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FEATURE: Arctic oil drilling under scrutiny after latest Russian spill

Highlights

Russian President orders amendments to environmental legislation

Significant warming of permafrost over last 30 years

Experts warns infrastructure not designed for thaw

Moscow — Risks from climate change to Russia's oil infrastructure and its plans to drill in the Arctic may come under closer scrutiny after the recent leak of around 150,000 barrels of gasoil into waterways in Siberia.

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The major spillage from an industrial storage site on May 29 -- although a relatively common occurrence in Russia -- prompted President Vladimir Putin to declare a state of emergency and demand tougher regulations.

Nornickel -- which owns the facility -- blamed the leak of highly sulfurous "winter gasoil" on soil subsidence and thawing permafrost. Melting subterranean ice has been flagged as a risk to oil pipelines and infrastructure globally, especially in oil-rich areas bordering the Arctic Circle from Alaska to Siberia.

"Generally warmer permafrost means less ability to support infrastructure," Dmitry Streletskiy, Associate Professor of Geography and International Affairs at George Washington University, told S&P Global Platts. "Permafrost records are short and sparse, but we see significant warming over the last 30 years. This is concerning because infrastructure design may not account for these changes."

The oil industry is coming under pressure globally to comply with tougher Environmental, Social, and Governance standards, while mitigating its role in climate change. Concerns over the environmental impact of spills were heightened internationally after BP spent a decade cleaning up the Deepwater Horizon disaster, which saw more than 3 million barrels of crude spill into the Gulf of Mexico.

Arctic development

Putin only recently acknowledged the risks of rising temperatures late last year in his annual press conference addressing the impact of thawing permafrost on towns in Arctic regions. Despite his remarks, Russia continues to develop vast hydrocarbon resources in and around the Arctic Circle, including the giant Yamal LNG project.

The role of Arctic projects in Russian oil and gas production has increased over the last decade. Production in the Arctic accounted for 11.8% of overall output in 2007, rising to 17.6% in 2017, and is projected to grow to 26% by 2035, according to the Central Dispatching Unit, the statistical arm of the Russian energy ministry.

Retreating ice will open oil exports via the Northern Sea Route. In March, Putin approved tax exemptions to stimulate Arctic upstream oil and gas development in a sign Russia remains committed to development there, despite concerns over the environmental impact, Western sanctions, high costs and volatile oil prices.

Russia's approach to climate change and global warming has been mixed. The Kremlin ratified the Paris Climate Agreement last year, which includes a pledge to reduce emissions to between 25% and 30% of 1990 levels by 2030. However, meeting these pledges will be helped by the fact large areas of industry collapsed following the breakup of the Soviet Union.

Thawing permafrost

Oil spills are common in Russia. Natural resources supervisor Rosprirodnadzor estimates that in 2019 there were 819 oil leaks, covering a total area of 93.6 hectares. Russia's biggest onshore leak is thought to have happened in 1994 when over 800,000 barrels of oil escaped from a pipeline in the Komi region, according to BCS Global Markets.

In response to the Nornickel incident, Putin has demanded tighter controls. The leak went unreported for two days and threatened to send significant volumes of gasoil flowing into the Arctic Sea from a polluted river.

"I ask the government, together with parliamentarians, to complete work on introducing fundamental changes to environmental legislation that will prevent such situations. This should be done in the very near future," Putin said during a meeting with environmentalists in Moscow on June 5.

Transneft -- Russia's largest oil and products pipeline operator -- has dismissed any concerns about the risks to its infrastructure from global warming, including in the Arctic.

"We so far do not see any problems linked to warming," said a spokesman for the company following the Nornickel incident. Transneft is one of the Russian companies most affected by oil spills, which the spokesman said are mainly linked to theft of oil and products from its pipeline network.

However, the National Snow and Ice Data Centre in the US has cited research showing that in Siberia, the area of ground known as the "active layer" -- which can thaw and freeze throughout the year -- has increased in depth by 10 inches over the last 50 years. Siberia contains thousands of miles of supply and distribution pipelines along with service roads supporting its oil infrastructure, which are exposed to melting permafrost.

Some experts are calling for more scrutiny of the area to help understand the long term impact of temperature changes on oil infrastructure.

"Moving forward a simple solution would be to require more monitoring," said Streletskiy. "Monitoring is very cheap relative to construction and exploration. I think it should be in combination with other environmental variables. We have very few data points that can tell us what's happening, even weather station network is pretty sparse, but when you talk about temperature it's very sparse."