Russia, US push oil production frontier offshore

US President Barack Obama has proposed allowing drilling for oil and gas off the coast of Virginia as Russia is pushing further development on the continental shelf.

The moves by the US and Russia are sending a clear signal. Although crude is currently well down from its all time high of $147/bbl the straightened supply demand balance which saw it climb to those heights in 2008 means that more oil needs to be found, and that offshore is where it is increasingly going to be found.

Barack Obama upset environmentalists with his decision to expand oil drilling off US coasts.

“I think we can break out of the broken politics of the past when it comes to our energy policy. I know that we can come together to pass comprehensive energy and climate legislation that’s going to foster new industries, create millions of new jobs.”

Politicians in many of the coastal states say there is relatively small amounts of oil to be gained in the offshore areas and is not worth the environmental risks.

Dmitry Aleksandrov, an Analyst at Univer Investment Group, believes off-shore drilling carries additional benefits for the economy.

“It may be argued that US decision is a politically motivated one. Americans want to decrease their dependency on oil and gas import. On the other hand, there is a clear economic reason. Offshore drilling means serious long term orders for the machine building industry.”

Russia, is trying to attract greater foreign interest in developing its offshore reserves. This week it has signaled it will allow foreign investors a 50% stake in offshore developments. Currently only state controlled Rosneft and Gazprom have rights to search for oil and gas off the coast.

Gennady Shmal, President of the Union of Oil and Gas Industrialists, welcomes foreign help.

“Four out of six million square kilometers of Russia’s coastal area have good prospects in terms of oil and gas exploration. As I see it, we won't be able to resolve certain issues without foreign firms. We could use the state-of the art technologies that they have.”

There is also no clear answer as to where the oil and gas extracted in Russian offshore areas will go, it is also typically expensive to get at. The same applies in the U.S., although the incentive to drill there is much greater as its reserves on the mainland are almost entirely depleted.