TNK-BP in the news in June 2006 | |||
Lighter than Air
Russia may become one of the world’s main helium exporters. But she is in no hurry to exploit this opportunity.
Draft
Before the end of the year Russia may have a new law regulating the extraction, production and marketing of a single element in the Mendeleev Table – helium. The document concerned is being drafted by Gazprom.
“BusinessWeek Rossiya” obtained confirmation of this from the gas monopolist’s press service, which stated: “Gazprom, the Russian Academy of Sciences, scientific and design organization and helium equipment producers have set up an expert group to draft a Federal Programme entitled “Helium of Russia” and a Federal Law “On Helium”. This law should spell out the criteria for classifying helium-bearing fields as strategic.”
Gazprom is not specific on which strategic fields are meant and what restrictions may be imposed on their exploitation. Meanwhile, a source in the RF State Duma’s Energy Committee explained to “BusinessWeek Rossiya” that the helium law might not emerge before a decision is taken on the future of the Kovykta gas condensate field in Irkutsk oblast. Experts estimate that this field contains over 37% of all Russia’s helium reserves.
Top executives at Gazprom have stated on many occasions in the past that development of Kovykta should be postponed until 2010—2015, referring to the helium issue in particular. What is the reason behind this great interest in helium, about which the man in the street knows only that it is lighter than air? And is it worth postponing the development of one of the country’s largest gas fields because of it?
From airships to the internet
In the past, helium has more than once been on the verge of turning into one of the planet’s prime natural resources. It was discovered in 1895, but large-scale industrial application of it began only in the 1920s. At that time, the US and Canada had begun extracting natural gas that contained helium in quite large quantities. The helium content by volume was 0.3 – 0.5%. Its main use was in airship building. These lighter-than-air vehicles were considered at the time to be the future of aviation, and so, in 1925 the US Congress adopted a special law on helium. But airships proved to be very vulnerable. Following a number of disasters it became clear that the future of air travel lay with airplanes rather than airships. But helium was not forgotten and people began using it in, for example, the metals industry. What made it attractive was its property as an inert gas that does not interact with other elements, while liquid helium is a super-pure substance.
After WW2, there was a demand for helium in nuclear technologies. In 1960, the US Congress amended the law on helium to take account of its use in the spheres of energy and arms. And later it was used for transporting rocket fuel. Helium could have become planet Earth’s main source of energy, but the thermonuclear reactor that would use it in such a capacity has yet to be built.
Nowadays, helium is used mainly in high technology sector. In addition to traditional applications in airship building and metallurgy (welding, cutting and smelting of metals), space and the nuclear industries, new uses have emerged in the manufacture of optical fibres and semiconductors, in high-speed computing and measurement equipment, medical tomographs and many other areas. A direct correlation has even been detected: the more helium a country uses the more developed its economy is.
Americans in the lead, Chinese catching up
Judging by helium consumption, Russia is not amongst the technologically advanced countries of the world. Global consumption of the gas today stands at around 140 mln cu m per year, and demand is growing by 4—6% annually. The largest producer and consumer of helium is the US (over half of the total), with the European Union in second place accounting for 20%, and Asia Pacific in third place with 15%. As a result of the dynamic development of the hi-tech industries in the Asian Pacific region consumption of helium is growing rapidly. In China alone consumption grew by around 25% in 2005.
Russia extracts
The world’s storeroom
Simultaneously with changes in the structure of demand the structure of supply is also undergoing a transformation. Extraction of helium in North America is falling by 5—6% per year due to field depletion. In 1996, US President Bill Clinton permitted the use of helium from the strategic reserve (size of reserve – 950 mln cu m). It is possible that the US will be importing helium in a few years’ time.
In recent decades a number of plants producing liquid helium have emerged around the world, almost all of them built with US involvement. In 1993, production was launched in Orenburg (OAO KRIOR) with a capacity of 7—8 mln litres of liquid helium per year (gteh annual equivalent of 5 – 5.5 mln cu m). In 1994—5, a plant was constructed in Algeria (producing 15 mln cu m of liquid helium per year) and in 2005, another plant was commissioned in Qatar (6—7 mln cu m per year, with plans to double the volume by 2010). In 2006, Algeria launched its second plant (6—7 mln cu m per year, with plans to double the volume in three years). Other projects are under review in Australia, Papua New Guinea, Oman and elsewhere.
But in the light of falling production in the US and the growing demand from the Asia Pacific countries it is predicted that unless new fields are brought on line there could be a helium shortage of around 166 mln cu m per year by 2030. Russia has the opportunity to play a role as the main supplier of helium, given that around 30% of global reserves are concentrated in East Siberia and Yakutiya in highly concentrated form – 0.15 – 0.6% of volume. There is just one problem: these regions still have to be developed. It will not be possible to expand production at the existing plants. Our 5—6 mln cu m are produced by a single company — the Orenburg Helium Plant (part of Gazprom). This is tied in to the Orenburg gas condensate field, where production levels are gradually declining. In addition this, the helium content in Orenburg gas is not very high. This makes it impossible to create a new, modern production facility by expanding the existing plant.
The first swallow
According to estimates by the Geliymash scientific production association and Gazprom, the most advanced helium extraction project in East Siberia is the Kovykta field (gas reserves estimated at 2 trln cu m; extraction could amount to
“Information on new projects around the country passes through our company”, said the General Director of Geliymash, Vadim Udut, in an interview with “BusinessWeek Rossiya”. “Geliymash was invited to participate in the drafting of a programme for the development of East Siberia. We have reviewed the prospects for helium producers in the region: capex for a 15 mln cu m capacity helium plant is %48—50 mln, with a payback period of 6—8 years.”
The Kovykta project includes plans to build a gas chemicals plant in Sayansk based on the Sayanskkhimplast facility. The plant is to be built by a joint venture with KRIOR, while Geliymash will supply the equipment. “It is quite possible to implement the project, manufacture the equipment and deliver it to the site within 2.5 – 3 years in order to begin helium production in 2008—9. In phase 1, annual gas processing volumes will be 4 bn cu m, and around 8 mln cu m of helium can be obtained from this in liquid form”, says Udut. He is convinced that Kovykta helium will find a buyer: “While working on the East Siberia programme we conducted negotiations with helium consumers in the Asia Pacific region. And if there is a gradual build-up in production from 2010 to 2030 there will be a demand for the entire volume of helium extracted from
The Federal Agency for Industry (Rosprom) is less optimistic, however. In a letter to the Ministry of Industry and Energy, the head of the agency Boris Aleshin states: “A new helium production facility should be created in Irkutsk oblast with a capacity of 8—10 mln litres of liquid helium per year. Any decision on expanding production volumes above the aforementioned levels will depend on the further development of demand for helium.”
However, the fate of the helium plant in Sayansk depends on how the whole Kovykta project is developed.
To develop or not to develop?
The main problem facing Kovykta today is that large-scale development of the field requires gas exports to China and Korea as there are few large domestic consumers in the region. TNK-BP cannot do this without Gazprom. The monopolist says that Kovykta is not within its sphere of interests and that in view of the high helium content the project should be postponed for
As a counterweight to TNK-BP’s Irkutsk oblast gasification project Gazprom has put forward a programme of its own involving the use of small fields. From the point of view of extracting helium this is a controversial proposal, because it would be uneconomic to put a helium plant on each field.
Gazprom takes the helium issue very seriously, notes Udut. “Geliymash, together with Gazprom’s Promgaz subsidiary, is currently looking at the use of new technologies to process natural gas on site and extract helium from it.” One possible solution is to liquefy natural gas at the fields before trucking the products obtained (LNG, propane-butane, liquid helium) to consumers. These projects need to be thoroughly analyzed and are unlikely to produce a fast payback. Gazprom was unable to provide “BusinessWeek Rossiya” with exact figures for the proposed investment in helium projects, and the agreement with the Administration of Irkutsk oblast merely states that the “investment plans” for helium must be studied.
It should also be pointed out that despite the strategic significance of helium it is not worth stopping plans to export gas to the Asia Pacific countries because of it. Simply put, the money that could be earned from selling gas and helium is incomparable. Today, we are selling 1,000 cu m of gas (to Europe) for $250—300 m. A litre of liquid helium costs less than $2. In other words, the annual income from gas trading could amount to several billions of dollars, whereas helium sales would bring in at the most several tens of millions. Everything could change very suddenly, however, if they begin using helium in new nuclear and thermonuclear projects and the demand for it becomes a critical barrier to implementation of energy projects.
Although helium is not fully utilized anywhere in the world (“In the US annual losses of helium during extraction of natural gas amount to around 350 mln cu m, which is 2.5 times more than global demand”, according to Rosprom), all the big gas projects in recent years (Qatar, Algeria, Papua New Guinea, Australia etc.) have included extraction of helium if its concentration in the gas exceeds 0.1%.
There is hope that Gazprom and TNK-BP will, nevertheless, reach an agreement on Kovykta. If so, the field will be developed at optimal production rate of
Source: BusinessWeek