No. 1, 2010

Strategic priorities and quantitative benchmarks for development of Russia’s oil and gas industry in the 21st century

The most vital condition for long-term development of the oil and gas industry in Russia is provision for national security and the country's defense capability through government control over development of strategically significant fields, organization of deep refining of oil and associated gas with all valuable components being recovered and utilized, assurance of reliable supplies of petroleum products and petrochemical products to the domestic market.

Three scenarios

The strategic goals for development of the oil complex include providing for sustainable stable and cost-effective satisfaction of the growing domestic demand for oil and its products; strengthening of Russia's role as one of the global economic leaders and protecting its geopolitical interests; generating revenues into the Federal budget; creating solvent demand for the output of related branches of the national economy (engineering, services, transport, and so on).

Three scenarios can be identified in this connection: the inertial, energy- and commodity-based, and innovative.

Up to 2030 and beyond, the Russian energy sector will continue to play a crucial role in fulfilling the country's strategic tasks.

By 2030, provided favorable conditions are in place, gas production may reach 1,075 billion m³ under the innovative scenario, 980 billion m³ under the commodity-based scenario, and 874 billion m³ under the inertial scenario.

In the innovative variant, production of condensate in Russia will rise to 30.8 million tons by 2020, and to 41.1 million tons by 2030. In the commodity-based and inertial variants this indicator will vary between 24.1 and 27.3 million tons in 2020, and between 35.3 and 38.7 million tons in 2030.

Production of gas, condensate and oil will be largely determined by the state of the available mineral resources base.

In order to attain the anticipated rise in reserves of gas, condensate and oil, the volume of exploration and drilling in 2008-2030 should constitute 59 million meters under the innovative scenario, 55 million meters under the commodity-based scenario, and 52 million meters under the inertial scenario. The annual amount of drilling should increase from 1.5 million meters in 2008 to 2.6-3.1 million meters in 2030, depending on the scenario.

Under the innovative scenario, seismic exploration for gas, condensate and oil will amount to 3,605,000 meters in 2008-2030; under the commodity-based scenario, 3,423,000 meters; and under the inertial scenario, 3,245,000 meters. Their annual volume must increase from 110,000 meters in 2008 to 126,000-152,000 meters in 2030.

In the European direction

Already in the next few years, the Government of Russia plans to regain and strengthen Russia's export positions in the European direction. As far as oil transport is concerned, the main project in the North Atlantic direction is development of the Baltic pipeline system. This includes construction of the new Unecha-Ust-Luga oil pipeline and an oil loading terminal at Ust-Luga (BTS-2, implementation period: 2009-2012).

In the south-westerly direction, the following are planned: construction of the Burgas-Alexandropoulis oil pipeline (2010-2012); expansion of oil-loading terminals in Novorossiysk and Tuapse; increase in the through capacity of the Caspian Pipeline Consortium (2010-2013); increase in the capacity of the Atyrau-Samara pipeline (2010-2014).

Natural gas exports to Europe and Turkey will rise as the infrastructure projects providing for direct deliveries are implemented (Nord Stream, South Stream) and as a result of control being established over the gas transport infrastructure of the CIS transit countries. Gas exports in the Atlantic direction, given favorable development of the situation, may reach 221 billion m³ by 2020 and 227 billion m³ by 2030.

One of the biggest energy projects in the world is development of the natural gas and condensate reserves of the Yamal Peninsula and construction of the Yamal-Center gas pipelines. It is planned to bring gas production on the peninsula up to 280-300 billion m³ a year. A 2,451-kilometer gas transport system must be built to transport Yamal gas to the Unified Gas Supply System of Russia.

In order to provide for a rise in gas production at the Nadym-Pur-Tazov confluence and organize additional supplies in a westerly direction, the Urengoy gas transport hub is being expanded and the Northern Tyumen Regions-Torzhok gas trunkline is being built (to be completed in 2011). This pipeline will become part of the current multipipe gas transport system Urengoy-Nadym-Peregrebnoye-Ukhta-Torzhok and will make it possible to increase pumping of gas to the Northwestern region of Russia and build up export supplies along the Yamal-Europe gas pipeline.

The most important project being implemented in the North Atlantic direction is the Nord Stream, which will diversify Russia's gas export routes, ensure direct access to the Europe-wide gas network and enhance the reliability and commercial efficiency of gas sales.

The project for developing the Shtokmanovskoye gas condensate field provides for the delivery of natural gas (by pipeline and liquefied) to North-Western Europe and the United States (beginning from 2011-2017). It is planned to build a gas pipeline from the Shtokmanovskoye gas condensate field to Teriberka (on the shores of the Barents Sea) (about 600 kilometers) then to Murmansk and St. Petersburg (1,500 kilometers), as well as a natural gas liquefying plant and an LNG terminal in Teriberka.

In the long-term, it will be necessary to develop the infrastructure for transporting condensate and LNG by the Northern Sea Route to Europe and North America. This will involve expanding the ice-breaker and tanker fleets, creating capacities for liquefying gas, building liquid bulk terminals on the Yamal Peninsula and in the Gulf of Ob and, for supplying hydrocarbons from the eastern part of the Yamalo-Nenets Autonomous Area and the north-western regions of Krasnoyarsk Territory - in the lower reaches of the Yenisey and on Dickson Island.

The South Stream project is designed to provide for direct deliveries of Russian natural gas to the countries of Southern Europe. The underwater segment of the pipeline is to pass along the seabed of the Black Sea from the compressor station at Beregovaya to the Bulgarian coast (work is to begin in 2010-2013).

The most significant gas pipeline projects in a southerly direction are construction of a Caspian gas pipeline (2010-2012), modernization and expansion of the through capacity of the Central Asia-Center (2010-2012) and Bukhara-Urals (2012-2013) systems.

In the sphere of petroleum product transportation, the priority projects are: bringing the North petroleum product pipeline Kstovo-Yaroslavl-Kirishi-Primorsk up to its design capacity (2010); construction of a petroleum product pipeline Andreyevka-Ufa-Subkhankulovo-Almetyevsk-Kstovo, its integration into the unified infrastructure of the North export trunk system (2010-2011); laying of the South pipeline Syzran-Saratov-Volgograd-Novorossiysk (2010-2012); reconstruction of the Tambov-Orel-Unecha pipeline segment (2010-2011).

Particular focus

To reach the Pacific Ocean markets is Russia's strategic task. In recent decades, demand for gas and development of gas supply systems in the Asia-Pacific Region have been growing more than in the world in general. This has resulted in an increase in the APR's share within the structure of global gas consumption from 1% in 1970 to 16% last year. The biggest consumers are Japan (90-95 billion m³ a year), China (80-85 billion m³), India (over 40 billion m³) and South Korea (about 40 billion m³).

To provide for large-scale deliveries of natural gas to Russian consumers and to the APR countries, it is planned to build an infrastructure for a super-long-distance pipeline gas transportation system and several plants for refining and liquefying natural gas, and create LNG and condensate handling facilities at the ports of the Khabarovsk and Primorsky Territories, and in the Sakhalin Region.

In developing a gas transport system in the East of Russia, construction projects are being considered for the following gas pipelines: Kovyktinskoye field-Sayansk-Proskokovo (connecting with the Unified Gas System), Chayandinskoye field-Kovyktinskoye field, and Kovyktinskoye field-Sayansk-Angarsk-Irkutsk-Ulan-Ude-Chita. As the volume of hydrocarbon production in Eastern Siberia and the Republic of Sakha increases and the Eastern Asia gas supply infrastructure is developed, a final decision will be made concerning the specific route for the export gas pipeline: either Kovyktinskoye-Chayandinskoye-Skovorodino-Khabarovsk-Vladivostok-Nakhodka, with a branch going off to China in the area of Dalnerechensk and an LNG terminal in Nakhodka, or Chita-Skovorodino-Khabarovsk-Vladivostok-Nakhodka.

So far, the Far East has the following gas pipelines: North Sakhalin - South Sakhalin, North Sakhalin-Komsomolsk-on-Amur-Khabarovsk; and the oil pipelines: North Sakhalin-Komsomolsk-on-Amur, North Sakhalin-De Kastri port. In 2011, the Khabarovsk-Vladivostok gas pipeline will be completed. In the vicinity of Khabarovsk, these trunk pipelines will join the Eastern Siberia-Far East gas pipeline systems.

Another major project for reaching the energy markets of the Asia-Pacific Region is the Altay gas pipeline, envisaging large-scale supplies of gas from Western Siberia to the western parts of China. From 2012 to 2015, it is planned to build a gas trunkline along the Yamal-Nenets Autonomous Area (CS Purpeyskaya)-Surgut-Kuzbas-Altay-China transport corridor.

The key oil transport projects in the Pacific direction are completion of the first stage of the Eastern Siberia-Pacific Ocean-Tayshet-Skovorodino oil pipeline (2009); construction of its 2,100 -kilometer second stage Skovorodino-Kozmino Bay (2013-2014); laying of the Skovorodino-Datsin pipeline (2009-2011); connection of the fields in Eastern Siberia and the Republic of Sakha (Leno-Tengusskaya oil and gas bearing province) to the Eastern Siberia-Pacific Ocean pipeline (2009-2014); construction of the Purpe-Samotlor oil pipeline to connect the western and eastern segments of the Russian pipeline system (2010-2011); bringing the oil transport system up to design capacity within the scope of the Sakhalin-2 project (including the 800-kilometer South Sakhalin-North Sakhalin line and construction of a special terminal in the south of the Sakhalin island, in the area of Korsakov).

Implementation of the above-listed projects will necessitate substantial investment, which, alongside government investments, will come from the own funds of Transneft and Gazprom (including revenues from raising investment tariffs on the most heavily loaded stretches of the pipeline system) and of Russian oil companies interested in implementation of particular infrastructure projects (including within the scope of specialized consortia); investments by investment and financial entities raised on project finance conditions; long-term credits from Russian, foreign and international government and nongovernmental organizations; and direct financing out of the Federal budget.