Rosneft's gas ambitions
Russian oil giant Rosneft aims to ramp up gas production to 100bn m3/year within a few years, from under 63bn m3 in 2020, closing the supply gap with its domestic rival Novatek.
Rosneft is by far Russia's biggest oil producer, but it has also expanded its gas business significantly over the last decade. It obtained a large share of this extra supply through the $55bn takeover of Anglo-Russian group TNK-BP in 2013, which gave it control of producing subsidiaries Sibneftegaz, Rospan and Samotlorneftegaz, as well as a 49% interest in Purgaz.
The company's gas expansion plans came to a standstill after the crash in oil prices in 2014 and Russia's subsequent involvement in OPEC+ cuts. Its output came to 62.83bn m3 in 2020, down 6.2% year/year. Sibneftegaz accounted for the largest share of this production, some 9.79bn m3, while Rospan contributed 6.24bn m3 and Samotlorneftegaz supplied 6.09bn m3.
Reversing the trend
Rosneft has several major new projects on the way that should reverse this trend, however. The company launched the next stage of the Rospan development in the first quarter of this year. A second new field facility should start up in the third quarter. Consisting of the East-Urengoysky, Novo-Urengoysky and Resursny blocks in the Yamalo-Nenets region of west Siberia, Rospan is expected to produce 21bn m3/yr at full capacity.
Another upcoming project is Kharampurneftegaz, a joint venture between Rosneft and BP also in Yamalo-Nenets that currently flows 1bn m3/yr, but is expected to produce an extra 11bn m3/yr and a further 14bn m3/yr under two respective expansion stages. The first phase, focused on developing Cenomanian deposits, is expected to start producing next year and reach full capacity by 2025, according to Rosneft, at which point the second stage, targeting Turonian-layer gas, will come online.
Between them, these two projects could bring Rosneft close to reaching its 100bn m3/yr target. But both have undergone considerable delays and could see further postponements.
Rospan's expansion had been on track to start flowing several years sooner. But the project came to a standstill after Russia committed to OPEC+ cuts at the start of 2017. The plan had been to develop the project jointly with the nearby Russkoye field, mixing the latter's heavy oil with Rospan's natural gas liquids, Ronald Smith, analyst at BCS Global Markets, tells NGW. Russkoye's oil would have otherwise been too heavy to transport via pipeline.
Rosneft could no longer pursue this plan after OPEC+ cuts prevented it from developing Russkoye. With OPEC+ restrictions still in force, the company has not said how it was able to move ahead with the Rospan project anyway.
The development at Kharampurneftegaz was on track to come online in 2020. But according to Rosneft's annual report, work on Kharampurneftegaz's gas treatment unit was only 40% finished at the end of 2020, and the oil company is also stuck in litigation with one of its contractors over delays.
Norwegian consultancy Rystad Energy believes "further delays are likely given the difficulties faced by the Russian service sector after recent oil market turbulence. To cope with low prices, many E&P companies turned to 180-day payment schedules, meaning that contractors may have to wait six months for their money instead of 30 days."
The consultancy projects a slow-ramp at the Rospan and Kharampurneftegaz projects, with the pair only flowing 14bn m3 in 2020 rather than the 32bn m3 envisaged by Rosneft. This means the company will produce only 72bn m3 in 2022, even though its goal is still, officially, 100bn m3. Rystad sees the company hitting this milestone sometime in the late 2020s.
Rosneft has ample resources to keep supply above the 100bn m3/yr threshold in the long term. Other projects include Kynsko-Chaselskoye in Yamalo-Nenets, the first phase of which is targeting 8.7bn m3/yr of annual output. Its second phase will contribute 7bn m3/yr and a further 3.3bn m3/yr may be possible, according to Rystad.
The Chavyo gas expansion in the Far East and the Vankor fields could contribute further supply, and post-2030, there are also major prospects in the Russian Arctic. Rosneft has speculated it could produce as much as 50mn metric tons/year of LNG at fields on the Taymyr peninsula, along with a further 30mn mt/yr from recent discoveries in the Kara Sea.
Finding buyers for its future gas supplies is unlikely to be much of an issue for Rosneft. Only Gazprom has access to Russia's export pipelines and Rosneft lacks LNG export capacity. But Gazprom has gradually been ceding domestic gas market share to Rosneft and Novatek, as it is forced to sell supplies at regulated prices that its rivals can undercut. Rosneft has been so successful at finding new buyers that in recent years its contractual sales obligations have been greater than its production, forcing the company to obtain gas from Gazprom to cover the shortfall.
"Rosneft can always find a market for it, because they can undercut Gazprom," Smith at BCS GM says. "And they don't need to do it by much, if its full price with Gazprom or 2% less with Rosneft, the customer is probably going to opt for the second option. The bigger hurdle is going to be on the production side."
Still, a lack of access to export markets and the higher prices that they offer is still a considerable barrier for Rosneft. The company sold its gas for 3,550 rubles ($49.2)/'000 m3 in 2020, while during the same year, Gazprom sold its supplies for 10,355 rubles/'000 m3 in Europe. Rosneft has lobbied for years for liberalisation of Russia's export pipelines. In particular, it has sought access to the Power of Siberia pipeline that runs to China, in order to commercialise its gas reserves in east Siberia. But so far these efforts have been in vain.