The Russian Far East as a New Gas Hub Prospects for the Development of Production, Processing and Transportation to Asia-Pacific Region

By Irina Dubrova, September 19, 2013

Forecasts of lower world prices for gas in the coming years are depressing the investment attractiveness of the exploration and production of “expensive” fields in the east of Russia — the cost of operating in the region is significantly higher today than in other territories. Nevertheless, Gazprom does not intend to downsize its 2007 Eastern Gas Program; to the contrary, the Russian giant intends to carry it out, counting on domestic consumption and the growing demand shown by countries in the Asia-Pacific region.

“The gas market in the East is very deep and is growing very fast and the company will increase the volume of its financing for the Eastern Gas Program, including geological surveying and development of the resource base. <…> In the mid-term, we could reach a level allowing us to export gas to the Asia-Pacific Region in volumes comparable to those delivered to Europe. And pipeline delivery is envisioned only for China”, Gazprom CEO Aleхei Miller said in May this year. 

In 2013, alongside stepping up geological surveying, and increasing gas production in East Siberia and the Far East, construction will begin on an LNG production facility in Vladivostok. That city, which is today linked by a trunk pipeline to Sakhalin, will become a powerful transport hub when it is reached by a pipeline from Yakutia. These plant and pipeline projects are to be completed by 2018, although the issue of financing the capital-intense sites has not yet fully been decided.

Gazprom Increases Exploration

This year Gazprom admitted that the forecast estimation of gas reserves in the Russian Far East was overstated. But this conclusion merely turned into a driver to step up geological surveys in the region, less than 10 percent of which has been studied extensively.  With 65 trillion cubic meters of estimated reserves, only 4 trillion cubic meters have been “proven”. In order to increase this figure, Gazprom decided that beginning in 2013, it would invest40 billion rubles a year into exploration of gas fields in the East.

The gas monopoly has placed its main bets in developing gas production in eastern regions of Russia on East Siberia – specifically, the Chayandinskoye field in Yakutia (where production is scheduled to begin in 2016, with a subsequent volume of 25 billion cubic meters a year), and the Kovyktinskoye field in Irkutsk region. 

In the Far East, the most promising region is the Sakhalin shelf, where expansion is planned to augment production that has been under way for some time. In 2012, over 27 billion cubic meters of natural gas was produced on the Sakhalin shelf, a figure 5 percent more than in the previous year. 

Growth is expected to increase at the same rate this year, but the foundation is being laid for future acceleration. Under the Sakhalin-3 project, natural gas production is slated to begin at the Kirinskoye gas condensate field where last year geological surveys were completed and a pipeline laid to the trunk artery that leads to Vladivostok. Currently, further infrastructure is