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Natural Gas to Accelerate Development of Eastern Russia

Source: www.gulfoilandgas.com 6/18/2012, Location: Asia

The Gazprom headquarters hosted the Press Conference entitled “Gazprom in Eastern Russia. Entry into Asia-Pacific Markets” on the threshold of the annual General Shareholders Meeting. Taking part in the Conference were Vitaly Markelov and Alexander Medvedev, Deputy Chairmen of the Gazprom Management Committee, Oleg Aksyutin, Member of the Gazprom Management Committee, Head of the Gas Transportation, Underground Storage and Utilization Department, Pavel Oderov, Head of the International Business Department, Nikolai Kabanov, First Deputy Head of the Gas, Gas Condensate and Oil Production Department, Viktor Timoshilov, Head of the East-Oriented Project Coordination Directorate and Oleg Ivanov, Deputy Head of the Prospective Development Department.

It was noted at the Press Conference that the Eastern Gas Program being implemented by Gazprom was primarily targeted at gas supply to consumers in Eastern Russia. The programs for gas supply and gasification development in the Sakhalin Region, the Kamchatka, Khabarovsk and Primorye Territories were approved. Natural gas utilization by the residential, industrial and power generation sectors of Russia's eastern regions would trigger their socioeconomic development.

Gazprom is intensely developing the resource base, gas production and transmission capacities as well as building gasification facilities in Eastern Russia. In 2011 the inter-regional Sakhalin – Khabarovsk – Vladivostok gas transmission system (GTS) was put onstream representing the backbone of the Unified Gas Supply System in Eastern Russia. The GTS allows for meeting consumers' gas demand simultaneously in several eastern regions of the country, initiating large-scale gasification as well as laying the foundation for gas supplies to the global market.

In order to support gas projects in Eastern Russia, it is required that the government channels the entire volume of entitlement gas within the Sakhalin II project to Russia's Far East development over the entire term of the Production Sharing Agreement.

It is expedient to grant benefits comparable with those existing in the oil sector in order to successfully implement Gazprom's gas projects in Eastern Russia. During the payback period it is necessary to act as follows: waive the severance tax; reduce or abandon the export duties on gas produced in Yakutia and the Sea of Okhotsk; decrease or cancel the import duties on equipment and goods having no analogs in Russia, but supposed to be used during the eastern gas projects execution, including creation of gas chemical plants.

Gazprom is a reliable LNG exporter to the Asia-Pacific market. 30 out of 34 LNG cargoes shipped by Gazprom were delivered to the Asia-Pacific countries in 2011. The Company is capable to provide its partners with extra supplies in case of emergency. For instance, after the Fukushima disaster, Gazprom supplied Japan with additional 325 thousand tons of LNG. Gazprom intends to continue providing affordable assistance to Japan.

Sakhalin II exemplifies a successful LNG project. In 2010 the LNG plant located in Sakhalin not only reached its design capacity (9.6 million tons per year), but exceeded it with 10.1 million tons of LNG. Yet in 2011 the plant yielded 10.6 million tons of LNG surpassing the projected level by 1 million tons. Most of the LNG (some 60 per cent) is delivered to Japan. Sakhalin gas is also shipped to China, India, Kuwait and Taiwan.

To date, Gazprom considers LNG as top priority in gas supplies to Asia-Pacific. The Company is elaborating the Feasibility Study for an LNG plant construction near Vladivostok. Moreover, Sakhalin Energy is carrying out pre-FEED studies on expanding the Sakhalin II project production facilities, particularly construction of the third LNG train at the plant.

The issues surrounding pipeline gas supplies to Asia-Pacific are being tackled. Gazprom and Chinese CNPC carry on negotiations over the commercial parameters of Russian gas supplies to the People's Republic of China via the “western” and “eastern” routes supposed to export up to 68 billion cubic meters of gas per year. Gazprom and South Korean KOGAS are studying a project for the trans-Korean gas pipeline construction.

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