Category Archives: Oil and gas

‘Power of Siberia’ gas pipeline construction commencement date has been announced

The construction commencement date for the ‘Power of Siberia’ gas pipeline that will run across Eastern Siberia into China has been announced. As confirmed by several sources in the industry, the commencement ceremonyPower of Siberia is scheduled to be held in the city of Yakutsk on September 1, 2014.

Gasprom previously planned to start the pipeline construction in the summer of 2014. In fact, in the middle of June the President of the company Alexey Miller stated that the first pipeline joint would be welded “as early as August”. Direct supplies of gas to China should start in 2019.

The ‘Power of Siberia’ gas transmission system is intended for gas delivery from the Irkutsk Region and Yakutia gas production centres to Vladivostok in the Russian Far East and China. The approximately 4,000 km 56-inch gas pipeline with an annual throughout of 64 Bcm/a will be constructed along the existing ESPO oil pipeline. The branch to China will run via the border city of Blagoveschensk. The 30-year contract to supply 38 Bcm/a of gas to China was signed between Gazprom and CNPC on May 21 2014 after 10 years of negotiations.

Image: the ‘Power of Siberia’ gas pipeline marked by red dash line (

Rosneft got an approval to complete Taas-Yuriakh purchase

Rosneft won clearance to bid for the remaining stake in a mid-sized Russian oil producer in which it already owns 35 percent, continuing an expansion drive which has made it the world’s largest oil company by output in just a year.

Russia’s antimonopoly watchdog FAS said in a statement on Tuesday it had approved Rosneft’s proposed purchase of the outstanding stake in Taas-Yuriakh, in which it bought 35.3 percent last year for $444 million from Sberbank (SBER.MM).

The deal comes as Rosneft ramps up its supplies to China, having agreed in June to double exports to Beijing to reach a total of 360 million tonnes over the next 25 years (300,000 barrels per day) in a deal worth $270 billion.

Rosneft, which had not previously announced the planned acquisition of the outstanding shares of Taas-Yuriakh, declined immediate comment. Unlike most Western markets, Russia has no hard and fast rule requiring a full offer on the purchase of more than 30 percent of a company’s stock.

Over 54 percent in Taas-Yuriakh is owned by private investors and 10.48 percent by UK-based emerging markets specialist Ashmore Group.

Led by Igor Sechin, Rosneft transformed into the world’s top oil company by output by snapping up TNK-BP in a $55 billion deal earlier this year.

Taas-Yuriakh initially plans to produce up to 1 million tonnes a year (20,000 barrels per day) from its East Siberian Srednebotuobinskoye field and aims to increase its output to 6.15 million tonnes (120,000 bpd) by 2016.

The field with reserves of almost 1 billion barrels is connected to the East Siberia-Pacific Ocean trunk by a 160 km pipeline.

New oil discovery in Irkutsk Oblast

As reported in Rosneft’ press release published on the corporate web site on 20 August 2013, a new oil and gas play was discovered on Mogdinsky license block located in the northern part of Irkutsk Oblast 160km north of ESPO.

According to the release the exploration well Mogdinsky-10 produced free-flowing gas condensate at the rate of 425 K m3/day and oil – 90m3/day in the course of testing Lower Ustkut horizon.

The well location was selected based on the fundamentally new geological model created by Rosneft’s subsidiary  RN Exploration LLC, which enabled Rosneft to tap a hydrocarbon deposit that was not encountered before.

The play’s reserves are estimated at over 4 mln. tonnes of oil and 2 bln. m3 of condensate.

Another discovery from the same horizon was made on Danilovo block where well No. 73 produced free-flowing oil at 165m3/day during the well test, which proves soundness of the new 3D seismic data-based geological model.

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Construction of 500km of gas and product pipelines is considered for Irkutsk Region gas reserves development

Ust-kut, 13 August 2013 (IA “Teleinform) – Implementation of gas-chemical facilities project to use feedstock from the fields in the northern part of the region  was discussed at the meeting headed by Sergey Eroschenko, Irkutsk Oblast Governor, in Ust-Kut on 13 August.

Marina Sedykh, Director General of Irkutsk Oil Company (INK), presented proposals on gas distribution network development in northern areas of Irkutsk Oblast. The potential investment project for development of gas reserves includes construction of about 500km of gas and product pipelines, which will support transportation of gas feedstock from the fields to Ust-Kut. Potential enhancement of the project to add the construction of a gas chemical plant in the vicinity of Ust-Kut is also evaluated. It is expected that 450 new jobs will be created.

A short time ago Irkutsk Oil Company announced that it was conducting a research on a gas-chemical complex construction in the north of Irkutsk Oblast.  On 1 August, at the regional government meeting on the creation of a gas processing cluster Marina Sedykh, the company’s Director General, was quoted as saying that the company was commencing a feasibility study for a potential investment project to develop gas reserves of Yaraktinskoye, Markovskoye and Zapadno-Ayanskoye petroleum fields. Construction of complex gas treatment facilities was also considered within the project. By applying a cryogenic technology the company intended to achieve a high (up to 96%) extraction of valuable components from the produced natural and associated petroleum gas. The project made provisions for 500km of gas and product pipelines to transport gas feedstock from the fields to Ust-Kut.

The regional government has embarked on a course of creating a number of industrial clusters including the petrochemical one.  In the regional government opinion, Irkutsk Oblast is best prepared for development of Eastern Siberia’s petrochemical cluster. In recent years, the regional oil and gas industry has seen accelerated growth: in 2012 the annual oil production increased over 25 times in comparison with 2008.  The tax incentives at the federal and regional levels have  played a defining role in this growth.

Irkutsk Oblast has already got several large-scale oil-processing and petrochemical centers located in Angarsk and Sayansk, which have a great technical and human resources potential to become a basis for high-volume gas processing development.  

The regional government supports construction of new industrial facilities for the petrochemical cluster by providing property and income tax exemptions, assistance in getting federal tax reliefs to attract investments to the regional  industry.

Russia ready to grant tax breaks for new Arctic projects

By Vladimir Kovalev

Earlier this year, Russian Prime Minister Dmitry Medvedev noted that Russian oil and gas operators’ attempts to explore the northern sea shelf were proceeding rather slowly. Exploration work in the Russian section of the Arctic has been 10 times less extensive than in the US section of the Chukchi Sea and 20 times less than in the Norwegian Arctic shelf, he was quoted as saying by RBC Daily.

Moscow may now be trying to remedy the matter. The Russian government has reportedly decided to accede to the requests of major state-controlled oil and gas operators to amend the federal tax code in order to generate additional funding for exploration of crude oil and natural gas deposits on the northern sea shelf.

Rosneft’s new project

Following reports of the Kremlin’s decision to reduce tax rates for new Arctic sites, state-owned Rosneft, Russia’s largest oil producer, announced that it had begun seismological research work in the Barents Sea, in co-operation with its Italian partner Eni.

The partners are slated to explore several sections of the Tsentralno-Barentsevsky Block, which may hold 7 billion barrels of oil equivalent, as well as the nearby Fedynsky deposit, which could contain more than 18 billion boe.

The sites may be home to nearly 15 billion barrels of oil and 1.9 trillion cubic metres of gas.

Using previously collected 2-D seismic data, Russian experts have identified 10 promising structures. However, it may take about 10 years to explore these structures thoroughly.

Rosneft has indicated that it intends to drill the first exploration well at the Fedynsky deposit in 2017, with additional seismological research to continue in 2018. Another well is slated to be drilled by 2020, and if the results are positive, a third well will be drilled at the block by 2025.

At Tsentralno-Barentsevsky, meanwhile, the first well is scheduled to be completed by 2021 and a second well by 2026, according to InvestCafe, a Moscow-based investment company.

High costs

In the exploration phase of this project, Eni will fund up to US$1.4 billion in new exploration expenses; it will also cover Rosneft’s previous expenditures in the area. But in the development phase, the Russian firm will be responsible for covering 66.7% of costs, while its Italian partner will carry 33.3%.

Since the total cost of exploring and developing the two blocks is anticipated to reach US$50-70 billion, Rosneft’s outlays will be quite high. Under these conditions, the company’s request for tax breaks seems reasonable.

Grigory Birg, an analyst at InvestCafe, noted that the Arctic projects were likely to be very expensive. “Production costs for crude oil on the Arctic shelf could reach US$40-50 per barrel, which is one and a half to two times higher than in Russia, on average,” he told NewsBase.

The amendments to the tax code take such difficulties into account, Birg said, and the extent of the concessions will hinge on the complexity of the sites in question. The legislation defines several categories of eligible sites and states which licence areas qualify for tax breaks, “including rates of 5-30% for production taxes [and] zero export duty, as well as zero [import] duty and VAT for imported equipment,” he said.

He added: “The government will also guarantee the shelf operators that the tax code will not be changed within a period of five to 15 years. This would enable the companies to make shelf projects profitable.”

Major challenges

However, Rosneft and its partner will still face serious obstacles.

One of the main challenges will be the extreme weather conditions that prevail in the area. Eni and Rosneft will only be able to work for two months each year, when the northern seas are free of ice, according to Vladimir Vovk, a scientist at the Gubkin Oil and Gas Institute in Moscow.

“The most serious problem on the Arctic shelf is the lack of drilling technology and equipment, as well as the very short length – only two months – of the ice-free season,” he was quoted as saying by This means that investors must have access to the technologies and equipment needed to carry out geological research, to conduct exploration and development drilling and to extract oil and gas from sites that are not only underwater but surrounded by ice, he explained.

Other projects

Nevertheless, work is moving forward on several projects. In June of this year, for example, Rosneft announced that it was starting seismological research work at the Lisyansky, Kashevarovsky and Magadan-1 sites in co-operation with Norway’s Statoil. The partners set up a joint venture for the project in 2013 on roughly the same terms as the Rosneft-Eni deal. The sites may hold as much as 1.74 trillion tonnes of oil equivalent.

Then in the first half of July, Gazprom, the state-controlled gas monopoly, was awarded exploration licences for sites in the Barents and Kara Seas. The company is likely to team up with a foreign partner, owing to the extremely complex nature of these sites.

Original article at

Amendment to the Russian subsoil legislation: exploration licenses for remote properties will be extended to 7 years


Russian President Vladimir Putin signed amendments to the Russian subsoil legislature which extend geological study licenses for remote acreages located fully or partially within the boundaries of Sakha Republic (Yakutia), Kamchatka Krai, Krasnoyarsk Krai, Khabarovsk krai, Irkutsk Oblast, Magadan Oblast, Sakhalin Oblast, Nenets Autonomous Okrug, Chukotka Autonomous Okrug, Yamalo-Nenets Autonomous Okrug from 5 to 7 years.

The amendments were issued on 23 July 2013 under the Federal law No. 227-FZ “On Amendments to the Law of the Russian Federation “On Subsoil”, which was passed by the State Duma on 3 July and approved by the Federation Council on 10 July. The new law will come into effect on January, 2014.

Gazprom will decide on the timing of Kovykta field development at the end of 2013

Gazprom will reassess the timeline for the Kovykta field development at the end of the current year.  This is stated in the company’s Board of Director’s work plan for the second half of the year.

A source familiar with the agenda for the Board of Directors meeting said that the status of the projects on Kovykta /Irkutskaya Oblast/ and Chayanda /Yakutiya/ would be reviewed at the Board of Directors meeting in December.

Gazprom_Chayandinskoye_Vladivostok_Pipeline_ProjectAfter acquisition of RUSIA Petroleum, the holder of Kovykta gas-condensate field development license, Gazprom virtually froze the project activities.

The issue of gas distribution from the Kovykta field located in Irkutskaya Oblast has always been a stumbling block.  As a matter of fact, there is no domestic market for Kovykta gas as the gas pipeline infrastructure in Eastern Russia is not developed yet. The main option for Kovykta gas sales was export.

The December decision to restart the Kovykta field project speaks to Gazprom’s intention to finalize gas price negotiations between Russia and China, the major market for  Russian gas in the Asia-Pacific region.

Gazprom previously stated that production at Kovykta would not commence until the Chayanda field goes on-line. The gas monopoly referred to the fact that Kovykta’s  gas reserves have multiple components to address, especially the issue of utilizing its most valuable components, primarily helium.

Nevertheless, a number of experts expressed their concerns in regard to the success of Chayanda field gas reserves development from a technological point of view. For example, Alexander Gritsenko, Adviser to the Director General, ‘Gazprom promgas’ Research Institute, stated that geological characteristics of Chayanda gas condensate field required development of new production technologies.   “Chayanda’s field formation temperature is +10°C, there are practically no fields that feature the same formation temperature in the world, and the formation pressure is abnormally low – 113-118 atmospheres instead of the  required 180. How can one develop such a field?” – the expert who has been the head of Russian Research Institute for Natural Gas and Gas Technologies (VNIIGAZ) for over 20 years, is wondering. According to him Gazprom has been dealing with the challenge of finding a new technique, which would enable  commercial production of gas on the Yakutiya field.

The final investment decision establishing  Chayanda field development over other projects in eastern Russia, was made by Gazprom at the end of 2012. This put off  prospects  of developing  the adjacent property in Leno-Tungusky petroleum province – Kovykta field. It would be geologically reasonable to put an emphasis on Kovykta development, – A. Gritsenko believes, in his opinion “production on Kovykta could have gone online as early as yesterday”.

Geological  factors may affect the timing of putting Kovykta field into production, which is not determined yet as there is no investment decision on this field development. Still the main remaining issue is the sales market, i.e. export to China. If Gazprom and China reach consensus over the price before the end of the year, Kovykta development may accelerate.  According to Sergey Pravosudov, Director of the Institute of National Energy, after signing the contract with China the decision on Kovykta field development can be made immediately.

A year ago the head of Gazprom,  Alexey Miller stated that the company was preparing an integrated project for Kovykta gas, condensate field and Chayanda oil, gas, condensate field development. “The integrated project for the development of the fields in Irkutskaya oblast and Yakutiya assumes the construction of a gas pipeline to connect both fields and subsequent transportation of gas from Kovykta on the new  ‘Yakutiya-Khabarovsk-Vladivostok’ gas pipeline” /Siberian power/, – he said.

According to Miller two  routes for the gas pipeline from Kovykta to Chayanda are considered – “North” and “South”, however the gas from the field in Irkutskaya oblast will go east.

Gazprom  planned to conduct the feasibility study on the integrated project investments as early as last summer.

Gas reserves of the Chayanda field are estimated at  1.24 trillion cubic meters (44 trillion cubic feet), the oil reserves and gas condensate-in-place reserves  – 79.1 MM tonnes. The Kovykta field reserves are 1.5 trillion cubic meters for gas and 77 MM tonnes for gas condensate.

Original source in Russian at

Rosneft promises to invest 1 trillion rubles in Eastern Russia

Rosneft may invest over 1 trillion rubles (31 billion dollars) in Eastern Siberia and Russian Far East in the next 5 years, Rosneft CEO Igor Sechin said during a video conference with President Vladimir Putin.  Sechin made his statement during a visit to Rosneft’s Orlan oil platform in the Sea of Okhotsk off Sakhalin Island.

“In the next five years, with your [Putin’s] support, and given that the tariff policy and the tax regime stabilize, our investment in East Siberia and the Far East in a conservative scenario may total 1 trillion rubles,” Sechin said.

According to Sechin, the development of Rosneft’s resource potential in the Far East will enable implementation of large-scale projects such as construction of an LNG plant in Sakhalin and a petrochemical complex in Primorsky Krai with the processing capacity up to 30 mln. tonnes.

In Sechin’s opinion, these projects should will spur the regional infrastructure development: construction of ports, power facilities, auto and railroads creating tens of thousands jobs.

Taxation in the Russian fuel and energy sector will be discussed at a meeting on the social and economic development of the Sakhalin Region later in the day, Putin said during a video conference.

“As for taxation, we’ll speak about this today at a meeting on the development of the Sakhalin Region. I’m sure solutions will be found that will be acceptable for both producers, the regional budget and the central budget,” Putin said.