Total and Shell Shortlisted for Gazprom's Siberian Yamal LNG Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--In 2002, Russian energy giant OAO Gazprom (OTC:OGZPY) (Moscow) selected the Yamal Peninsula as an area of considerable interest. The peninsula is located in northern Siberia and stretches into the Kara Sea above the Arctic Circle. The same year, in collaboration with Yamal-Nenets Autonomous Okrug, Gazprom drafted the comprehensive development of fields on the Yamal Peninsula and in the adjacent offshore areas. The development of the fields is expected to yield 310 billion-360 billion cubic meters of natural gas by 2030. Gazprom is currently exploring the possibility of setting up a liquefied natural gas (LNG) plant at Yamal. The project is generally referred to as the Yamal LNG project, or the Yamal megaproject. In November 2008, Gazprom announced that it would prepare a list of partners for implementing the project.

More recently, in June 2009, the CEO of Gazprom, Alexander Medvedev, announced that Total SA (NYSE:TOT) (Paris, France) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) have been shortlisted for the Yamal LNG project. Mitsubishi Corporation (TYO:8058) (Tokyo, Japan) and Mitsui & Company Limited (TYO:8031) (Tokyo) are expected to acquire minority stakes in the project.

In a similar setup, Gazprom is developing the Sakhalin II oil and gas project in the far east of Russia. While Shell has a stake of 27.5% in the Sakhalin project, Mitsui and Mitsubishi own stakes of 12.5% and 10%, respectively.

When and if finalized, the LNG plant will procure resources from the Tambeiskaya fields, which include the South Tambeiskaya field owned by Russia's largest independent gas producer Novatek OAO (RTC:NVTK) (Tarko-Sale, Russia). Medvedev said that Gazprom is willing to study and discuss Novatek's plans to develop the field and that the two companies could work together. Gazprom has a stake of 20% in Novatek.

The Yamal Peninsula has 11 gas and 15 oil and condensate fields with an estimated 16 trillion cubic meters of explored gas reserves and about 22 trillion cubic meters of predicted gas reserves. Condensate and oil reserves have been estimated at about 230.7 million tons and 291.8 million tons, respectively. The Bovanenkovskoye field with 4.9 trillion cubic meters of gas is the most significant field on the Yamal Peninsula, and Gazprom holds the development license of the field. Nadymgazprom, a wholly owned exploration subsidiary of Gazprom, will operate the Bovanenkovskoye gas condensate and oil field. Gas production is expected to commence in 2011.

Gazprom began drilling production wells at the Bovanenkovskoye field in 2008. Construction of the Bovanenkovskoye-Ukhta gas trunk line system also began last year. More than 300 kilometers of the pipeline have already been laid as part of the planned 2,500-kilometer Yamal gas-transportation system. The challenging 40-kilometer stretch of submerged pipeline has also been built. Three wells have been constructed, and drilling facilities are being installed. Construction of other important transportation and industrial infrastructure is also nearing completion.

Without the large-scale development of the nation's rich natural resources, further development of the Russian economy is not feasible. The plans set out in the Russian Energy Strategy until 2030 are very closely connected with the development of the gas fields in the Yamal Peninsula. Currently only 12 trillion-13 trillion cubic meters of gas are produced in Yamal but the estimated gas reserves of the Peninsula and the Kara Sea are expected to last until the end of the century.

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