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Russia's Gazprom begins development of giant Kharasavey gas field

Highlights

Yamal-based field holds some 2 Tcm of gas

First Kharasavey production expected in 2023

Plateau output designed to be 32 Bcm/year

London — Russia's Gazprom on Wednesday began the "full-scale" development of the giant Kharasavey gas field on the northern Russian Yamal peninsula as the company continues to shift its production base northward.

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Kharasavey -- estimated to hold 2 trillion cu m of gas -- is set to produce first gas in 2023 with plateau output of 32 Bcm/year (88 million cu m/d), Gazprom said in a statement.

Gazprom considers the Yamal peninsula -- already home to its 4.9 Tcm supergiant Bovanenkovo field -- as a strategic region for maintaining gas output in Russia as its traditional production center in West Siberia continues to be depleted.

It is also closer to what Gazprom hopes will become its main 110 Bcm/year export corridor to Europe -- the existing 55 Bcm/year Nord Stream 1 and the planned 55 Bcm/year Nord Stream 2 pipeline routes to Germany.

Russia's Gazprom begins development of giant Kharasavey gas field

The company has said that sourcing gas on the Yamal peninsula to feed the Nord Stream corridor will be significantly cheaper than having to use the Ukraine transit route to send that gas to European markets.

"Today we are embarking on the full-scale development of the Kharasavey field with design solutions that are unified with those that we have successfully applied at Bovanenkovo," CEO Alexei Miller said.

"This allows us to significantly optimize investment and operating costs," Miller said.

Russian President Vladimir Putin said in televised comments that the combined reserves of Kharasavey and Bovanenkovo at nearly 7 trillion cu m were "colossal."

"As Alexei Miller told me yesterday, those reserves are enough to produce gas through 2131," Putin said.

"Such volumes provide security and stability of energy supply to consumers for years to come, both domestically and to our partners abroad," he said.

By 2030, fields on the Yamal peninsula will produce 310-360 Bcm of gas, he added.

Gazprom last year produced a total of 498 Bcm of gas out of a Russian total of 725 Bcm.

Russian energy minister Alexander Novak added that the start of work at Kharasavey would give "additional impetus" to the development of the region.

Novake added that Gazprom would enjoy a reduced mineral extraction tax at Kharasavey for 12 years before the tax burden is gradually increased.

CAPACITY EXPANSION

Bovanenkovo -- which started production in 2012 -- has a capacity of 115 Bcm/year, though in the future its capacity could be ramped up to 140 Bcm through the development of deeper deposits at the field.

Kharasavey -- north of Bovanenkovo and mainly onshore but also partly in the waters of the Kara Sea -- could also be expanded through the exploitation of deeper deposits.

Both Bovanenkovo and Kharasavey were discovered in the 1960s, but were not initially thought economic to develop given their remote locations and the relative ease of developing gas fields in the Nadym-Pur-Taz area of West Siberia.

There continued to be doubts more recently as to whether Gazprom would move forward with developing Kharasavey at all given an uncertain outlook for European gas demand.

But now the expected increase in Europe's gas import dependence in the coming decade has seen the company finally commit to the project.

A new 100 km pipeline will be built to flow gas from Kharasavey to Bovanenkovo before entering the main Russian grid.

In early 2017, Gazprom launched the Bovanenkovo-Ukhta-2 pipeline to double the capacity of the existing Bovanenkovo-Ukhta route to 110 Bcm/year, allowing more gas to feed to the entry point of the Nord Stream 1 and Nord Stream 2 pipelines.

The Yamal peninsula is also home to Novatek's newly launched Yamal LNG facility, which once fully operational will have a capacity of 17.5 million mt/year.

-- Stuart Elliott, stuart.elliott@spglobal.com

-- Nadia Rodova, nadia.rodova@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com