Mineral and raw material base development. Gas production. Gas transmission system development

June 14, 2007

Participants:

  • Alexander Ananenkov, Gazprom’s Board of Directors’ Member, Deputy Chairman of Gazprom’s Management Committee;
  • Vasily Podyuk, Gazprom’s Management Committee Member, Head of Gazprom’s Gas, Condensate and Oil Production Department;
  • Sergey Pankratov, Deputy Head of Gazprom’s Strategic Development Department & Head of Long-Term Development Division;
  • Alexander Shaykhutdinov, Deputy head of the Department of Gas Transportation, Underground Storage and Utilization.

Since the Briefings are held in the Russian language, all the related reference sources, videos and presentations can be viewed in the Russian version of Gazprom’s website. The background information and presentations in English will be placed at a later time.

Mineral and raw material base development. Gas production. Gas transmission system development

Reference to the press conference:

Mineral and raw material base development

In 2006 Gazprom Group's A+B+C1 gas reserves increased 723.4 bcm to 29.85 tcm. The A+B+C1 liquid hydrocarbon stocks grew 30.1 mln t. Gazprom's license blocks contain over 60 and some 17 per cent of the total Russian and global explored gas reserves, accordingly.

In 2006 independent engineering companies DeGolyer & MacNaughton and Miller & Lents performed under the SPE international standards an assessment of Gazprom Group's A+B+C1 reserves including 94 per cent of gas stocks, 94 per cent of oil stocks and 90 per cent of gas condensate stocks. According to DeGolyer & MacNaughton's appraisal, Gazprom's proven and probable reserves (excluding the data on Gazprom Neft) accounted for 20.73 tcm of gas, 658.99 mln t of gas condensate and 290.88 mln t of oil currently valued at US$ 182.5 bln.

At the same time, according to Miller & Lents? assessment, Gazprom Neft's proven and probable reserves stood at 0.033 tcm of gas and 775.6 mln t of oil currently valued at US$ 26.1 bln.

Gazprom is performing geological survey in the areas with developed production (Nadym-Pur-Taz region, Precaspian oil-and-gas-bearing province) as well as in a new gas-bearing province on the Yamal Peninsula. Gazprom's strategic goal is establishing its resource base in Eastern Siberia, the Far East and Arctic offshore areas. The preset objective for the period up to 2010 is ensuring parity between reserve growth and production rates. Starting from 2011 the aim is to launch expanded replenishment of the mineral and raw material base.

In 2006 the gas reserve growth via geological exploration made up 590.9 bcm, with oil and gas condensate stocks increasing 58.8 mln t including 35.6 mln t developed by Gazprom Neft.

So, for the second consecutive year Gazprom has secured a gas reserve increase exceeding an extraction volume.

The Company has obtained licenses for blocks with 819.2 bcm and 11.7 mln t of gas and oil reserves, respectively. The year 2006 saw the discovery of three gas condensate and one oil deposit including the Chikanskoye field in Eastern Siberia with some 100 bcm in C1+C2 gas stocks. Gazprom also discovered 30 hydrocarbon reservoirs including 11 oil, three gas condensate and one gas reservoir discovered by Gazprom Neft.

To achieve higher efficiency in geological exploration Gazprom applies state-of-the-art survey technologies and methods. So, for Shtokman's follow-up exploration purposes a new method of commercial reserves treatment has been employed. The method doesn't require a big scope of costly exploratory drilling. The data processing procedure included application of modern seismic attribute analysis methods along with regression and neuronetwork algorithms that enabled through drilling of only one extra exploratory well to significantly adjust Shtokman's reserves. The follow-up exploration results have ensured a 348.4 bcm increase in gas reserves, which is about 60 per cent versus the total gas reserve increment via geological exploration in 2006. At present the method is employed for resurvey purposes in the Severo-Kamennomysskoye field, Ob Bay.

In 2006 Gazprom intensified actions in relation to the acquisition of field exploration and development licenses, with 32 subsoil use licenses received during the reporting period, including nine licenses in Central Asia.

Five hydrocarbon prospecting, exploration and development licenses (including two – in the Krasnoyarsk Krai, two – in the Tomsk Oblast and one – in the Sverdlovsk Oblast) have been won through competitive procedures. Furthermore, Gazprom Neft was competitively awarded three upstream licenses: two – in the Krasnodar Krai and one – in the Tomsk Oblast.

Gazprom Group of companies also received four licenses for newly discovered fields, including three in the Kara Sea offshore (Severo-Kamennomysskoye, Kamennomysskoye-Sea, Obskoye fields) and one with the right to produce hydrocarbon feedstock in the Lenskoye field.

Gas production

In 2006 Gazprom extracted 556 bcm of natural and associated gas (one bcm up on 2005), which is 84.7 per cent of the overall gas production in the Russian Federation).

The natural decline in gas production from Gazprom's basic fields accounted in 2006 for 25.2 bcm. The decrease was mainly offset via production growth in the Pestsovaya area of the Urengoyskoye field, Zapolyarnoye field, Aneryakhinskaya area of the Yamburgskoye field, Komsomolskoye field as well as via the acquisition of Gazprom Neft.

Over the past five years Gazprom brought onstream the Zapolyarnoye, Vyngayakhinskoye, Yety-Purovskoye fields, Neocomian deposits of the Yen-Yakhinskoye field, Tab-Yakhinsky block and Pestsovaya area of the Urengoyskoye field as well as the Aneryakhinskaya and Kharvutinskaya areas of the Yamburgskoye field with an overall nominal capacity of 177.5 bcm of gas per annum.

Gazprom's development strategy for promising fields contemplates making investments in the upstream sector based on a priority list made up with due regard of the economic efficiency of comprehensive harmonized capacity development in the gas production, transmission, processing and storage segments. To meet domestic demand and fulfill export commitments Gazprom plans to produce no less than 550–560 bcm by 2010, 580–590 bcm by 2020, 610–630 bcm by 2030. In 2007 construction in the upstream sector will be funded with some RUR 105.8 bln.

Up to 2010 the gas production level will be maintained through the commissioning of capacities at existing and new sites in the Nadym-Pur-Taz region: Yuzhno-Russkoye field, Neocomian deposits of the Zapolyarnoye and Pestsovoye fields, Kharvutinskaya area of the Yamburgskoye field, Achimov deposits of the Urengoyskoye field. Their economic viability is explained by the proximity to the existing gas transmission infrastructure. The main investments in production in 2007 are earmarked for the pre-development process in the Kharvutinskaya area of the Yamburgskoye field and the Yuzhno-Russkoye field – RUR 25.7 and 21.3 bln, accordingly.

After 2010 there are projections to exploit new strategic gas production provinces on the Yamal Peninsula, in the Barents Sea offshore, Ob and Taz Bays, Eastern Siberia and the Far East. Field development in these hard-to-reach regions with harsh climatic conditions will require already in the near future making considerable investments due to the need of meeting complex technological challenges during drilling, taking environmental protection actions, laying pipelines and communications.

In 2006 the strategic decision was made to launch the development of fields on the Yamal Peninsula. The total reserves of Yamal's prominent fields (with Gazprom Group's companies as development licensees) – Bovanenkovskoye, Kharasaveyskoye and Novoportovskoye – make up 5.8 tcm of gas, 100.2 mln t of gas condensate and 227 mln t of oil. The Bovanenkovskoye field is a paramount development target on Yamal. In 2006 the decision was taken to bring in 2011 into operation first startup complexes with a capacity of no less than 15 bcm of gas a year and a main gas pipeline system from Bovanenkovo to Ukhta. On the whole, the project contemplates a 140 bcm/yr extraction level and a 2,400-km-long multi-line gas transmission system to be constructed from Yamal to Torzhok. Investments for Yamal's development in 2007 are earmarked at RUR 26.2 bln.

The largest pre-development site in the Barents Sea is the Shtokman field with the C1+C2 gas and condensate reserves accounting for 3.7 tcm and 30.7 mln t, respectively. At an initial development stage the priority will be given to pipeline gas deliveries. The nominal extraction level is 71 bcm/yr to be potentially increased to 94 bcm/yr. The field is viewed as a resource base for Russian gas export by the Nord Stream gas pipeline. There are plans to develop the field with the use of modern technologies, including with a view to producing LNG. For these purposes, authoritative international companies are projected to be invited as contractors. At present the project details undergo adjustment. The investment volume for 2007 will make up RUR 17.1 bln.

Russia's Government has entrusted Gazprom with acting as coordinator of the Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, taking account of potential gas exports to China and other countries of the Asia-Pacific region. The Program stipulates setting up new gas production provinces in eastern Russia: Sakhalin, Yakutsk, Irkutsk and Krasnoyarsk ones.

Gazprom's key goals for Eastern Siberia and the Far East are: establishing a resource base via the participation in competitive procedures for subsoil use rights; carrying out geological exploration; developing gas supply projects; ensuring interaction with existing gas market players. The Sakhalin Island has been identified as a launch site for full-scale commercial development.

Gas transmission system

The gas transmission system is comprised of a vast main gas pipeline network, compressor stations and underground gas storage (UGS) facilities. Thanks to the centralized management, big ramification and parallel transmission routes, Gazprom's gas transmission system (GTS) has a considerable reliability margin and is able to continuously convey gas even during seasonal peak demand.

In 2006 717.8 bcm of gas was fed into the gas transmission system, including 115 bcm from 28 companies with a legal right to access the Gazprom GTS.

On the Russian territory an average distance of gas transmission via the Unified Gas Supply System (UGSS) is some 2,600 km for domestic gas supplies and 3,600 km for exports. The year 2006 saw the commissioning of 1,526.1 km of gas mains and branches as well as nine gas pipeline compressor stations with a total capacity of 718,000 kW and one UGS compressor station with a capacity of 20,000 kW.

Gas Transmission System Reconstruction, Repair and Maintenance

Most gas pipeline sections are situated in regions with a severe climate, where their replacement, maintenance and overhaul are technically complicated and associated with high costs.

In 2006 Gazprom's overall capital investments in the GTS reconstruction and technical re-equipment were RUR 41.6 bln. The performed work resulted in a 0.8 bcm/yr increase in the GTS capacity, a 313 mcm economy of fuel gas and a 576 t/yr decrease in CO2 emissions.

In September 2006 the Gazprom Management Committee approved the comprehensive GTS Reconstruction and Technical Re-Equipment Program for 2007 over 2010. The Program contemplates reconstructing 5,000 km of gas pipelines, replace or upgrade more than 500 gas pumping units, reconstruct 300 gas distribution stations. Gazprom's 2007 budget provides for RUR 183.9 bln in capital investments in the GTS development, including RUR 50.2 bln to be channeled for reconstructing gas transmission facilities and the rest – for developing GTS.

Gazprom performs capital repair and preventive maintenance so as to secure the gas supply reliability.

As a result, the number of technical failures for 1,000 km decreased from 0.58 in 1985 to 0.12 in 2006. The decline in breakdowns is a direct consequence of the introduction of progressive GTS in-line inspection and scheduled preventive maintenance methods enabling to replace and repair worn out sections and equipment.

In 2006 Gazprom performed diagnostic inspection of 16.9 thousand km of gas pipelines using ILI methods and 29.9 thousand km via electro-metric and inspection & technical investigations.

Based on the diagnostics results, capital repair was performed at 184 underwater crossings and 2,598 km of gas pipelines including with 2,036 km completely re-insulated. Additionally, Gazprom reconstructed 30 gas pumping units with a total capacity of 453 MW as well as 39 km of gas pipelines and two underwater crossings.

Underground Storage

The system of UGS facilities located in Russia secures during the heating season nearly 20 per cent of gas supplies to Russian and foreign consumers. During sharp cold spells the identical figure reaches 27 per cent. By autumn/winter 2006–2007 Gazprom operated in Russia 25 UGS sites with 63 bcm in commercial gas volume. By the start of the season the peak daily UGS send-out capacity was 600 mcm, with an average daily send-out capacity during December-February making up 488 bcm.

According to estimates, creating UGS capacities is 5–7 times less expensive than creating back-up capacities in the gas production and transmission sector, with costs recovered within 8–10 days. To raise the flexibility and ensure an optimum loading of the system Gazprom expands UGS capacities. The work is underway to achieve a 758 mcm rate of daily send-out capacity by the withdrawal season 2010–2011. In 2006 commercial gas storage capacity grew 400 mcm, with the peak daily withdrawal capacity increasing 32 mcm/d and an average daily withdrawal capacity in December-February – 10.5 mcm/d up.

Along with the reconstruction of existing UGS facilities Gazprom is engaged in the construction of three Russia based UGS sites with a total active capacity of three bcm. A further several structures are at a survey and pre-development decision making stage. Taking account of prospecting and development drilling operations, investments in UGS sites for 2007 are planned at RUR 11 bln.

Gas Transmission System Development

Gazprom's development strategy stipulates expanding transmission capacities and diversifying gas transmission routes.

A priority export project is the Nord Stream gas pipeline across the Baltic seabed. The 1,200-km-long marine pipeline will carry gas from Russia to Germany; wherefrom it can be further transported to the Great Britain, the Netherlands, Belgium and France. The first 27.5 bcm/yr line is due to be operational 2010.

In Russia construction is underway on a gas pipeline from northern Tyumen Oblast to the town of Torzhok (NTO – Torzhok), which will enable to increase gas supply to consumers of Russia's Northwest region as well as to boost exports via the Yamal-Europe gas pipeline. As at year-end 2006, an over 2,000-km-long pipeline linear part and four compressor stations have been commissioned. Over 2007 investments in this project are earmarked at RUR17.4bln. To feed gas from the Shtokman field to Russia's Northwest region there plans to build a gas pipeline from northern Murmansk Oblast to Volkhov.

Construction commenced on the Gryazovets-Vyborg trunkline. It will convey gas to Russia's Northwest region and the Nord Stream gas pipeline. Investments for 2007 are RUR 26.8bln.

The work is underway to expand the Urengoy transmission hub for increasing volumes of gas produced by independent suppliers. By year-end 2006, two of the three compression stations and 123 of 400 km of a gas pipeline have been commissioned. The project investment for 2007 is RUR16.5bln. The Federal Service for Tariffs approved a calculation methodology for gas transportation services along new sections of the gas transmission network, which, amongst other things, determines a tariff rate securing returns to investors.

The year 2007 is planned to see the completion of two gas pipelines:

Sokhranovka – Oktyabrskaya with a length of 310km and annual throughput capacity of 28 bcm for gas supply to consumers in the Rostov Oblast, Krasnodar and Stavropol Krais without Russian gas transit through the territory of Ukraine;

Kasimovskoye UGS facility – Voskresensk: 204km in length and 4.8 bcm in annual throughput capacity for higher gas supply volumes and reliability during peak demand periods in Moscow and its suburbs. 2007 investments for these projects are RUR 15.3 bln.

A crucial project after 2010 will be the construction of a multi-line GTS for gas conveyance from the Yamal Peninsula fields to Torzhok. The 2,400-km-long system is designed for increased operating gas pressure and will consist of 1,420mm pipes. The project is currently at an engineering and design stage.

The Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, entrusts Gazprom with the strategic task of establishing a gas pipeline system in these Russian regions. The Company has devised a General Gas Supply Scheme and organized the design work on a gas main and distribution system in the Irkutsk Oblast. Additionally, Gazprom developed the Main Provisions of the General Gas Supply and Gasification Scheme for the Far East, signed gasification agreements with the Primorsky Krai, Sakhalin Oblast and Khabarovsk Krai. As part of the creation process for a Sakhalin-Khabarovsk-Vladivostok gas transmission system, the work is underway on the acquisition of relevant assets in the Far East as well as a survey is in progress as regards the potential establishment of a regional integrated gas transmission network, including a parallel line to the Eastern Siberia-Pacific Ocean oil pipeline throughout Yakutia and other constituents of the Far East Federal District.