NATURAL GAS IN RUSSIA

Russia holds the largest natural gas reserves in the world and is the world's second-largest producer of dry natural gas. It possesses one sixth of the world's proven natural gas reserves and 32 percent of the world's natural gas assets and supplies 25 percent of all natural gas consumed in Europe.

Russia was the second-largest producer of dry natural gas in 2013 (second to the United States), producing 22.1 trillion cubic feet. The state-run Gazprom dominates Russia's upstream natural gas sector, although production from other companies has been growing. [Source: U.S. Energy Information Administration, July 2015 ~]

According to Oil and Gas Journal, Russia held the world's largest natural gas reserves, with 1,688 trillion cubic feet (Trillion cubic feet ), as of January 1, 2015. Russia's reserves account for about a quarter of the world's total proved reserves. The majority of these reserves are located in West Siberia, with the Yamburg, Urengoy, and Medvezhye fields accounting for a significant share of Russia's total natural gas reserves. ~

Natural gas has been one of the most successful parts of the Russian economy. In the early 1980s, it replaced oil as the Soviet "growth fuel," offering cheaper extraction and transportation. Although output has dropped in the 1990s, the decline has not been as severe as that for other energy sources or the rest of the economy. Natural gas production peaked in 1991 at 727 million cubic meters, then dropped throughout the early 1990s. But 1995 production, 596 million cubic meters, was an increase from the previous year. After European gas fields in the Volga-Ural region dominated the industry through the 1970s, production shifted to giant fields in Siberia. The Urengoy and Yamburg fields in the West Siberia region are among the most productive; the former is the largest field in the world. Soviet plans called for rapid development of new reserves in the Yamal Peninsula in the Arctic Ocean north of Urengoy, but environmental problems and infrastructure costs slowed development. Hasty construction and poor maintenance have caused chronic breakdowns and accidents in the long pipelines of Russia's natural gas delivery system. [Source: Library of Congress, July 1996 *]

A) Natural gas - production: 668 billion cubic meters (2013 est.); country comparison to the world: 2. B) Natural gas - consumption: 413.5 billion cubic meters (2013 est.); country comparison to the world: 3. C) Natural gas - exports: 196 billion cubic meters (2013 est.); country comparison to the world: 1. D) Natural gas - imports: 8.2 billion cubic meters (2013 est.); country comparison to the world: 28. E) Natural gas - proved reserves: 47.8 trillion cubic meters (1 January 2014 est.); country comparison to the world: 1. [Source: CIA World Factbook =]

Europeans depend of natural gas from Russia. Western Europe gets 40 percent of its natural gas from the former Soviet Union, compared to 14 percent in the 1980s. Natural gas sales to Turkey and Asia are expected to increase.

Natural Gas Producing Areas

The bulk of Russia’s natural gas reserves under development and production are in northern West Siberia. However, Gazprom and others are increasingly investing in new regions, such as the Yamal Peninsula, Eastern Siberia, and Sakhalin Island, to bring gas deposits in these areas into production. Some of the most prolific fields in Siberia include Yamburg, Urengoy, and Medvezhye, all of which are licensed to Gazprom. These three fields have seen output declines in recent years. [Source: U.S. Energy Information Administration, July 2015 ~]

Russia’s natural gas production by region in 2013 (region: billion cubic feet per day): A) West Siberia: 57.7; B) Yamalo-Nenets: 53.7; C) Khanti-Mansiisk: 3.5; D) Tomsk: 0.5; E) East Siberia and the Far East: 3.4; ) Sakhalin: 2.7; ) Irkutsk: 0.3; ) Krasnoyarsk: 0.3; ) Yakutsk: 0.2; F) Urals-Volga: 3.1; G) Orenburg: 1.5; H) Astrakhan: 1.0; I) Others: 0.7; J) Komi Republic: 0.3; K) North Caucasus: 0.1. Total: 64.6. [Source: Eastern Bloc Research, CIS and East European Energy Databook 2014, Table 34, p. 14]

The Yamal Peninsula in northern Siberia holds what may be the world's largest natural gas reserves (about 300 trillion cubic feet, twice the estimated reserves of the United States). The world's largest gas reserves are around Urengoy and Yamburg east of the Ob Gulf on the Yamal Peninsula. According to the Guinness Book of Records, the world's largest gas deposit is at Urengoi Russia. It has estimated ultimate recovery of 285 trillion cubic feet.

Harvesting the gas under the Yamal Peninsula below the permafrost surface can be quite expensive. Buildings are put on stilts and roads are built on several feet of gravel. When the construction of a railroad was hurried to meet political deadlines the track bed sunk into melted ice causing tunnel walls to collapse and rails to sink and bend. Since the damage was almost impossible to repair the train had to be rerouted which but the train five years behind schedule.☹

The Kovytka gas field in eastern Siberia is a huge field with 1.8 trillion cubic meters of natural gas There is also natural gas in Irkutsk and on Sakhalin Island. Gazprom is planning to develop offshore gas deposits in the Barents Sea.

Natural Gas Sector in Russia

State-run Gazprom dominates Russia's upstream natural gas sector, producing 73 percent of Russia's total natural gas output in 2013. While independent and oil company producers have gained importance, with producers such as Novatek and LUKoil contributing increasing volumes to Russia's production in recent years, upstream opportunities remain fairly limited for independent producers and other companies, including Russian oil majors. Furthermore, Gazprom's dominant upstream position is reinforced by its legal monopoly on pipeline gas exports.[Source: U.S. Energy Information Administration, July 2015 ~]

Much like the oil sector, a number of ministries and regulatory agencies are involved in the natural gas sector. The Ministry of Natural Resources and Environment issues field licenses, monitors compliance with license agreements, and levies fines for violations of environmental regulations. The Ministry of Energy develops and implements general energy policy and is also charged with overseeing LNG exports. The Finance Ministry is responsible for hydrocarbon extraction and export taxes, while the Ministry of Economic Development supervises tariffs. The main regulatory agencies involved in the sector include the Federal Tariff Service (regulates pipeline tariffs) and the Federal Anti-Monopoly Service (oversees charges of abuse of market dominance, including charges related to third-party access to pipelines). ~

Russia's natural gas production by company in 2013 (company, billion cubic feet per day): A) Gazprom: 47.2; B) Novatek: 6.0; C) Rosneft: 2.6; D) LUKoil: 2.0; E) Surgutneftegaz: 1.2; F) ITERA: 1.2; G) PSA operators: 2.7; H) Others: 1.8. Total: 64.6. [Source: Eastern Bloc Research, CIS and East European Energy Databook 2014, Table 34, p. 14]

Natural Gas Production in Russia

In 2013, Russia was the world's second-largest dry natural gas producer (22.1 Trillion cubic feet ), surpassed only by the United States (24.3 Trillion cubic feet ). Independent gas producers such as Novatek have been increasing their production rates, with non-Gazprom sources expected to continue to increase in the future. Higher production rates have resulted from a growing number of companies entering the sector, including oil companies looking to develop their gas reserves. Russian government efforts to decrease the widespread practice of natural gas flaring and to enforce gas utilization requirements for oil extraction may result in additional increases in production. ~

Natural Gas Flaring in Russia

In Russia, natural gas associated with oil production is often flared. According to the U.S. National Oceanic and Atmospheric Administration, Russia flared an estimated 1,320 Bcf of natural gas in 2011, the most of any country. At this level, Russia accounted for about 27 percent of the total volume of gas flared globally in 2011. A number of Russian government initiatives and policies have set targets to reduce routine flaring of associated gas. Also, regulatory changes have made it easier and more profitable for third-party producers to transport and market their natural gas. However, little progress has been made to reduce routine gas flaring in Russia. ~

So much natural is gas burned in the oil-rich regions of Siberia that cosmonauts have said the glow is brighter than the light of Manhattan. Western experts claimed that 500 million cubic feet of natural was flared each year in the 1990s, more than the annual consumption rate of China at that time. [Source: Mike Edwards, National Geographic, August 1994]

Gazprom

The State Natural Gas Company (Gazprom) dominates Russia's upstream natural gas sector, producing 73 percent of Russia's total natural gas output in 2013 and controls an estimated 30 percent of the world’s natural gas reserves. It has a virtual monopoly over Russia's gas production and transmission. A vertically organized enterprise, the company has been reorganized into a joint-stock company, in which the state holds majority (50.23 percent) ownership. The name Gazprom is a contraction of the Russian words Gazovaya Promyshlennost, meaning gas industry. The company is headquartered in Moscow.

Gazprom company controls natural gas production, owns the gas pipeline system, and has diversified into transport and gas processing as well as telecommunications. The extensive Shtokman natural gas field in the Barents Sea is expected to be productive for as much as 50 years, but Russia has delayed exploitation to coincide with increased world demand for liquefied natural gas.

Gazprom is the world's largest natural gas company and Russia’s largest state-owned company. An enormous monopoly, it employs 393,000 people, owns 231,880 miles of pipelines and produced 19.1 trillion cubic feet of natural gas in 2003. In the early 2000s, it produced half of Russia’s energy, a fifth of its export earnings and accounts for 7 percent of Russia's entire economic output.

In 2015, Gazprom was ranked 26 on the international Fortune 500 list, Gazprom is worth between $400 billion and $900 billion. In 2012, Gazprom was ranked by Fortune as the world's most profitable company based on sales. According to Fortune magazine, Gazprom made $44.4 billion in profits in 2011. On the 2011 list, it ranked second in terms of profits, with $31.8 billion.

Gazprom is very loyal to the Kremlin. The leader of Gazprom in the early 2000s, Alexei Miller, was appointed Putin. Many of Gazprom's directors have been government appointees. The company has been involved in political attacks on the media and was used in the takeover of the television station NTV. It has also been forced to sell natural gas to Russian consumers at 10 percent of the world price and turned a blind eye to debts owed by friends of the Kremlin.

Gazprom in the 1990s

Despite its size and profitability, Gazprom is inefficient and could make much money than it does. In the 1990s it was known for being notoriously inefficient and repeatedly postponed restructuring and reform. According to a report by the OECD, “Despite is enormous importance, the natural gas industry is perhaps the least reformed major sector in Russia.”

Gazprom was founded in 1989 and formed in the early 1990s almost single-handedly by former Soviet oil gas minister Viktor Chernomyrid, who was a prime mister of Russian under Yeltsin. In the 1990s it was a huge cash cow for the Russian government, supplying 20 percent of the government’s revenues. Even though Chernomyrid didn’t own any stock his worth was estimated to be $1.1 billion. He earned his fortune by creating the Gazprom monopoly and its subsidies. .

In the 1990s, about 40 percent of Gazprom’s shares were under state control. Company employees held another 15 percent, managers of the company held 10 percent, and the remaining 35 percent were sold at public auction. Gazprom controlled s a network of regional production associations. Its management was accused of corruption and tax evasion.

1996 Yeltsin announced that Gazprom would be run by a state commission, depriving the gas monopoly of the financial freedom that had gained it billions of dollars of untaxed profits. Yeltsin already had stripped Gazprom of its exclusive right to develop new natural gas deposits, and the Government now expected to recover much of Gazprom's unpaid taxes through the new commission. Prime Minister Chernomyrdin remained a protector of the industry's special status, however. [Source: Glenn E. Curtis, Library of Congress, July 1996 *]

Gazprom as a Business

Gazprom is technically a private company but is the state owns 50.23 percent of it (it owned 39.3 percent of it in 2004). It is a very secretive and opaque company. No one outside it are quite sure what its bottom line figures. Anyone who sells shares needs permission of the company to sell them and Gazprom has first dibs at buying them. Their headquarters is in modern 34-story stone-and-glass tower in Moscow. In the early 2000s, it had 367,000 employees, 139 subsidiaries in 24 countries and was invested in 100 other companies.

In 2014, Gazprom had $106 billion in revenues and a net income of $3.1 billion. In 2001, Gazprom rang up about $20 billion in sales. In 1995, Gazprom profits were an estimated $6 billion on revenues of $20 billion to $27 billion. Itera is Russia's No. 2 largest natural gas company.

Gazprom sells oil to nearly all of Russia’s neighbors and most of Europe. In the early 2000s it supplied 95 percent of Russia's gas production, two thirds of the gas for Eastern Europe and 20 percent of the gas used in the western European countries of the European Union, including 40 percent of the natural gas used in Germany Exports (billion of cubic meters in 1995): 1) the Ukraine (57); 2) Germany (29.6); 3) Belarus (14.3); 4) Czech republic and Slovakia (13.8); 5) Italy (13.8); and France (12.2).

Gazprom owns many of the pipelines that carry natural gas not only in Russia but in much of the former Soviet Union and Eastern Europe. In this way it can manipulate it competitors, which need the pipelines. Gazprom could make much, much more money if it raised its artificially low prices at home, collected money owed to it by deadbeat industrial and government customers, upgraded its infrastructure and streamlined the company. In 1998, Gazprom was owed $16 billion. Many of it customers were in such trouble half the debts were settled through barter.

In May 2005, a proposed merger between Gazprom and the oil giant Rosneft was called off by the Russian government. The scheme was part of a large plan to free sales of shares in Gazprom to foreign investors and make Gazprom a well-rounded energy producer and supplier. If the merger had taken place the resulting company would have been as large as Exxon-Mobile in terms of assets.

For a while there was some discussion of breaking Gazprom into privately held companies. It was rumored that of this happened Gazprom would retain control of its pipelines. In 1998, Gazprom agreed to pay $674 million in unpaid taxes and pay $600 million a month on taxes after tax collector threatened to seize dachas, yachts and other things owned by Gazprom executives. Gazprom reportedly owed US$2.1 billion in back taxes.

Natural Gas Exports from Russia

In 2014, almost 90 percent of Russia's 7.1 trillion cubic feet of natural gas exports were delivered to customers in Europe via pipeline, with Germany, Turkey, Italy, Belarus, and Ukraine receiving the bulk of these volumes. Much of the remainder was delivered to Asia as LNG. Ukraine's imports of Russian natural gas in 2014 were about half the level in 2013, when Ukraine was the third-largest importer of Russian natural gas. Because of a pricing and payments dispute and as part of the wider tensions between the two countries, Ukraine did not buy natural gas from Russia during most of the second half of 2014. [Source: U.S. Energy Information Administration, July 2015 ~]

Revenues from natural gas exports in 2013 accounted for about 14 percent of Russia's total export revenues. While not as large as Russia's export earnings from crude oil and other liquids, Russia still has a significant level of dependence on Europe as a market for its gas. Europe is, likewise, dependent on Russia for its supply of natural gas. In 2013, Europe received about 30 percent of its natural gas from Russia, with about half of that volume delivered via Ukraine. Additionally, some countries within Europe, especially Finland, the Baltics, and much of Southeast Europe, receive almost all of their natural gas from Russia. ~

Since the mid-2000s, Western European natural gas consumption has generally been flat to declining, prompting Russia to look to Asia and LNG as a means to diversify its natural gas exports. U.S. and European Union (EU) sanctions, implemented in 2014, accelerated Russia's pivot to the east, with Russia signing two pipeline deals with China in 2014 covering exports that could eventually reach 2.4 Trillion cubic feet per year. ~

Russia’s Natural Gas Pipelines

In 2013, Russia's natural gas transportation system included more than 100,000 miles of high-pressure pipelines and 26 underground natural gas storage facilities.Most of Russia's natural gas pipelines were built during the Soviet era, and about 75 percent of the system is more than 20 years old. Since the late 2000s, Gazprom has been adding major new pipelines to accommodate new sources of supply, including fields in Yamal and Eastern Siberia, and new export routes, including exports to China and new pipelines to Europe that avoid Ukraine. [Source: U.S. Energy Information Administration, July 2015 ~]

The Unified Gas Supply (UGS) system is the collective name for the interconnected western portion of Russia's natural gas pipelines. The UGS system includes domestic pipelines and the domestic portion of export pipelines in European Russia, but it does not include pipelines in eastern Russia. In 2007, the Russian government directed Gazprom to establish an Eastern Gas Program (EGP) to expand gas infrastructure in eastern Siberia and Russia's Far East. The backbone of the EGP is the Power of Siberia pipeline, which is currently under construction. ~

Russia's major natural gas pipelines: Western pipelines (Facility, Status, Capacity (trillion cubic feet per year), Total length (miles), Supply regions, Markets, Details): 1) Yamal-Europe; operating; 1.2; more than 1,000; West Siberian fields including Urengoy area; Poland, Germany, and northern Europe via Belarus. 2) Blue stream; operating; 0.6; 750; West Siberian fields including Urengoy area; Turkey via the Black Sea; Started operations in 2003. 3) Nord stream; operating; 1.9; 760; West Siberian fields including Urengoy area; Germany and northern Europe via the Baltic Sea; Started operations in 2011. 4) Urengoy-Ukhta, Bovanenkovo-Ukhta, and Ukhta-Torzhok; operating and under construction; up to 6.0; more than 1,500; Bovanenkovo field on the Yamal peninsula and Urengoy area fields; Western Russia and Europe; The Urengoy-Ukhta-Torzhok line started operations in 2006. The 1st Bovanenkovo-Ukhta line started operations in 2012. 5) Soyuz and Brotherhood (Urengoy-Pomary-Uzhgorod); operating; more than 3.5; more than 2,800; West Siberian fields including Urengoy area, Russian Urals fields, and Central Asia; Western Russia and Europe via Ukraine; First major natural gas export lines to Europe, built and brought online during the Soviet era.. 6) Southern Corridor pipelines; construction; 2.2; Western route - 550 Eastern route - 1,010; West Siberian fields including Urengoy area; Turkey and Europe via Turkish stream pipeline; Construction on the Western route began in 2012. 7) Turkish stream - line 1; planning; 0.6; more than 500; West Siberian fields including Urengoy area; Turkey; Announced completion by end of 2016. 8) Turkish stream - lines 2-4; planning; 1.7; more than 500; West Siberian fields including Urengoy area; Southeast Europe via Turkey; By 2019. 9) South stream; canceled; 2.2; 560 (offshore); West Siberian fields including Urengoy area; Southeast Europe via the Black Sea; Canceled in late 2014 and replaced with Turkish stream. [Source: U. S. Energy Information Administration based on Gazprom, GazpromExport, Sakhalin Energy, World Gas Intelligence, Nefte Compass, RT, and Reuters]

Russia's major natural gas pipelines; Eastern pipeline; (Facility, Status, Capacity (trillion cubic feet per year), Total length (miles), Supply regions, Markets, Details); 1) TransSakhalin; operating; 0.3; 500; Sakhalin fields (offshore northern Sakhalin); Sakhalin LNG plant, Prigorodnoye, southern Sakhalin Island; Started operations in 2008. 2) Sakhalin-Khabarovsk-Vladivostok; operating; 0.2; 1,120; Sakhalin fields (offshore northern Sakhalin); Eastern Russia with potential exports to Asia via proposed Vladivostok LNG or new pipelines; Started operations in 2011. Expandable to 1.1 Trillion cubic feet per year with additional compression. 3) Power of Siberia, phase 1 ("Eastern route" for exports to China); construction; 1.3; 1,370; Chayodinsk field, Yakutia region, East Siberia; Eastern Russia and northeast China; Announced start of late 2017. 4) Power of Siberia (complete route); construction; 2.2; 2,490; East Siberian fields including Chayodinsk in Yakutia region and Kovytka in Irkutsk region; Eastern Russia and northeast China, with potential additional exports to Asia via proposed Vladivostok LNG or new pipelines; 2019 or later. 5) Altai/Western route; planning; 1.1; 1,620; West Siberian fields including Urengoy area; China; 2020 or later. [Source: U. S. Energy Information Administration based on Gazprom, GazpromExport, Sakhalin Energy, World Gas Intelligence, Nefte Compass, RT, and Reuters]

Third-party Access to Pipelines

Gazprom is sole owner of virtually all of Russia's natural gas pipelines. Russia's 1999 Law on Gas Supply requires owners of all gas systems to provide non-discriminatory access to any available capacity with the aim of supplying domestic consumers. Separate regulations established rules for third-party access to the UGS system, but no rules have been established for access to pipelines that are not part of the UGS system. Access to pipeline capacity for exports is not included, as the 2006 Law on Gas Exports grants pipeline export rights exclusively to the owner of the UGS system, which is Gazprom. [Source: U.S. Energy Information Administration, July 2015 ~]

Despite these long-standing laws, independent natural gas producers, including state-owned oil companies, have only recently begun to get access to some of Gazprom's domestic pipelines. Actions by the Federal Anti-Monopoly Service (FAS) have helped promote better third-party access. Between 2008 and 2011, the FAS brought 28 infringement cases against Gazprom related to third-party access. Third-party gas transported by Gazprom grew from 10 percent of total UGS system throughput in 2009 to almost 17 percent in 2013.59 The FAS has also proposed new laws that would fix many of the deficiencies in the current laws and regulations, including the current lack of regulations for third-party access to pipelines that are not part of the UGS system. Many of the recent disputes over pipeline access have been related to eastern gas pipelines, which are not part of the UGS system. ~

In order to monetize its Sakhalin-1 natural gas resources, Rosneft has proposed to build a Far East LNG export facility at the southern end of Sakhalin Island. However, this proposal depends on Rosneft being able to send its gas through the Gazprom-controlled TransSakhalin natural gas pipeline. Gazprom has repeatedly denied Rosneft access to the pipeline on grounds that there is no available capacity, because Gazprom needs all the capacity to feed its existing Sakhalin-2 LNG plant and the LNG expansion it plans to build. Gazprom, incidentally, would like to buy gas from the Sakhalin-1 project to use as supply for its LNG expansion. Rosneft filed a court case to try to force Gazprom to give it pipeline access, but the court ruled against Rosneft in February 2015. The matter is still under investigation by the FAS, but the Russian government's Audit Chamber has criticized Rosneft's LNG proposal as being more costly than Gazprom's LNG expansion plans. ~

Russian Liquefied Natural Gas

Russia has a single operating liquefied natural gas (LNG) export facility, Sakhalin LNG, which has been operating since 2009 with an original design capacity of 9.6 million tons (mt) of LNG per year (approximately 460 Bcf of natural gas). The majority of the LNG has been contracted to Japanese and South Korean buyers under long-term supply agreements. Debottlenecking and optimization of the facility added up to 3.2 mt (150 Bcf) of capacity in 2011,61 with much of the additional LNG sold under shorter-term agreements or on spot markets. In 2014, Sakhalin LNG exported slightly more than 500 Bcf of gas, which went to Japan (79 percent), South Korea (18 percent), China (1 percent), Taiwan (1 percent), and Thailand (1 percent). [Source: U.S. Energy Information Administration, July 2015 ~]

In 2013, Russia modified it Law on Gas Exports to allow Novatek and Rosneft to export LNG, breaking Gazprom's monopoly on all gas exports. There are a number of proposals in various stages of planning for new LNG terminals in Russia, including a second LNG liquefaction facility that is under construction (Table 8).63 Yamal LNG, which began construction in 2013, is owned by a consortium, led by Novatek with a 60 percent interest, and joined by Total and CNPC with 20 percent each. The first of three liquefaction trains is scheduled to be online by 2017. The three trains will each have a capacity of 5.5 mt of LNG per year, and they will draw gas from the South Tambeyskoye natural gas and condensate field located in the northeast of the Yamal Peninsula. ~

To transport LNG from its arctic location, Yamal LNG has commissioned the construction of up to 16 ice-class tankers. Exports are mainly aimed at Asian LNG markets, and during most of the year, the ice-class tankers will take cargoes west from the Yamal peninsula directly to Asia, transiting the Arctic Ocean and the Bering Strait. In winter, when the direct route is too ice-bound to be navigable, the ice-class tankers will take cargoes west from the Yamal peninsula to Europe. In Europe the LNG will be loaded on to regular LNG tankers that will deliver the cargoes to Asia via the Suez Canal. ~

Russia's Liquefied natural gas pipelines (facility, area, status, capacity (million metric tons of lng per year), announced start year, owners): A ) Sakhalin LNG, Pacific coast, operating, 9.6, 2009, Gazprom, Shell, Mitsui, and Mitsubishi. B) Yamal LNG, Arctic coast, construction, 16.5, 2017, Novatek, Total, and CNPC. C) Baltic LNG, Baltic coast, planning, 10, 2018, Gazprom. D) Vladivostok LNG, Pacific coast, planning, 15, 2018, Gazprom. ) Sakhalin LNG (expansion), Pacific coast, planning, 5, post 2018, Gazprom, Shell, Mitsui, and Mitsubishi. E) Far East LNG, Pacific coast, planning, 5, 2018-19, ExxonMobil, Rosneft, ONGC Videsh, and SODECO, a Japanese consortium. F) Gydan LNG, Arctic coast, planning, 16, 2018-22, Novatek. G) Pechora LNG, Arctic coast, delayed, 10, NA, Rosneft. H) Shtokman LNG, Arctic coast, delayed, 30, NA, Gazprom. Regasification projects: Kaliningrad LNG, Baltic coast, planning, 2.4, 2017, Gazprom. [Source: U. S. Energy Information Administration based on Sakhalin Energy, Total, Novatek, Gazprom, Rosneft, Barents Observer, and World Gas Intelligence]

Hydrocarbon Gas Liquids in Russia

Russian output of hydrocarbon gas liquids (HGL) is expected to grow over the coming years. HGL refers to both the natural gas liquids (paraffins or alkanes such as ethane, propane, and butanes) and olefins (alkenes) produced by natural gas processing plants, fractionators, crude oil refineries, and condensate splitters. HGL is produced in association with both natural gas and petroleum fuels. [Source: U.S. Energy Information Administration, July 2015 ~]

Changes in Russia's export tax regime have spurred investment in refining capacity to produce higher quantities of gasoline and lighter distillates, in lieu of the high share of heavier fuel oil and gasoil the country's refiners previously exported. The increasing use of catalytic and hydrocracking units is expected to result in increased HGL production at refineries. Further boost to HGL supply will come from natural gas processing, as Russian natural gas producers develop richer natural gas resources and as more associated gas production (which is currently flared) is connected to gas processing plants. ~

With a surplus of liquefied petroleum gas (LPG)–a mixture of propane and butane–on the Russian market, major producers have targeted the export market along with the development of HGL-fed petrochemical capacity as outlets for their growing production. Traditionally, the main outlet for Russian LPG exports had been shipments to Europe by rail. In mid-2012, Russia's first modern LPG export terminal came online in Taman on the Black Sea. With a design capacity of approximately 30,000 barrels per day (barrels per day) of pressurized cargo, the port handled on average just under 7,000 barrels per day in the first nine months of 2014, all brought in by rail. In mid-2013, Sibur, Russia's largest LPG producer, shipped its first LPG cargo out of Ust-Luga, outside St. Petersburg. In a first for Russia, the terminal is also capable of handling both pressurized and refrigerated product, with a combined capacity of nearly 50,000 barrels per day. The Ust-Luga terminal, like Taman, is capable of receiving LPG by rail. Additional volumes of LPG are produced on-site at the Novatek-operated Gas Condensate Fractionation and Transshipment Complex.

In addition to direct exports, Russian companies are seeking to use domestically produced LPG in petrochemical manufacturing, thus capturing more of the value and minimizing their export tariff exposure. In December 2014, Sibur commissioned its propane dehydrogenation (PDH) facility at the Tobolsk-Polymer complex in West Siberia, which is capable of producing 510,000 tons per year of polymer-grade propylene from an estimated 33,000 barrels per day of propane feedstock. The company is planning to further increase its liquids consumption at the Tobolsk site with a proposed 1.5 million ton per year ethylene cracker. While some of the feedstock for the plant will consist of ethane, the plant is expected to consume primarily propane and butane to manufacture ethylene, propylene, and butylene/butadiene that will then feed into the production of derivative products, including high- and low-density polyethylene and polypropylene. ~

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Last updated May 2016