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Russian gas giant Gazprom is coordinating the huge project. Its first stage envisions 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 employ natural gas. There are also plans for gasification of Khabarovsky, Ulchsky, Nanaisky and Komsomolsky Districts of the Khabarovsk Krai. First, the Khabarovsk region plans to gasify municipal enterprises that currently use expensive diesel fuel and fuel oil; then, it will convert apartments and other residences.
In 2002, the Russian Government made an initial decision to build up the gas industry and initiated development of a corresponding federal program. 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 satisfaction of domestic consumers’ demand for natural gas and maintenance of a sustainable gas supply in Russia’s eastern territories through expansion of a unified gas supply system to the eastern part of the country; development of the markets for natural gas taking into account competition from other energy resources, primarily coal and fuel oil; and maintenance of a single export channel and securing of long-term export prices.
In order to finalize the program, Minpromenergo established a special working group consisting of representatives of Minpromenergo, Gazprom, Ministry for Economic Development, Ministry for Foreign Affairs, RosEnergo, Russian Academy of Sciences, and a large number of sector-specific organizations. The working group will pursue its operations up to mid-2006.
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 sent to export 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 fuel but is a chemical raw material. And special attention should be focused on organization of high-value-added production. This requires a well-developed gas processing industry. Currently, there is no technical capability to process gas produced in the Eastern Siberia, as well as no sufficient storage facilities. Therefore, prior to development of a large number of gas deposits all 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 is 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.
Natural Gas Reserves of the RFE (billion cub. m.)
Sakha Republic (Yakutiya)
26 Explored Deposits
2,200.0 Overall Reserves
123.3 Prospective Resources
Kamchatskaya Oblast
4 Explored Deposits
22.6 Overall Reserves
11.5 Prospective Resources
Sakhalinskaya Oblast
50 Explored Deposits
946.6 Overall Reserves
2000.2 Prospective Resources
Chukotskiy Autonomous Region
2 Explored Deposits
14.7 Overall Reserves
11.4 Prospective Resources
Total
82 Explored Deposits
3,183.9 Overall Reserves
2,146.2 Prospective Resources
In order to ensure effective development of gas resources, four centers were identified around the largest deposits. Sakhalin center for gas production rests upon the deposits of the shelf area of Sakhalin – namely Sakhalin 1 and Sakhalin 2 projects and potentially Sakhalin 3-6 projects. The Irkutsk center is based on the Koviktinskoye deposit. The development of this deposit is associated with the development of the nearby Dulisminskoye and Markovskoye and a number of other deposits. Gas production in Yakutiya will concentrate around the richest Chayandinskoye deposit. Later, the neighboring Srednebotuobinskoye, Verkhnevilyuchanskoye and Tas-Yuryakhskoye deposits will step in. In Krasnoyarsk Krai production of natural gas will take place at Sobinsko-Paiginskoye andYurubcheno-Takhomskoye deposits.
Development of the above four centers will be conducted in several stages. Today, gas production takes place at the Sakhalin shelf only. 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 development of the 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 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 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 envision bringing the pipeline up to the Sea of Japan. Construction of a gas main 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. The Primorsky Krai authorities plan to switch over to gas all residences and industrial enterprises in the major towns and settlements of the region. Furthermore, Primorsky Krai envisions 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, Chayandinskoye deposit (Yakutiya) will join in. Gazprom considers the People’s Republic of China the most promising market for gas. Most conservative estimates for the growth rates of Chinese economy predict six percent annual production growth, while 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. Specialists talk of 3-5 percent annual growth. However, 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 are linked to that of oil on the world markets. Gazprom proceeds from a conservative prognosis of $25-30 per barrel when calculating approximate costs for Russia’s gas. In this case, the cost of 1,000 cubic meters of natural gas for People’s Republic of China will total $130, for South Korean - $160.
Yet, 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 of the share of natural gas and decrease of the share of coal. The real volume of coal consumption will not fall, however, as the gasification program does not approve of reduction of the coal consumption levels.
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 fuel and power sectors. However, its share in gas chemistry and processing surpasses country’s average figures – 37 percent against 21 percent in Russia as a whole. This creates prerequisites for 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 development of six large deposits, construction of over 5.6 million kilometers of pipelines, 17 compressor stations with the total capacity of 980 MVt, a gas processing plant, and two helium storage facilities, as well as three underground gas storage facilities. Implementation of this project requires dozens of millions of dollars and involvement of extensive domestic and foreign investment.
These activities will help resolve the pressing problems associated with gas supply 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.
