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with Morten Solnerdal, General Director, DNV Russia

25.11.2011 / Energyboardroom

As a Norwegian company founded in 1864, DNV now lies at the heart of two major new developments in the Russian oil and gas industry: the offshore industry and energy efficiency. Given these two trends how would you sum up the growing importance of the Russian market to DNV globally?

Russia has a huge potential. As everybody recognises, Russia is part of the four BRIC countries and is the largest petroleum producer. When it comes to offshore, DNV has huge ambitions, not only in Russia, but also globally. So far offshore in Russia is not really developed although it has been planned for the last five to ten years.

In fact, Shtockman has been planned for the past 20 years and has still not been pushed into production yet. The Shtockman project has been postponed repeatedly. Everything is however gradually coming together and it is a challenging project with lots of uncertainties.
DNV has been active in creating standards for the offshore industry and have been involved in everything, except for Sakhalin. This means that we have mainly been working with Russian companies and Gazprom in particular. So far, DNV has not been active onshore, where most of the oil and gas production is currently taking place. DNV made a decision not – at least not yet – to involve itself in onshore projects because we are not familiar with the onshore regulatory regime. It is therefore hard to work in a risk assessment in the Russian onshore regulatory regime.

Stockman is a good example. We were not involved in the 1990s when they did an assessment of the reservoir, when they did the test drilling, the exploration drilling, because that is a little bit outside of our core business. DNV did do classification of the rigs but that is the maritime side of our business. Then in early 2001-2002 Gazprom, Total, Statoil and so on started to get involved. We were invited to review concept studies and feasibilities.

DNV is constantly looking at the situation and monitoring how regulations are changing and being updated. There was a law in 2002-2003 with the intention of adopting European international standards including EN ISA into the Russian regulatory framework. There are technical committees working on this at the moment. However, in Russia, technical regulations must go through parliament, the Duma, and this is a fairly longwinded process.

What role have you played in the development of Russia’s oil and gas standards?

DNV’s business approach, which is replicated across other regions, especially in Norway, the USA, South-East Asia and Australia – is a risk-based approach which is then approved and accepted by the authorities.

It is impossible to assure 100% safety even when something is technically deemed safe. It is possible that an aeronautical engineer could make an airplane that would never burn, but this plane would also never fly. You would have to take out the fuel and construct it out of 10cm reinforced thick steel plates. Nothing would ever happen to it, but you cannot do anything with it either. Especially, with oil and gas you have to decide what is safe enough. There has to be a constant discussion between DNV as a standard provider, the government which represents the population, and then the financial investors to determine a reasonable duty of care.

Given this collaboration, how is the company perceived in Russia among the authorities and Russian companies?

The company has a good degree of trust and people come to us to ask for technical solutions, technical requirements. They ask us about our experiences in other parts of the world, what is deemed acceptable and what constitutes a decent safety level. We of course try very hard to maintain that level of trust and we never make statements we cannot substantiate.

We started our relationship with companies in 1995, with customers such as Gazprom. They saw the need for our help on the Blue Stream project first of all because Russian regulations do not cover offshore sub-sea projects. They therefore went abroad and found that DNV was one of the better – I am trying to be modest and say one of the best but I believe we are the best – standard providers for sub-sea technologies. Since then we have worked very hard at maintaining a high level of trust and we are involved with Gazprom at the early phases of their projects.

What would you say is the key project which made the Russian authorities and Russian companies look up and take notice of DNV?

When it comes to oil and gas Blue Stream was the first major project we had and it was definitely standard bearing helping to raise our flag and make ourselves known. For us as well it was a very challenging project because it was difficult to do and there were a lot of personnel involved. Actually we had to update and constantly review and improve our standards because of the difficulty of the project. Blue Stream represented a completely new project worldwide and not just in Russia. We had not been involved in similar projects previously so this was for us politically and from a market perspective, very positive. It was interesting technically and our specialists had fun with it.

Your technical solutions and your dedicated research centre has been around since the 1950s creating solutions for the industry. What would you say were some of the key solutions that you have found for dealing with these new projects just in Russia?

In the early 1950s the research centre did not have any oil and gas business, it was only focused on maritime developments. At the time it was more of a scientific approach to ship building rules, and guidelines on how to maintain vessels and engines etc. When oil and gas was found in the North Sea in 1969, that is when they started the huge expansion into basic research safety regimes for the Norwegian oil and gas offshore industry.

Russian projects are never standard projects and are very ambitious, actually driving the standards within DNV. They put challenges in front of us and we want to meet the ambitions of the client and serve them as much as possible, so we have to pull ourselves up as well.

Blue Stream was technically challenging because of the depth and the difficulty of installation. However in terms of length it was fairly medium-sized. North Stream, logistically is a huge project, because of the diameter and the length of the pipeline. Then South Stream combines the difficulties of both of these projects. Therefore what DNV learns in Russia can be applied to the rest of the world.

The arctic presents huge environmental, health and safety challenges. DNV has experience from the Gulf of disaster – how do you ensure this type of risk is minimized in such unknown territory?

The project itself is actually not that challenging from a pipeline perspective. The length is 600 km, so that is challenging, but it will be on the seabed. At that depth there is no difference because it is not affected by the surface temperature. At a depth of 300 metre there is also little danger of scarring from icebergs so for the pipeline it is not that different.

What is challenging is the top-side aspect, or the float. They looked at different concepts in the beginning and now I think they have landed on a FPU – floating production unit – basically it is a boat that will stay there stationary. The questions will be how to deal with the fire risk, the isolation, the ice coverage. These are the real challenges of the project.

Shtokman will be a pipeline project well within the bounds of what we have already done. It is not easy but achievable. The top side will be the new element.

What is the difference between conducting an arctic project and one in other parts of the world like the North Sea?

If you consider Canada and Newfoundland, there is the Hibernia field from the early 1990s, as well as Hebron which is being developed by Exxon Mobil, where they have started detailed engineering projects. In the arctic there are icebergs to contend with whilst these do not exist in the North Sea. Wave conditions can be difficult in the North Sea with fairly shallow water and big storms coming in from the Atlantic but ice is the biggest difference between the two regions.

In both areas it is more a question of the approach. You have to take one step back and say “What do we really want to achieve?” instead of taking a very prescriptive approach in the early stage and planning to use 10cm thick steel plates. As conditions change sometimes you need 25, and other times you are good with 7. There are no general rules in this industry – almost every project is bespoke.

What have you contributed to the Russian projects as a whole?

We have contributed quite substantially over the past four years on the supply side of the industry. Specifically in Russia there is also political pressure to have local content, to develop the economy, to develop the technology and the competence. Since 2006 we have been working with the four major pipe mills that make pipe for Shtockman, for North Stream and for South Stream, in order to help them implement our standards and our quality requirements. So that has been taking the experience from DNV worldwide and delivering this through to Russian companies.

I have noticed that we have reached a high level of trust with these companies because we are very strict about confidentiality. In many cases there will be some problems but we do not represent the customer and mistake are made in front of us we will sit down with the company and search for solutions.

The operators have to trust our integrity and what they need is an honest assessment. When we say “We looked, we tested, and we think it is satisfactory,” these are just words. Without the trust and the integrity, the meaning of those words, is worth nothing.

Finally, this month DNV elected a new Chairman of the Board, Leif-Arne Langoy. What would be your message to the new chairman on your ambitions for DNV in Russia?

DNV will try to focus on the Russian companies because that is where we have our strengths. Certainly you have international companies but there you have a world organization with existing, good links, so when and if they start operating we hope to benefit from that. But our main goal would be to focus on Russian clients. Second we will continue to promote the risk-based regulatory approach in Russia. First of all it would benefit the entire industry because maybe it would open up new fields of development.

Do you have a final message to our readers?

If a company has an offshore oil and gas project please look to DNV because we have a long experience and worldwide we have been working on the most technically challenging projects.



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