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BP-Rosneft deal a challenge for Canada in Arctic

A Rosneft oil rig in eastern Siberia


As BP PLC spends billions to tap Russia's enormous pools of offshore crude, it is also promising a renaissance in Arctic engineering that threatens to overshadow Canada's expertise in tapping some of the world's most challenging oil supplies.

Part of BP's $7.8-billion (U.S.) purchase of a 9.5-per-cent stake in state-run oil producer OAO Rosneft, announced Friday, includes a pledge "to establish an Arctic technology centre in Russia."

The centre will serve as a headquarters for Russian and international firms and universities "to develop technologies and engineering practices for the safe extraction of hydrocarbon resources from the Arctic shelf," and sets the stage for Russia to potentially eclipse the expertise developed in other nations.

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In so doing, BP and Rosneft have set the stage for a sort of icy technological arms race that has raised important questions for Canada, which has long specialized in Arctic offshore exploration.

Though Russia is highly skilled in building icebreakers - its nuclear-powered ships are still the world's most powerful - expertise in Arctic exploration has traditionally resided in other countries. Norway is an expert in cold-water oil rigs, through its long history in the North Sea; Finland is a leader in building ice-strengthened vessels; Canada holds a substantial reservoir of knowledge gained from its exploration of the Beaufort Sea in the 1970s and 1980s.

But in the oil and gas industry, expertise tends to follow money, and as BP and Rosneft prepare to tap Russia's Arctic, they may be laying the technological groundwork to tap the entire region.

"Which country will be the centre of this Arctic development? Is it going to be Norway, Canada or Russia? Where is the infrastructure going to be, and the industry and the research and development?" asked Robert Johnston, director of global energy and natural resources with the Eurasia Group.

For decades, Canadians have engineered ice-strengthened ships and built ice management systems across the world, relying on experience gained during a burst of exploration in the Beaufort Sea. That effort engaged hundreds of engineers, naval architects and shipping experts, who pioneered new vessels and new procedures to operate in the Arctic, where exploration entails work in ice that is thicker, tougher and more prevalent than any other oil-producing region.

"It was what I would call frontier engineering. There were no design precedents whatsoever," said Rob Allan, executive chairman of Robert Allan Ltd., a Vancouver firm with an 80-year history in naval architecture. In fact, Mr. Allan's firm designed about a third of the vessels used in the Canadian Beaufort.

Other firms were involved, too, in a project that produced vessels so well built their designs continue to form the basis of some modern ships. And some Beaufort-era craft are now working in Russia, including the Molikpaq offshore platform, which now constitutes the heart of the Vityaz Production Complex near Sakhalin Island.

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But work has largely dried up in Canada, where Arctic offshore plans have largely been stalled. Exxon Mobil Corp. and BP have each secured major leases in the Beaufort Sea, and have together committed to spend nearly $1.8-billion to develop those. But in the wake of the BP Macondo blowout, the National Energy Board has opened an offshore drilling review that is not expected to produce any results until later this year, at the earliest.

That has left Canadians to find jobs elsewhere. At Mr. Allan's firm, for example, 70 per cent of the work comes from overseas, including the design of ice-breaking tugs for a Sakhalin LNG terminal. Keith Jones, a Campbell River, B.C.-based ship captain who worked in the Beaufort, has actually consulted for BP on offshore work. Five years ago, he flew to the United Kingdom to help deliver two week-long workshops to company officials on the basics of Arctic operations.

Though BP has promised to use its offshore experience in the Russian Arctic, Mr. Jones came away doubting that the company has "got any expertise in the Arctic. Doesn't mean they can't bring it on by hiring the right people - but whether they've got any at the moment, I would hazard a guess that they don't."

That could provide opportunity for Canadian firms, who could be called on to help - and indeed, both Mr. Allan and Mr. Jones are confident of their ability to compete in Russia. Still, many of Canada's Arctic experts are retired or of retirement age, and many Beaufort-era firms have since closed. The end of Beaufort exploration in the mid-1980s has also meant an entire generation has not had that type of experience. In Newfoundland, Memorial University has built a well-regarded program to train naval architects, but work in the North Atlantic, where ice is impermanent, is far different from work in the Arctic.

And while Canadian Arctic exploration is far from dead - BP and Exxon may yet spark a wave of work here in years to come - some warn that Russia's bullish approach to Arctic oil stands to suck away talent.

"If the big bucks are in the Russian Arctic, that's where people are going to be working," said Doug Matthews, an energy consultant who specializes in Arctic issues.

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