A major program for the development of a unified system for the production, the transportation, and the distribution of natural gas in the Russian Far East and Eastern Siberia, with a potential outlet to Pacific Rim Countries, is currently being launched.
Russian gas giant Gazprom is coordinating the project. The program’s first stage envisions the completion of the Okha–Komsomolsk-on-Amur–Khabarovsk gas pipeline and its extension up to Vladivostok (Primorsky Krai). The construction of the Komsomolsk-Khabarovsk gas pipeline section will be completed by October 1, 2006. Most heat and power generating plants in Komsomolsk-on-Amur already successfully utilize natural gas. Plans for the gasification of Khabarovsky, Ulchsky, Nanaisky and Komsomolsky Districts of the Khabarovsk Krai have also been prepared. First, the Khabarovsk region intends to gasify municipal enterprises that currently use expensive diesel fuel and oil. Residential areas will follow next.
In 2002, the Russian Government made a decision to build up the gas industry and initiated federal programs towards that end. The first draft of the program was completed by Gazprom and Minpromenergo (Russian Ministry of Industry and Power Engineering) in March 2003 and served as a baseline for further work. The document prioritized the satisfaction of domestic consumers’ demand for natural gas and the maintenance of a sustainable gas supply in Russia’s eastern territories through the expansion of a unified gas supply system to the eastern part of the country; the development of stable markets for natural gas in the face of growing competition from other energy resources, primarily coal and fuel oil; and the maintenance of a single export channel and the security of long-term export prices.
In order to finalize the program, a special working group has been established. It consists of many representatives from Minpromenergo, Gazprom, the Ministry for Economic Development, the Ministry for Foreign Affairs, RosEnergo, the Russian Academy of Sciences, and a large number of sector-specific organizations. The group is currently working on defining the market size for natural gas in eastern Russia and the Asian-Pacific Region. Gas processing and emissions, as well as the storage and the utilization of helium have also become the focus of the group. Russia currently accounts for one-third of the world’s reserves of helium gas. Although today the United States is the primary exporter of helium, it plans to decrease its supplies in the near future. In early April 2006, Gazprom held a conference to discuss the development of complex hydrocarbon deposits in Eastern Siberia and Sakha (Yakutiya) Republic.
These deposits, especially Kovyktinskoye condensate gas deposit in Irkutsk oblast, contain huge reserves of helium. Their development is included into the program of “Energy Strategy of Russia until 2020” and will make Russia one of the largest helium producers and suppliers in the world. Conference participants have also agreed on a taskforce to work out a strategy for complex hydrocarbon deposits development.
By 2015, polyethylene and polypropylene are also expected to be in demand on the world market. Therefore, Russia has good prospects for strengthening its position on the world’s gas and chemical products markets.
Alexander Ananenkov, the Deputy President of Gazprom, has emphasized the helium issue during his visits to Khabarovsk. According to Mr. Ananenkov, natural gas should not be exported in its “initial” state. The gas is valuable for its so-called accompanying components, namely methane, propane, butane, and especially helium.
Mr. Ananenkov pointed out that there should be a clear understanding that gas is not simply a fuel, but that it is a chemical raw material. Special attention should be given to the organization of high-value-added production. This requires a well-developed gas processing industry. Currently, there is no technical capability to process gas that is produced in Eastern Siberia. Sufficient storage facilities also do not exist. Prior to the development of a large number of gas deposits, the necessary infrastructure needs to be created.
Gas Reserves
Gazprom estimates the overall reserves of natural gas in Eastern Siberia and the Russian Far East (RFE) at 64 trillion cubic meters. This accounts for 27 percent of Russia’s total. The largest share falls on Eastern Siberian deposits, while the Sakhalin shelf accounts for nearly 15 trillion cub. m.
In order to ensure the effective development of gas resources, four centers were identified around the largest deposits. The Sakhalin center for gas production is located at the site of the Sakhalin shelf area deposits – namely Sakhalin 1 and Sakhalin 2 projects and potentially Sakhalin 3-6 projects. The Irkutsk center will be based near the Koviktinskoye deposit. The development of this deposit is associated with the development of the nearby Dulisminskoye and Markovskoye fields. Gas production in Yakutiya will concentrate around the rich Chayandinskoye deposit. Later, the neighboring Srednebotuobinskoye, Verkhnevilyuchanskoye, and Tas-Yuryakhskoye deposits will come on line. In Krasnoyarsk Krai, the production of natural gas will take place at the Sobinsko-Paiginskoye and the Yurubcheno-Takhomskoye deposits.
The development of the above four centers will be conducted in several stages. Today, gas production takes place at the Sakhalin shelf only. The implementation of the first step of the program for gasification of the eastern territories is associated with Sakhalin gas. It envisions the first-priority development of the Sakhalin shelf deposits and the development of a gas transportation system to link Sakhalin, Khabarovsk, and Vladivostok. The gas pipeline Okha–Komsomolsk-on-Amur is already functioning in the Khabarovsk Krai. Sakhalin gas already entered four districts of the Krai. Its primary consumers are the cities of Komsomolsk-on-Amur and Solnechniy. The Khabarovsk Krai government was the initiator and the primary sponsor of the pipeline’s construction. This year, Gazprom stepped in to finance further construction of the pipeline up to Khabarovsk city. This section will be put into operation in the early fall of 2006, prior to the beginning of the heating season. The first Khabarovsk heat and power plant (HPP-1) is already prepared to operate on gas; the HPP-2 will be renovated in the near future.
Further plans call for bringing the pipeline up to the Sea of Japan. The construction of a gas pipeline in Primorskiy Krai would begin in 2006. According to the gasification program of Gazprom, Vladivostok will receive gas by 2010. The municipal authorities are currently determining the demand for gas and selecting specific routes for pipeline sections. Primorsky Krai authorities plan to switch over to gas all residences and industrial enterprises in the cities and towns of the region. Furthermore, Primorsky Krai envisions the construction of gas chemical enterprises. From there, gas may continue on to the markets of China, South Korea, and other Pacific Rim Countries. Upon the increase of gas supply to foreign markets, the Chayandinskoye deposit (Yakutiya) will be actively engaged.
Gas markets
Gazprom considers the People’s Republic of China to be the most promising market for gas. Most conservative estimates for the growth rates of the Chinese economy predict six percent annual production growth, while the Chinese themselves declare 11-13 percent. Russian gas exporters intend to target the nearby northeastern provinces and the Bokhai bay territories. South Korea is traditionally one of the world’s largest consumers of liquefied natural gas. The country’s economy is not developing as rapidly as that of China. Economists talk of 3-5 percent annual growth. Nevertheless, Korea has already negotiated a contract with Russia for the delivery of Russian gas under the Sakhalin-2 project. In the future, export of gas to South Korea will grow from two to seven billion cub. m. Japan also possesses a contract for the supply of 6 billion cub. m. of gas. The United States is also considered a prospective buyer of RFE natural gas.
The cost of natural gas supply contracts for international consumers is linked to that of oil on the world markets. Gazprom bases its calculation on a modest prognosis of $ 25-30 per barrel. In this case, the cost of 1000 cubic meters of natural gas for the People’s Republic of China will total $ 130, for South Korea - $ 160.
Domestic markets remain a priority for the gas producers. Today, Russia’s eastern territories employ coal as the primary power resource. By 2030, Gazprom forecasts a considerable increase in the share of natural gas and a decrease in the share of coal.
The correlation between costs of natural gas, coal, and fuel oil on the Russian markets today differs from that of Europe. Gas in Russia is nearly two times cheaper than coal and 4-5 times cheaper than fuel oil, while European costs are practically the same. Coal is 1.6 times cheaper than natural gas.
By 2020, the estimated annual domestic demand for gas will total approximately 44 billion cubic meters. Khabarovsk Krai will account for 4.7 billion cubic meters yearly. RFE is reported to be using gas differently than Russia’s western territories. In the Russian Far East, natural gas is used less in the fuel and the power sectors. However, its share in gas chemistry and processing surpasses the country’s average figures – 37 percent versus 21 percent in Russia as a whole. These circumstances necessitate the creation of a developed gas processing industry in the east of Russia.
The scale of the RFE gasification program is huge. Its implementation by 2020 will require the development of six large deposits, the construction of over 5.6 million kilometers of pipelines, 17 compressor stations with total capacity of 980 MVt, a gas processing plant, and two helium storage facilities, as well as three underground gas storage facilities. The implementation of this project requires tens of millions of dollars and the involvement of extensive domestic and foreign investment.
These activities will help resolve the pressing problems associated with supplying gas to the Russian Far East industry, agriculture, and utilities. The unique gas, oil, and condensate deposits will be explored and large-scale geological research activities will be initiated.
