Yamal Peninsula Open to Question?

Russia plans to buy Turkmen gas, Yamal development suspended

Oil and gas specialists are actively discussing whether development of the Yamal peninsula may be given up for lost. And this at a time when, just a week ago, the region was considered Russia's strategic region for hydrocarbon reserves.

Last week, Russia and Turkmenistan concluded an agreement on supplies of Turkmen gas. Russian analysts and the mass media have already interpreted this Russian-Turkmen friendship in different ways: It was said that Turkmenistan would save Russia from its gas deficit; but, at the same time, some sources reported that the former Soviet republic did not possess the amount of gas reserves that the agreement referred to.

In the framework of the agreement signed by Russian President Vladimir Putin and Turkmen President Saparmurat Niyazov, a branch establishment of Russia's Gazprom — JSC Gazexport — and Turkmen state-run company Turkmenneftegas concluded a long-term contract on purchase and sale of Turkmen gas starting from Jan. 1, 2004, and lasting until Dec. 31, 2028. The Turkmen side guaranteed gas supply to the border, and the Russian side guaranteed purchase, transportation and payment for Turkmen gas.

According to the contract, Gazexport is to buy up to 6 billion cubic meters of gas from Turkmenneftegas. Every year, the volume of purchases will increase, and, beginning with 2009, annual gas supplies to Russia will be 70 billion-80 billion cubic meters. Starting Jan. 1, 2004, the purchase price will be $44 per 1,000 cubic meters of gas. Payments will be made by the Russian side in 2004-2006 with money (50 percent of the sum) and with industrial equipment that is important for development of the Turkmen gas industry (the remaining half of the sum). In subsequent years, the means of payment is to be further coordinated by the sides.

On the whole, analysts gave a positive estimate of the contract itself and of the terms and price fixed in the agreement. Gazprom exports gas to Europe at a price of $85-$90 per 1,000 cubic meters of gas. Duma Deputy and Chairman of the Russian Gas Association Valery Yazev says that the agreement concluded with Turkmenistan is very profitable for Russia, as the former country is giving up independent gas sales, which means that Gazprom will face no competition from the side of Turkmenistan. "This competition would have been very serious indeed, as the net cost of gas production in Turkmenistan is much lower than in Russia. The agreement is very important for the country," he said. In addition, specialists estimate, the contract will yield Russia $300 billion. The money will be important for the Russian budget and for financing Gazprom’s facilities for gas-field development.

However, the concluded agreement became a serious obstacle to realization of the program of complex industrial development of Yamal peninsula. The decision to turn the peninsula into an area of Russia's strategic interests for development of the gas industry and for gas-reserve replenishment was made at a session in the city of Novy Urengoi held by Putin at the end of 2001.

In 2002, Gazprom’s board confirmed the intention to make regions of the Yamal-Nenetsk autonomous district the gas monopoly’s top-priority areas. After investigations of new gas fields in the Yamal-Nenetsk district and in the Barents Sea, Gazprom decided to make the district the region of the company's strategic interests and the main sector of gas-field development for the period till 2010. It was planned in the future to increase gas production there up to not less than 530 billion cubic meters per year. Already in the first three months of 2002, Gazprom specialists were to have developed a program for complex industrial development of the Yamal gas fields. Also, the Russian company was going to develop and approve an exploration program for 2002 through 2008 at the Yamal gas fields.

The head of Gazprom’s press service, Igor Potnikov, says that realization of the program for developing the Yamal peninsula gas fields won't suffer at all, as the program itself has not been yet adopted by the Russian government. It is reported that it is not yet clear when the program is to be taken up by the government.

RusEnergy