the RUSSIA oil & gas competitive intelligence report - Report Buyer

Russia Oil and Gas Competitive Intelligence Report 2010
new blocks stood at 462.6bcm of gas (based on Russia’s A, B and C1 classification). Although Gazprom
did not disclose its output projections for Chayandinskoe, CEO Miller stated that the high helium content
of the block's gas would require the construction of an expensive processing plant. Gazprom planned to
bring the block onstream in 2016, the same year it plans to finish the construction of the Yakutia-
Khabarovsk interconnector. The 6,000km pipeline has a design capacity of 32-35bcm per annum and
aimed at eventually enabling exports of Yakutia’s gas from coastal LNG terminals.
By mid-2009 Gazprom had already been awarded 14 blocks in eastern Russia without a competitive
tender. According to Vedomosti, Gazprom paid around RUB11bn for the blocks, which have combined
reserves of 6.29trn of gas and 8bn bbl of condensate. Apart from its petition for four new Yakutia blocks,
Gazprom asked the government for tax holidays and/or export duty exemptions for its eastern projects.
The newspaper’s government sources claim Putin overall supported Gazprom's suggestions.
Whether Gazprom has the need or the capacity to develop the new Yakutia permits is in question. In 2004
Gazprom estimated Chayandinskoe’s reserves at 1.24tcm, over half of Yakutia’s total, and more than
sufficient for the planned pipeline to the Pacific. Moreover, the impact of the recession on Gazprom's
finances has already forced the company to freeze several high-profile projects in the east and north of the
country. In the current circumstances, Gazprom would find it difficult to fund the development of
Chayandinskoe, let alone the four new Yakutia blocks it has asked for. The concessions are therefore
likely to be idled for years to come.
According to Vedomosti’s report in July 2009, wholly state-owned Rosneftegaz may replace Gazprom in
the ownership talks for the giant Kovykta field in the eastern Irkutsk region. Nominally, the majority
stakeholder in the project remains TNK-BP, but as a result of pressure from the energy ministry, for the
past two years the Anglo-Russian company has been negotiating the sale of its stake to Gazprom. The
MoU on TNK-BP’s sale of its interest in the Kovykta operating vehicle, Rusia Petroleum, to Gazprom
was signed in June 2007. In pushing for the sale, the Kremlin focused on TNK-BP's failure to raise gas
output at the project to the 9bcm required by the terms of the contract. This was based on the assumption
that the Irkutsk authorities would comply with their part of the contract, building the required downstream
infrastructure to channel Kovykta’s gas to local end-users. Irkutsk has failed to do this: the utilised gas
output at the field is by early 2009 was an annualised 30Mcm.
TNK-BP's inability to raise production led the Russian subsoil agency, using somewhat perverse logic, to
threaten to withdraw the Kovykta licence. It was thought that once Gazprom took the reins, the company
would be likely to alter contract terms to allow exports outside Irkutsk, with the eventual aim of
constructing a gas pipeline to China. It now appears, however, that Kovykta has become the latest major
gas development to be shelved by Gazprom as a result of the recession. Officials at the company told
Kommersant that given the current demand conditions, Gazprom would prefer to concentrate on cheaper
and lower-risk projects, adding that they were 'indifferent' towards Kovykta.
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