Russia’s gas supply is largely supported by contributions from mature producing fields, as well as recent startups such as Gazprom’s Bovanenkovskoye and Novatek’s South Tambeyskoye fields. Investments in developing new projects over the next five years will be instrumental in maintaining stable gas supplies in the longer term. This article assesses Russia’s E&P status and outlook, illustrated by the three key drivers: gas production, breakeven prices and capital spending.
Figure 1 depicts sales gas production from Russia, split by life cycle, from 2010 to 2025. The volumes in the producing life cycle are further classified by operator. Over the last 10 years, the country’s gas supply had increased from 60 billion cubic feet per day (Bcfd) in 2010 to 70.8 Bcfd last year. In the next five years, gas production is expected to grow to around 75 Bcfd. Producing fields account for nearly all of this year’s production, with Gazprom making up over 65% of the volumes. Other top operators include Novatek, Rosneft and SeverEnergia. Nearly 90% of Russia’s gas supply is currently produced by these four operators.
The largest, albeit declining, contributions to supply are seen from mature gas fields in the Yamalo-Nenetsk region in northwestern Siberia: Gazprom’s giant Zapolyarnoye, Yamburgskoye and Urengoyskoye. Another large Yamal gas field, Bovanenkovskoye, which came on stream in 2013, offsets some of the decline in legacy production. Novatek’s South Tambeyskoye field, supplying gas to the Yamal LNG project, will further support Russia’s gas supply going forward. The first cargo was shipped in December 2017, and the second and third LNG trains came online in 2018. In 2019, 18 million tonnes of LNG were produced from Yamal LNG, exceeding the plant’s design capacity of 16.5 million tonnes per annum (tpa). In December 2019, first pilot production was reported from Novatek’s North Russkoye field.
Key projects currently under development include the first phase of the Rosneft-operated Kharampurskoye gas field (sanctioned in 2018), as well as Urengoyskoye (Achimov) blocks 4A and 5A, with first production expected in the next two years. The Kovyktinskoye field, expected to be sanctioned later this year and come on stream in 2023, is one of the key gas discoveries waiting in line to be developed.
Figure 2 depicts estimated economically recoverable resources for the top non-sanctioned gas fields in Russia that are expected to come online this decade, along with the end market breakeven gas prices as of the sanctioning date. The breakeven gas prices include all costs until the sale point, which means fields supplying European markets, for instance, will naturally require a higher price to break even compared to fields intended to meet local demand.
The field holding the largest gas reserves of nearly 18 trillion cubic feet (Tcf) is Gazprom-operated Kovyktinskoye, which is expected to be brought into commercial production by 2023. The field will serve as the main source for gas deliveries to China, along with Chayandinskoye, the first phase of which is anticipated to enter production already this year. Located in Eastern Siberia, Kovyktinskoye is estimated to have a breakeven gas price of about $2.5 per kcf. Chayandinskoye and Kovyktinkoye are part of a large project referred to by Gazprom as the Eastern Gas Program, which is intended to secure continuous supplies to China as well as to gasify eastern parts of Russia.
Among the top discoveries are also offshore developments in the Sea of Okhotsk, including gas expansion plans for the Chayvo and Kirinskoye South fields, which are part of the Sakhalin-1 and Sakhalin-3 programs, respectively. The fields each boast reserves of about 6 Tcf and have breakeven gas prices of between $1.20 and $1.60 per kcf. In contrast, the Kamennomysskoye-More find is located in a yet undeveloped part of the Kara Sea and will be more costly to bring on stream – as reflected in its estimated breakeven price of $2.60 per kcf. Furthermore, Turonian layers of the Kharampurskoye field could add more than 8 Tcf of reserves to the producing portfolio of Rosneft’s subsidiary Kharampurneftegaz by the end of the decade.
Meanwhile, the remaining undeveloped reserves in the giant Urengoyskoye field are likely to be used as a gas source for the Baltic LNG project, proposed earlier by Gazprom. Its breakeven gas price is estimated to hover below $2 per kcf. Finally, deeper Neocomian-Jurassic layers of the Bovanenkovskoye field in the Arctic are considered to be the most expensive to develop as of now. However, existing infrastructure from development of shallower layers could potentially make it more competitive.
Figure 3 shows capital spending on gas and gas-condensate fields in Russia from 2010 to 2025. Total investments are projected to increase over the next five years, from around $18 billion spent last year to $27 billion by 2025. While investments in producing fields are decreasing, the main drivers behind the growth are investments in projects currently under development and, in particular, discoveries that has yet to be sanctioned. Key contributors include the Kharasaveyskoye field (sanctioned in the first quarter of 2019), Arctic LNG 2 Trains 1-3 (sanctioned in September 2019) and the Kovyktinskoye field, slated to reach a final investment decision (FID) in the near term. Moreover, investments are expected to be made over the next five years in the development of contingent resources in Gazprom’s Yamburgskoye field.
Following a period of gas production decline between 2014 and 2016, Russia has now caught up with pre-downturn levels and increased its output to beyond 70 Bcfd. Over the next five years, the volumes are expected to continue to increase, supported by large projects in early phases of production and already sanctioned fields, which are scheduled to come on stream in the short to medium term. Looking into the future, strong production potential exists due to the considerable resources held in numerous discoveries. The timely development of these finds will ensure strong gas production additions for Russia over the long term.