• More by Author
• Comments
• Send to a Friend
• Print

In Russia today the so-called independent gas producers (IGP) become more and more independent. And Gazprom has nothing to do with it, they are independent from each other.

IGP share in the total volume of gas production in Russia has been increasing since 2002. According to various estimates, the share of independent producers of “blue fuel” is now about 12-15 percent. In 2007, over 651 bcm of gas were produced in Russia, including 5,485 bcm produced by Gazprom (nearly 85 percent of the total amount). Thus, IGP production amounted approximately to 103 bcm. In the future, in accordance with the Energy Strategy adopted by the RF Government for the period till 2020, it is predicted that their share will reach 17 percent by 2010, and 20 percent by the end of the indicated period. In the experts’ opinion, including representatives of IGP, these share values may well become true.
In 2001, non-affiliated to Gazprom Russian gas producing companies united in a non-commercial Association (Union) of Independent Gas Producers (Soyuzgaz). It included Arktikgaz, National Oil-and-Gas Technologies, NOVATEK, Nortgaz, Purneftegazgeologiya, Sibneftegaz (then Itera’s subsidiary), Centrrusgaz, Tarkosaleneftegaz, Khancheineftegaz (the last two are now a part of NOVATEK Group), etc. It should be mentioned though that not all members of this organization have actually stayed outside the Gazprom system by now. For example, control stock of Sibneftegaz was sold to Gazprombank at the price of $131.5 million late in 2006, whereas the industrial experts estimated the price of this package in the sum of at least $2 billion.
Soyuzgas, in turn, is a member of the non-commercial partnership Russian Gas Society which includes a large number of the companies someway related to the gas business. Total gas-in-place belonging to Soyuzgaz members exceeds 4 tcm.

The Most Independent Gas Producers

NOVATEK is the largest independent producer of natural gas in Russia and the second one after Gazprom. License blocks and gas fields of the company are located in the Yamalo-Nenetsky Autonomous District (YaNAD). Gross production of NOVATEK in 2007 amounted to 28.52 bcm of natural gas. According to last year results, the company’s share in the total gas production was 4.4 percent, and about 8 percent in all-Russian gas deliveries to the customers. NOVATEK supplies gas to 39 regions of the RF.
According to Mark Jetway, Director of Finance of NOVATEK, the company will start the second stage development of the Yurkharovskoye field this October, which will definitely have a positive effect on the gas production. In 2009, the company is planning to increase the production by 20 percent. The proved gas reserves of NOVATEK in C3 category amount to 3.5 tcm.
Rosneft is the second company in Russia after Gazprom in the gas reserve volume and the third one in gas production. It stands apart from the rest of independent gas producers, as it is a state company. As appears from the name of this company, it is involved mostly in oil production, but since 1998, it has been consistently increasing gas production as well, having reached the amount of 15.7 bcm in 2007 (including subsidiaries and shares in production of the controlled companies). In the 1st Qtr. of 2008, production of natural and associated petroleum gas amounted to 3.4 bcm. Year by year, gas is assuming ever greater importance in the commercial activity of Rosneft. Gas strategy of the company covers both land and offshore fields. The core project of the land gas production is development of the Kharampurskoye field (55 percent of the company’s total proven gas reserves) in Western Siberia. The main offshore gas projects include Sakhalin-1, Sakhalin-3, Sakhalin-4, Sakhalin-5, and development of the West-Kamchatka shelf. Gas produced in the Far East will be delivered to the neighboring Russian regions and also to the rapidly rising Asian markets. As of the beginning of 2008, proved gas reserves of Rosneft amounted to 711 bcm. During his recent visit to the countries of the South-East Asia, President of the company Sergei Bogdanchikov stated that Rosneft was considering the possibility of setting-up a gas liquefaction plant using GTL technology (gas-to-liquids). In this respect, the company plans to work together with Malaysian Petronas – one of Rosneft’s largest foreign partners, which has considerable experience in gas processing, including production of liquefied natural gas.
Gas program of LUKOIL Group is aimed at accelerated gas production both in Russia and abroad so that its share would reach one-third in the total amount of produced hydrocarbons. According to LUKOIL President Vagit Alekperov, the company intends to become one of the largest gas producers. In 2006, the Group produced almost 16 bcm of gas including 13.6 mcm of commercial gas (after use for the technical needs at the field, injection to the reservoir and transportation losses). Total production of natural gas amounted to 10.7 bcm including 9.8 bcm of commercial gas, and associated petroleum gas – 5.2 bcm, including 3.8 bcm of commercial associated gas. In Russia, production of commercial gas by the Group amounted to 12.4 bcm in 2006 – 180.6 percent higher compared to the previous year. As of the beginning of 2007, operating gas well stock of the company (including international projects) amounted to 367 wells (including 295 wells in Russia), producing well stock – 285 (239).
Itera Group, which includes about 150 companies in 24 countries worldwide, is one of the largest independent gas producers in Russia and a large wholesale gas trader. Since 1998, the Group has been developing its own production in the YaNAD and Irkutsk Region. Itera became the first private company which started production at the gas fields in the Extreme North of Russia: in 1999 – Gubkinskoye (gas reserves amount to 399 bcm), in 2001 – gas production facility at the Vostochno-Tarkosalinskoye field (407 bcm), in 2003 – Beregovoye field (325 bcm). The total of over 100 bcm of natural gas was produced at the fields developed by Itera in the YaNAD. The company invested about $1.5 billion in the development of the gas-producing sector.
Itera receives the main amount of revenues from wholesale gas sale, including gas purchased from other producers. Gas produced by the company makes about 40 percent of its sales, forming 70 percent of its profit. Main gas producers of the Group in the RF include Purgaz, Sibneftegaz and Bratskecogaz. Since 2003, the Itera Group companies have been producing about 30 bcm of gas a year, planning to reach the production of 80 bcm by 2010.
Total reserves of the fields developed in the RF with the participation of Itera exceed 1.17 tcm of natural gas and 30 million tons of gas condensate.
Operator of the Severo-Urengoiskoye gas-condensate field (which was discovered in 1970) Nortgaz produced 22 bcm of gas and 4.5 million tons of gas condensate during six years of its operation, including 3.36 bcm and 579,100 respectively in 2007. The Severo-Urengoiskoye gas-condensate field is located 130 kilometers to the north of the Arctic Circle and belongs to the Bolshoi Urengoi field group which includes also such fields as En-Yakhinskoye, Pestsovoye and Urengoiskoye. The distance between this field and Novy Urengoi is 200 kilometers. It has a complex geological structure and includes 45 sheet deposits at the depth of 2-3.3 kilometers. Total amount of the field’s hydrocarbon reserves in the Nortgaz’ license block (proved reserves plus probable and possible resources) is as follows: separator gas – 345.9 bcm, commercial gas – 359.6 bcm, condensate – 66 million tons (as of January 1, 2007). The Western dome of the field, which is now under commercial production, is a significant asset of Nortgaz
As per the supply agreement with the gas giant, Nortgaz undertook a commitment to supply gas to the gas transportation system of Gazprom from January 1, 2006 till December 31, 2008. According to the production program of Nortgaz for 2008, it should condition and delivery to the gas transportation system of Gazprom 3.25 bcm of commercial gas including 3.2 bcm of separator gas, 61.5 mcm of de-ethanization gas, and 450,500 of unstable condensate. Investment program of the company for 2008 stipulates drilling of 14 wells, 11 of which are planned to be completed: seven gas-condensate wells, one oil well, two intake ones and one exploratory well at the Eastern dome.
However, Nortgaz can be classified as an independent company only conditionally: it was established by the Gazprom subsidiary UrengoiGazprom and British investors.
Surgutneftegaz produces over 10 bcm of gas a year, which is about one-third of the total amount of “blue fuel” produced by the Russian oil companies. Specialists of Surgutneftegaz have designed a technology for development of complex pools by a system of horizontal wells. Starting from 1996, about 90 of these wells have been placed in production, with the production rate four to five times higher compared to the production rate of wells drilled by the conventional technology. The company not only produces gas, but also conditions it to the level of the commercial product complying with the state standards’ requirements. Their level of associated petroleum gas utilization is the highest in the industry, and this indicator is improving every year as  the result of introduction of new facilities for gas utilization. In the medium-term period, the company plans to bring gas production to 22 bcm a year. In methane content (94-96 percent), gas produced at its fields is similar to natural gas which contains 98 percent of methane, which enables its utilization not only for the company’s technical need at the oil fields, but also its supply to the main gas pipelines.
These are major IGP in Russia, which are involved in gas production and sale. Performance of other companies is significantly lower.

Gas at the Exchange

Some words about gas trade. Since November of 2006, gas bidding with participation of independent producers has started at the electronic trading site – ETS of Mezhregiongaz (Gazprom subsidiary). Initially bidding took place once a month, and from February 1 of 2007, – every ten days. Original experiment “5+5” (at 5 bcm of gas from Gazprom and IGP) exhausted these amounts and passed over to the formula “7.5+7.5”. As one can see, the parity is formally maintained. However, Gazprom was allowed to sell amount of gas 15 percent larger compared to that of independent companies, as the latter have a right to sell gas at free prices and outside ETS.
A recent example – 18th of June, when gas bidding with delivery in the period from the 1 till the 31 of July of 2008 was held at the ETS of Mezhregiongaz. Alongside with Gazprom, NOVATEK, LUKOIL, Rosneft and Itera were quite active at this trading. 144.7 mcm of gas were sold on that day, including 62.1 mcm by the gas giant, and 82.6 mcm – by independent producers.
Electrical power companies were traditionally main purchasers. According to the bidding results, average gas price at the balance points amounted to 1,466.19 rubles, and at the consumers’ gas distribution stations – 2,246.55 rubles for thousand cubic meters, which was 34 percent higher than the weighted average gas price established by the RF Federal Tariff Service.
The Government regards the electronic gas trade as one of the tools for passing over to the market principles of the price formation. And the bidding results show that some industrial gas consumers are ready to pay the European price already now.
Besides, Gazprom commenced setting up an exchange in St. Petersburg, where futures trading will be arranged. Its opening is planned next year. After commissioning of the Nord Stream gas pipeline, international gas trade will be started for rubles.

Positioning Tone
According to the official statements, Gazprom maintains the tendency of IGP share increase at the gas market. It is expected that by 2020, independent producers will bring the annual gas production in Russia to the level of 140-180 bcm, and the gas monopolist – to 670 bcm. However, Gazprom representatives are not quite sincere when they say that expansion of gas production by the independent producers could promote strengthening of the potential of the Russian fuel-energy complex. This can promote first of all strengthening of Gazprom itself, as only Gazprom is in the command of the main pipelines, and not only domestic, but export ones as well. But it is necessary to transport the produced gas somewhere, and not only to the local consumers.
Whereas, according to the opinion of the analysts, in particular, Dmitry Lyutyagin from the Investment Company Veles Capital, demand for gas export from Russia can reach 390-400 bcm by 2020. Taking into account increasing internal consumption which is 420 bcm at present, Russia will have to produce over 800 bcm a year. Without IGP participation, Gazprom will not cope with this scale of production, even taking into account startup of the Yuzno-Russkoye field (having reserves exceeding 1 tcm) last fall, and rather vague plans regarding the Arctic shelf development.
“Part of our positions either coincide or is close to those of Gazprom, e.g. regarding such issues as taxation, gas prices increase, and development of independent sector,”  President of Soyuzgas Victor Baranov says confidently. In his opinion, Russia has all prerequisites for further approximation of the positions of the emerging gas market participants. “Independent producers do not demand provision of unrestrained discretion,” noted Vice-President of Nortgaz in Finance and Economy Vyacheslav Sotnikov. “We talk only of the necessity to use full capacity of the facilities of the companies, and to produce gas at the fields.”
Lately, there appeared information in mass media that Gazprom abandoned the idea of the “gas OPEC”. This statement can be true. In case of realization of this idea, it would be necessary not only to continuously negotiate with such gas producing countries as Algeria, Venezuela, Iran, Qatar and Turkmenistan, but also more seriously consider the approach of the domestic independent gas producing companies.

• More by Author
• Comments
• Send to a Friend
• Print