another; they want to see the next ship right after the stern of the one before it. This wouldn’t be bad but we are hardly capable of achieving this, although Russia is the indisputable leader in Arctic navigation. This goal is difficult even for us, and especially for other countries.

Our Chinese friends, for one, would like us to carry their goods to Europe on the NSR because it’s the shortest, least costly and most efficient route from China to Europe. Yes, we must develop the NSR further, in part, to allow Chinese convoys to travel through it. However, we must understand that given the number of those who want to use it, its capacity is limited. In other words, no matter how much we invest in the NSR, its capacities will never become excessive.

Kristina Khramtsova: China’s Arctic policy runs counter to Russian interests, but our countries maintain active practical cooperation. How can this be explained?

Dmitry Zhuravlyov: We cooperate because they are ready to fill up all our transport arteries, and not just the Arctic routes, but still, this is not enough for them. Today, they are in talks with Azerbaijan on a southern railway that would bypass Russia because Russian capacity is no longer enough.

And we do cooperate, and they are ready to cooperate, but our approaches do not always coincide. The Chinese proceed from the idea that the Northern Sea Route is not Russia’s own artery. We are ready to cooperate with them provided they recognize the Northern Sea Route as Russian territory.

You see, the Northern Sea Route is more cost-effective than surface transport, than the Trans-Siberian Mainline or the railway via Azerbaijan that remains to be built. The Chinese see this as very important. At the same time, they boast one of leading global positions in terms of their icebreaker fleet, but it did not occurred to them  during the times of Mao Zedong to develop nuclear-powered icebreakers, so now they lack that experience. However, China is second only to Russia in terms of its diesel icebreaker fleet.

Kristina Khramtsova: Will Russia be able to overcome the existing disproportions in its Arctic regions and the development lag relative to the southern regions by 2035 (when the strategy is to be completed)? 

Dmitry Zhuravlev: Probably not overcome, but certainly reduced. To overcome such disproportions we need European-type cities along the Arctic Ocean, but we also need people who would want to live in these cities.

Today in Vorkuta, for example, you have to make an additional payment to the local authorities to rent out your flat. In other words, you have to pay rather than be paid.  Even if you abandon your flat, you still have to pay for the utilities.

We cannot just start creating modern infrastructure for everyday life or for transport. People are required for this. Living standards will go up where production is growing and where oil and gas are produced. It’s more difficult to settle people in other places. Even if you did this artificially, what would people do there?

Of course, investment in the North reduces the gap between the northern and southern parts of the Krasnoyarsk Territory but it doesn’t eliminate it because their lives are basically different.

Kristina Khramtsova: How can we keep people from leaving the northern areas?

Dmitry Zhuravelev: It is necessary to create jobs in mineral extraction. For example, Vorkuta grew and existed around coal. We must launch production that will be profitable despite the enormous hardships in the North. So far, this applies only to liquid hydrocarbons.

The Arctic zone abounds in minerals but nobody is going to break through the permafrost to extract chunks of iron ore from it. Meanwhile, oil and gas flow naturally, so the efficiency rate is higher in oil and gas production. You can build cities around these deposits and develop the northern territories.

On the other hand, it is also possible to develop the southern territories at the same time because for many districts in eastern Siberia petrol supplies are very important. It is possible to refine oil in the North; gas is liquefied in Sabetta and oil could be refined there as well. People in Yakutia would be happy about this. They are eager to have their own oil pipeline. And I haven’t mentioned that a portion of the profits from the development of these deposits will go to the regional budgets.

Kristina Khramtsova: The strategy provides for creating 200,000 jobs at new companies in the Russian Arctic by 2035. Is this a feasible goal? What might prevent implementation?

Dmitry Zhuravelev: It is possible. If we develop the raw materials industry, it is possible to create 200,000 jobs there. It is also possible to develop not only extraction and production but processing as well. The point is that these are very serious projects, but they could fail due to outside pressure.

Our main products in this area are raw materials. If they are not consumed because of some new sanctions, this entire infrastructure would simply be useless because our raw materials are primarily produced for consumption abroad, not at home.

Kristina Khramtsova: What do you think about the level of inter-regional cooperation between the Arctic regions?

Dmitry Zhuravlev: On the one hand, there are special associations that support such cooperation, for instance the Mayors of Arctic Cities. On the other hand, there are not too many opportunities for it. We cannot say that our regional budgets are overflowing. Meanwhile, the main method of cooperation is to consolidate the resources for resolving various problems.

It is possible to bring workers from the European part of the country in as a last resort. But not all places have things to consolidate. In areas with developed raw material production and a subsoil tax, the regions can come to terms between themselves and consolidate their resources. But if there is no subsoil tax, there are no profits. What money can they use to cooperate?

Understandably, port cities along the Arctic Ocean are doomed to cooperation because the same convoy calls on every port. If it didn’t call on the previous port, it won’t come to yours, either. But this kind of cooperation is relative.

The point is not that inter-regional cooperation does not exist or that somebody doesn’t want it. What matters is that the challenges are too great to be resolved even by regional unions alone. We need this cooperation; it will help, but in the final analysis, funds will have to be forced out from the federal budget at long last.

In other words, the level of cooperation matches the current opportunities. If they had a northern railway project like the one that existed under Stalin, they would probably have cooperated, but that doesn’t exist anymore.  

Kristina Khramtsova: Do regions in the Russian Arctic compete for the status of the Arctic’s capital?

Dmitry Zhuravlev: No. Only Arkhangelsk and Murmansk, for one, can compete for the status of the capital in the western part of the North. But we don’t have a definite capital for the eastern part. The Arctic territory in the Republic of Sakha (Yakutia) is facing completely different problems – they are not interested in what is happening in Murmansk. The same is true of the Krasnoyarsk Territory – it can take longer to fly from one part of this territory to another than to fly to Japan, and they are not also concerned about Murmansk.

Even climate processes are different in the eastern and western parts of the Russian Arctic. The climate is getting milder in the west but we are not sure about the east.

So, Moscow is the capital of the eastern North. The research centers and other offices are there. There is no point in establishing them in Yakutsk or Krasnoyarsk. There is no explicit economic and administrative center of the eastern North.

If we implement more oil, gas and serious shelf projects, the capital will be in the center of these developments. But this is still a process, not a result.

Kristina Khramtsova: How should the state support the indigenous minorities of the North?

Dmitry Zhuravlev: Economic development of the northern territories may deal a blow to the environment. The environment is fragile in the North; if an off-roader drives through, the wheel tracks will be there for a hundred years. The indigenous minorities live on what they have under their feet and environmental protection hits them like a cannon. They lived independently until we arrived. Now that we’re there, we must support them.

What they need is not just tax benefits or the right to fish. It is first of all necessary to prevent environmental disasters. This is the main threat to the indigenous minorities. We must minimize the consequences of our commercial activities. This problem is more sensitive in the North. Obviously, we also need to develop the medical and education infrastructure.

Kristina Khramtsova: What do you think about the coverage of activities in the Arctic by the media and the expert community?  

Dmitry Zhuravlev: I think coverage is insufficient, but this is my subjective opinion. There was a burst of interest prior to 2015. As Special Presidential Envoy to the North, Artur Chilingarov continuously monitored and encouraged this process. Now, after the accession of Crimea and the start of the various sanctions, this issue sometimes does not seem as important. And now we have the pandemic on top of all that. More urgent problems move to the fore.

I think Arctic issues are very important and require attention. Not everyone shares my opinion. Some people see the North as a very expensive amusement, that we must first resolve our urgent problems and then deal with it. I believe this approach is misguided. Former Mayor of Vorkuta told me once: “You can forget about everything you have built but then don’t use because it will disappear in half a year.” The Arctic climate will not allow us to build a road and then forget about it because it will just disappear before long. The same is true of many things up there.