Kovykta Project | |||
On June 22, 2007 TNK-BP, Gazprom and BP executed a “Heads of Terms” agreement, the provisions of which included the sale of TNK-BP’s interests in RUSIA Petroleum and East Siberian Gas Company (ESGC) to Gazprom for a price of between $700 million and $900 million (to be finalized once necessary due diligence and adjustments have been made). More...
The Field
The Kovykta gas condensate field, discovered in 1987, is situated 450 km from Irkutsk, in the northern part of the Irkutsk Region, in the Zhigalovo and Kazachinsko-Lensk Districts. The reserves of this field amount to 2 trillion cubic meters of gas and more than 83 million tons of gas condensate.
RUSIA Petroleum, 62,7% owned by TNK-BP, is the operator of the project and the license holder for development of this field. At present, RUSIA Petroleum is carrying out comprehensive work for further exploration of the field, its preparation to large-scale development, and construction of the necessary infrastructure. Apart from well drilling, the results of seismic prospecting and exploration are collected and analyzed when drawing up 3—dimensional images of deep gas formations.
The field is being explored by drilling both vertical and horizontal wells. Extended-reach drilling and other advanced technologies used in this field increase the well stream, decrease the number of required wells, and considerably reduce the cost of gas production.
In addition to the existing wells, sixteen new wells grouped into seven well pads will be drilled and put into operation in 2006–2008. A gas processing facility will be constructed in the vicinity of the field’s pilot industrial development site.
Regional Project
OAO East Siberia Gas Company was established to implement the Irkutsk Region gasification project and organize gas supplies to industrial consumers and the population of the region. This is a gas transportation and trading company incorporated as a joint venture of TNK-BP and the Irkutsk Region Administration on a parity basis.
Schemes have already been worked out to gasify 78 populated areas in the Irkutsk Region. Supplies of Kovykta gas to the Zhigalovo District of the Irkutsk Region will begin in Q4 2006 and to Sayansk and Irkutsk in Q3–Q4 2007.
Implementation of this project will be the first step towards the creation of a network of gas supply to the chemical industry, power generation, and public utility enterprises. Gas from the Kovykta field will be supplied to the Sayansk industrial site, where a gas fractionation facility will be constructed to separate valuable fractions used as raw materials in the polymer industry.
Initial consumption of gas supplied from the Kovykta field will amount to 2 billion cubic meters by 2007. The largest consumers of Kovykta gas are concentrated in the main industrial centers and cities of the Irkutsk Region: Angarsk, Sayansk, Irkutsk, and Usolye-Sibirsk. The main potential consumers of Kovykta gas are Irkutskenergo, Khimprom Usolye, NPO Irkut, Angarskcement, Angarsk Petrochemical Works, Sayanskkhimplast, East Siberian Railway, Irkutskteploenergo, Irkutskoblgaz, and Irkutskie Teplovye Seti (Irkutsk Heat Networks).
A consortium of companies was established in Irkutsk to take part in tenders for the construction of gas pipelines and other infrastructure facilities of the gas transportation system. The consortium incorporates eight subsidiaries of OAO Stroitransgaz and thirteen local construction companies.
In 2005, the Management Board of TNK-BP approved the allocation of $136 million to finance the first phase of the Irkutsk gas project, which implies the supply of early gas from the Kovykta field to consumers in the Irkutsk Region. The total cost of the project is $1.1 billion. Most capital investments will be used in 2005–2008. The project involves construction of a 660-km—long gas pipeline. The first
Supplies of early gas are scheduled for 2006 in accordance with the license agreements. By 2010, the volume of annual supplies of gas will grow to 2.8 bn cubic meters.
East Siberia Gas Company has concluded agreements of intent with seven potential consumers and plans to significantly increase this number. The total amount of supplies stipulated in protocols is 1.4–1.5 bn cubic meters of gas.
Accelerated implementation of the Kovykta project will encourage the social and economic development of the region, double the gross regional product of East Siberia, and nearly triple the gross regional product of the Irkutsk Region.
Implementation of full-scale Kovykta field development project and construction of the associated gas transportation infrastructure will be an excellent incentive for development of other gas fields in East Siberia and the Republic of Sakha (Yakutia). Contractors and suppliers from related industries will be engaged in implementing the project, which will create approximately 40,000 new jobs.
According to experts’ estimates, annual taxes associated with implementation of this project will amount to about 1.6 billion rubles by 2010. The tax payments into the local budgets of the Irkutsk Region (the budgets of the Zhigalovo District, Sayanks, Angarsk, Ust-Kut, the Kazachinsk-Lensk District, and the regions traversed by the pipeline) will amount to 205 million rubles, the tax payments to the regional budget will be 323 million rubles, and the tax receipts in the federal budget will amount to 1064 million rubles.
Implementation of the Kovykta project will create favorable conditions for attracting investments into the region, improve the environmental situation, and spur the social and economic development of the Irkutsk Region.
The next step in the implementation of the Kovykta project, after endorsement of the project’s financial support by the Management Board of TNK-BP, will be development of new projects of gas supplies from the Kovykta field to the Republic of Buryatia and the Chita Region.
International Prospects
The international orientation of the Kovykta field development project is stipulated in the Russian-Chinese intergovernmental documents, general agreement signed on February 25, 1999, and the agreement on supplying natural gas to China and the Republic of Korea signed by RUSIA Petroleum, China National Petroleum Corporation and Kogas on November 2, 2000, and based on the Kovykta field. According to these agreements, the annual export of gas to China and Korea will be 20 bn and 10 bn cubic meters, respectively.
According to experts’ forecasts, the share of gas in the structure of energy resources consumed in China will grow four-fold by 2010. The potential of this market is tremendous as the current share of gas in the structure of energy consumption in certain provinces of China is just 2%.
By 2020, the non-contracted demand of China and South Korea for gas will be 200 billion cubic meters. Supplies from Kovykta will satisfy 15–20% of this demand as, with the currently used technologies, the prospective optimal annual production of gas in the Kovykta field can be about 40–45 bn cubic meters. The annual revenues of the state generated by the export of Kovykta gas will run up to $1.2–1.4 bn by 2020.
Kovykta will pioneer development of gas resources of East Siberia within the frameworks of new projects. The main objective of the current project is to establish a unified export channel of energy resources from East Siberia to the Asia-Pacific Region. This will be a big step forward for Russia in the development of new promising markets.
There is now a definite market opening in the gas market of the APR – a certain niche for Russian gas. Recent negotiations between Russia and the China National Petroleum Corporation (CNPC) and the Korea Gas Corporation (Kogas) showed that China and Korea are interested in stable supplies of gas and are ready to buy gas at sufficiently high prices.
According to official figures, the period of active gas production in the Kovykta field is at least 30 years, and the period of field development is about 50 years. Kovykta gas aroused the interest of South Korea, Japan, and China. China has endorsed the program of gasification of its large northern regions (Beijing, Shanghai, Harbin, etc.).
Environmental Aspects
Implementation of the Irkutsk Region gasification project is technically feasible, economically sound, and environmentally acceptable. These are the conclusions of the public hearings on the preliminary assessment of the environmental impact of the Irkutsk Region gasification project based on the Kovykta gas condensate field.
The public hearings were held in accordance with federal legislation requiring notification of the public on the preliminary assessment of the possible environmental impact. The materials for public hearings were presented to the municipalities. Authorities, public organizations, and research institutions of the regions involved in construction of gas production and transportation facilities: the Ust-Udin, Balagansk, Zimino, Zhigalovo, Zalarino, Alarsk, Cheremkhovsk, Usol, and Angarsk Districts.
The public hearings pointed out that the use of gas instead of coal will improve the environmental situation in the region and reduce by 33% the discharge of carbon dioxide generated by coal burning. Another important factor is that the gas pipeline runs outside the central and buffer zones of the Baikal territories. Particular attention will be paid during the implementation of the project to the living conditions of the Vershino-Khandino Evenk community leading a traditional life.
The presented materials on the assessment of the potential environmental impact of the project did not arouse any negative attitude of the public or any serious discords between the investors, the local authorities and the general public.