Tuesday, February 28, 2012

OGPSS - Future Russian production from the Arctic

In the past few weeks I have been looking at the potential for sustainability in oil and gas production in Russia, now producing at a predicted recent peak of 10.36 mbd, when condensate is included. But the question increasingly becomes whether or not Russia can sustain these levels through this decade, as has been assumed by those suggesting that there will be no supply problems in the near future. In order to sustain this level of production, against falling volumes from the current major sources in Western Siberia (estimated as 300 kbd in 2010 ), Russia is so far relying on bringing new fields into production in Eastern Siberia and Timan-Pechora (as well as some increase in condensate as natural gas production continues to increase). However these developing fields, as a broad generalization, are at a size of about 500 mbd each, with an anticipated maximum individual production level of around 150 kbd. (Prirazlomnoye for example, which is coming on line has 526 million barrels in reserves, and will be producing at 132 kbd).

Prirazlomnoye drilling rig representation (Gazprom).

Since the high flow rates will likely not be sustained for long intervals, and declining production in Western Siberia will continue, so Russia will need to continue major programs of development to find further fields to bring on line later in the decade and beyond. In addition the declining production in other fields (which might increase overall decline in existing production to 5% or more, i.e. above 500 kbd) will add further pressure to sustain current levels, particularly given the criticality of oil and gas income to the Russian Government.

With much of the land already surveyed, the potential for large fields lies mainly offshore, and particularly in the various national continental shelves and the disputed underwater territory between them in the Arctic. It is a region where there are multi-national concerns and involvement, with the USGS having previously estimated that it is home to about one-fifth of the world’s undiscovered, but yet recoverable oil and natural gas resources, an estimate, at the time, of 44 billion barrels of oil and 1,670 Tcf of natural gas.

Map of the Arctic showing relative location of some development sites (Google Earth)

From the US perspective the US Bureau of Safety and Environmental Enforcement ((BSEE) seems finally willing to let Shell begin exploratory drilling in the shallow waters of the Chukchi Sea, although there has been a challenge to the recently awarded air Permit from the EPA. At the same time that the USGS is set to issue a new report that projects that shales on the North Slope may hold as much as 80 Tcf of natural gas and 2 billion barrels of oil, with initial drilling to prove the reserves anticipated to start this year. But those developments are on the other end of Russia, to the majority of current developments.

The recent discoveries by Statoil off the Norwegian coast and in the Barents Seas(at Skrugard-Havis, and Aldous Major South, show the potential that still remains in the North. Roughly a third of the world’s largest gas fields lie north of the Arctic Circle with Russia having significant reserves among them.

World’s largest gas fields (can you name the others?) (Shtokman )

Russia is therefore moving toward a planned program of development of the resources off its own continental shelf, where it is expected to be able to produce up to between 0.8 and 1.6 mbd of oil production and 18 to 20 bcf/day of natural gas. Part of the problem, however, is going to be cost. The new program is expected to cost some $216 billion, at a time when the investments in developing the current projects in Yamal and Eastern Siberia are also demanding large investment, if those goals are to be met.

Definitions of regions offshore (pertinent in future debates over who owns what in the Arctic) (Extended Continental Shelf Project)

TNK-BP are spending $12 billion to develop the Russkoe, Suzunskoe, Tagulskoe, Russko-Rechenskoe, and Messoyakhskoe fields in the Yamal region, with the hope that these can contribute at the end of this decade, and into the next, at a total level of around 300 kbd. Suzunskoye is targeted to begin production in 2016, running at around 100 kbd once on line. Russkoye is projected to start in 2017, and produce 150 kbd of a heavier oil. Tagulskoye and Russko-Rechenskoe will come on line in 2019. Messoyakhskoe is a joint project with Gazprom and (at $17.3 billion cost) will not come on stream until 2024, at 320 kbd. These fields will, however, feed into the pipelines that head East, to China, Japan and Korea.

Closer to Murmansk Exxon Mobil and Rosneft are exploring blocks in the Kara Sea anticipating that it may ultimately cost $500 billion to develop reservoirs in the difficult conditions with moving icebergs but for now expect that initial exploration and development will cost in the $10’s of billions.

Perhaps, of these fields it is the Shtokman natural gas field, which lies under the Barents Sea, 550 km north of the Kola Peninsula which has drawn most attention. Currently expected to start production in 2016, costs may well run over $15 billion.

Location of the Shtokman field (Shtokman Project)

Shtokman was discovered in 1988 (the name comes from Professor Shtokman who gave his name to the research vessel that found the field and contains an estimated 85 Tcf of natural gas, as well as around 400 million barrels of concentrate. It lies under 1,000 ft of water, with the interesting occasional problem of visiting icebergs that can weigh up to 4 million tons apiece. Planned to come on line in with an average production of 2.3 bcf/day, the supply (as the above map shows) half the supply is anticipated to feed into the Nord Stream pipeline for shipment to Western Europe, while the rest is converted to LNG and will be shipped out by tanker. Gazprom has recently increased the area of its license rights for the field, with a new date for commitment set for this month.

The current intent is to use a series of buoyed risers to connect from the wells to the surface, so that, should an extra-large iceberg appear the Floating Production Unit (FPU) can detach and move out of the way – should tugs not be able to divert it.

Artist’s concept of the layout for development of the Shtokman field (Shtokman Project)

The pipeline shipments are planned to begin in 2016, but the LNG shipments (some 7.5 million tonnes a year) will not start until 2017. The project is a joint venture between OAO Gazprom, Total S.A., and Statoil A.S.A.

The USGS has noted that there are considerable regions in the Arctic that have, as yet, been poorly explored. In 2005 they produced this map of the then state-of-knowledge:

Status of oil and natural gas evaluations around the Arctic (USGS)

From this they produced two maps showing the location of possible undiscovered deposits. The potential undiscovered oil deposits are shown below:

Potential oil discoveries and size remaining in the Arctic. (USGS)

The point however, is not that there is going to be no more oil, it is just, as the production schedules above illustrate, that it is going to be slow and expensive to develop that which remains. Over the next decade Russia will have to bring three or four new fields on line each year at around 100 – 150 kbd each, if it is to sustain production at current levels. It is somewhat difficult to see them being able to hold to that schedule, even for a year or two.

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Friday, February 24, 2012

Rumblings in Iceland, (Katla sleeps restlessly)

The problem of dealing with Geological time and having events that occur in very short intervals thereof, is that for those of us on a faster life schedule, “almost instantly” can still be a period of years.

That thought has struck me quite frequently as, over the past year, I have watched the earthquakes that are happening around the Myrdalsjokyll glacier in Iceland, with the Katla volcano rumbling beneath it. I first noted how the earthquakes in the region were focusing down into the caldera of the volcano last May. Since then I reported occasionally as the intensity of the underlying earthquakes increased in intensity up to levels above 3.0, and started to align along possible fissures that might lead from the magma chambers up to the surface.

In the end the volcano did not seriously erupt, but nor did the patterns change that much, and I have kept an eye on the region over the months since. It is worth noting that the pattern of quakes continues to focus in the region of Katla, and that while they vary in intensity and frequency (some days there may only be one or two quakes) that they are still ongoing.

Pattern of Earthquakes in Iceland in the last 24-hours (Icelandic Met Office )

If one clicks on the map at the site over the clump of quakes at the bottom (those on the right at the base of the peninsula are caused by water injection from the geothermal program in Iceland) then one gets this picture:

Quakes in the Katla region of Iceland in the last 24-hours (Icelandic Met Office)

This is about as dispersed a pattern as there has been over the last few months in the region. Eyjafjallajokull was the volcano that erupted two years ago, and brought some disruption to Europe. Katla will likely go at a somewhat greater scale, and likely quite soon – in geological time. For those with shorter attention spans it remains hard to tell whether that will be in 6 months, or 6 years. We’ll just have to keep watching.

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Wednesday, February 22, 2012

The "Relief of Nome" video

For those interested there is a 10 minute video of the travel of the ice breaker and tanker through the ice to Nome in order to deliver oil that has been posted on:

The Nome Nugget.

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Tuesday, February 21, 2012

Predictions of climate change

There are a couple of controversial items that have made it into the mainstream press recently that seem to have stirred a little controversy, and which are worth at least a mention. (And please note that the original post has been updated).

The first was the Opinion piece in the WSJ back in January in which 16 scientists wrote that there was no need to panic over Global Warming. They note, in their letter
Alarmism over climate is of great benefit to many, providing government funding for academic research and a reason for government bureaucracies to grow. Alarmism also offers an excuse for governments to raise taxes, taxpayer-funded subsidies for businesses that understand how to work the political system, and a lure for big donations to charitable foundations promising to save the planet. Lysenko and his team lived very well, and they fiercely defended their dogma and the privileges it brought them.

Speaking for many scientists and engineers who have looked carefully and independently at the science of climate, we have a message to any candidate for public office: There is no compelling scientific argument for drastic action to "decarbonize" the world's economy. Even if one accepts the inflated climate forecasts of the IPCC, aggressive greenhouse-gas control policies are not justified economically.

Their letter received a response from a group that included some of the more prominent (and funded) of the climate change advocates, which avoided the discussion of funding, but rather spoke to the eminence of those who are forecasting gloom.
Do you consult your dentist about your heart condition? In science, as in any area, reputations are based on knowledge and expertise in a field and on published, peer-reviewed work. If you need surgery, you want a highly experienced expert in the field who has done a large number of the proposed operations.

You published "No Need to Panic About Global Warming" (op-ed, Jan. 27) on climate change by the climate-science equivalent of dentists practicing cardiology. While accomplished in their own fields, most of these authors have no expertise in climate science. The few authors who have such expertise are known to have extreme views that are out of step with nearly every other climate expert. This happens in nearly every field of science. For example, there is a retrovirus expert who does not accept that HIV causes AIDS. And it is instructive to recall that a few scientists continued to state that smoking did not cause cancer, long after that was settled science.
(You will note the little unsubtle ad hominem at the end.)

The original authors have now replied. I will quote the reply under the fold, but the first part of their response points out that, for major surgery, it is often best to get a second opinion, and to look at the record of the proposed scientists. They then put up a graph of the accuracy of the IPCC predictions for temperature rise, which I thought worth repeating.

IPCC projections for temperature rise, against reality. (WSJ)

There is a response to the more recent letter on RealClimate which complains that the WSJ plot does not include error bars, and that, when those are included, that recent temperature plots fall within the range of the predicted models. I have appended that plot to the end of this post.

Te response begins thus:
We agree with Mr. Trenberth et al. that expertise is important in medical care, as it is in any matter of importance to humans or our environment. . . . . . . . . .In this respect, an important gauge of scientific expertise is the ability to make successful predictions. When predictions fail, we say the theory is "falsified" and we should look for the reasons for the failure.
They point out that the heat that was to have raised the temperature has now been suggested as having gone, instead, into the oceans, but point out that there is no evidence to sustain that theory.

They note that the Earth has been warming since the Little Ice Age (for which there is much evidence) and prior to the LIA there was the Medieval Warming Period, and before it the Holocene Climate Optimum, neither of which can have been caused by greenhouse gases but which instead point to a natural cycling of temperature, which current science has not disproved as a cause of the current warming period. And they also express concern about the statement that "decarbonization would drive decades of economic growth."

Of course a wind farm, or solar farm employs significantly less workers than a coal mine (though arguably more than an oil or gas well - though not if one includes the refineries - since when it gets to power station levels both should surely balance out). I rather suspect that this is not the end of the discussion, and that the debate is starting to get a little more public exposure than it has been able to achieve in the past.

In passing I should note the small furor about the release of some of the documents from the Heartland Institute, mastered by one Peter Gleick, who was a MacArthur Fellow, has confessed to dishonestly obtaining and then releasing them. Not apparently that this is stopping the climate change advocates from pointing out the money that the Heartland Foundation has (though virtually none report on the relatively roughly hundredfold larger size of the sums of money being put into work that advocates climate change - but with money comes power and access, and the Heartland group has much less). I guess just because you're a recognized genius doesn't mean that you can't do stupid things.

However, the other thing that is worth a comment is that there seems to be a growing recognition that biofuels may not be the savior of the atmosphere that they have been purported to be. Apparently the Friends of the Earth have issued a report which indicates that switching to biofuels won't have much effect on cleaning up the air, in fact the switch may make things worse. At the same time the switch may cost drivers in Europe something on the order of $24 billion a year. And in the process of looking into the topic there is another new report (unfortunately behind a paywall) which suggests that much of this was known before the regulations were put in. Bishop Hill has a post on the report, which suggests that some un-named, but central and powerful individual, was able to manipulate the EU into making the moves that have led to the adoption of the 10% biofuel requirement, without adequate consideration of the evidence. Apparently none of the non-supportive data was made available. I wonder why that sounds familiar?

And in passing, and closure, I wrote, in the past about Dr. Hansen's predictions of global warming that were one of the seminal events that got the climate change movement the financial success that it has since achieved. It is interesting to take the graph he used, and add some of the data from the plot above. It would appear that more than one computer model has been falsified. Because Dr. Hansen's models seem to use a different zero, I have slightly adjusted the values from the curve above to extend the data on actual temperatures relative to those predicted. You can see that they are starting to fall below the values that Dr. Hansen predicted would only be achieved if there was a radical reduction in carbon dioxide and the greenhouse gases - which hasn't happened, and so would perhaps indicate that the effects of said gases are less than he was predicting.

Projected temperature rise anticipated by Dr Hansen (Dire Predictions)

The plot which RealClimate have used as a rebuttal is this one.

Real Climate plot showing the error bars that they state exist for the models.

It is an interesting point though since all the model error bars are conflated makes it difficult to see how much validity there is to the argument.

Incidentally Profesor Lindzen gave an excellent talk (pdf) at the Houses of Parliament in the UK the other day. It got favorable coverage in the Independent.

UPDATE: There have been a couple of posts over at Watts Up With That? (WUWT) that provide better versions of the plots than the one I gave above. The first points to a presentation by Dr. Evans, which contains this plot:

Temperatures as measured by satellite against Dr. Hansen's predictions in 1988.

The other compares the IPCC predictions with actual temperature data, and quotes a post by Clive Best, that contains this plot:

IPCC predictions of long-term temperature change.

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Sunday, February 19, 2012

OGPSS - Russian natural gas production

It has been bitterly cold in parts of Europe over the past few weeks, and this has had an impact on power with Russia seeing the highest demand yet for electricity at 156.96 Gigawatts, while, at the same time, having to reduce the volumes of natural gas that it is supplying to Europe. To put the Russian power level in perspective, while there has been an increase in power generated from natural gas in the United States the capacity to generate more than 1,000 GW. still relies considerably on coal and nuclear power although renewable sources are becoming more prominent.

Sources of Electrical Power in the United States (EIA)

The above plot, however, shows capacity rather than actual contribution, and I am grateful to Gail who took the time to develop a plot of actual use, which shows how the different sources actually contribute. I am putting in both since each addresses a different point in comparison with Russian production.

U.S. Electricity as supplied, by source (Gail Tverberg)

In contrast to the US, in Russia some 56.2% of the electrical energy comes from natural gas, oil produces some 18.3% coal 14.4% nuclear power is 5.3% and hydropower is at 5.6%. This high demand for natural gas, is compounded by the sales which Russia makes to Europe where it provides about 25% of the market supply, down from the 27% levels of a couple of years ago. And Gazprom is marketing its product further to India (through LNG sales) as well as to China, where it will now be in competition with natural gas being piped from Turkmenistan (which used to have Gazprom as its only customer).

Russian natural gas production, consumption and exports (Energy Export Databrowser )

Natural gas is more often supplied on demand, rather than from large storage facilities, and so when local demand in Russia recently rose due to the severe cold spell, there was less available for Europe, and supply fell, for example, by 30% in Italy, though having been that route before, European nations have learned to keep some reserve available for these situations. Gazprom has also seen the need for more storage and now plans on investing some 2-300 million euros to double the volume available in gas reservoirs around Europe. During the peak cold spell Europe was using around 17 bcf per day up 20% from the average demand during 2011.

The problems that Gazprom faces are two-fold, the first is to produce the gas, and then the second is to ensure that the customer has enough available when needed. And at the moment (to address the latter problem first) one of the critical issues is that the gas must pass through Ukraine.

Major routes of gas pipelines feeding Europe from West Siberia (RIANovosti)

Unfortunately Ukraine and Russia have an uncomfortable history in regard to the passage of natural gas through the country, and this year, because of the cold, is no different, with disputes over volumes contracted for and used still continuing. However the Nord Stream pipeline has now completed the first pipeline to Germany, bypassing Ukraine, with the second lacking only one section, which will be installed this year. The twin pipelines will carry the equivalent of 5.3 bcf/day into Lubmin in Northern Germany, with delivery from Portovaya Bay in Russia, already flowing through the first pipeline, starting last November 8th.

Nord Stream pipeline path through the Baltic, showing remaining construction (Nord-Stream )

Landfall operations in Germany (Nord-stream November 2011 newsletter)

On the Russian end of the pipeline, it connects into the Gryazovets-Vyborg pipeline which brings the gas from the producing fields.

The Gryazovets-Vyborg pipeline bringing natural gas from Western Siberia (Gazprom)

The gas that is coming through the pipeline comes from Novy Urengoy in Western Siberia, which is where, at present, some 74% of Russian natural gas is being produced. This is where the Yuzhno-Russkoye gas field is located, with current estimated reserves of 21 Tcf of natural gas. The gas is currently coming from some 142 wells spread over an area of 424 sq miles, with the field producing 2.6 bcf a day. It takes 10 days for the gas to make the trip. The gas field came on line in 2007.

Fields feeding into the supply pipeline to Germany (Gazprom)

It should be noted that the pipelines going up into the Yamal Pensinsula are still being developed and the gas fields of that region are not therefore fully available, though drilling is taking place.

Drilling at 70deg00’01.85” N 70deg00’02.05”E (kim46 at Google Earth)

There are a number of fields in the Peninsula, including Bovanenkovo, that are still to be fully developed, and which will provide some of the reserves that Russia will need as their current main producing fields start to run down. There has been some considerable progress, however, since the last time that I tried to find evidence of activity in the field.

It is one of 11 natural gas and 15 oil and gas condensate fields in the Peninsula, with aggregate reserves, for just the three largest fields (Bovanenkovo, Kharasavey and Novoportovskoye) of 208 Tcf of natural gas, 730 million barrels of condensate, and 1.6 billion barrels of oil. At present the first 1.5 bcf/day production is scheduled to begin operation in the 3rd quarter of this year. A railroad is being connected into the region in order to maintain supplies and provide equipment for further construction.

Current Gas flaring at 71deg03’32.30” N 67deg25’23.41 E (DDS7 at Google Earth)

New construction at Bovanenkovo (Gazprom)

With the growing prospects of additional natural gas from Yamal, and with further facilities being built in Europe to allow storage to get through inclement weather, it does appear that Russia will be able to supply Western Europe with natural gas for at least the next 30-years that they are predicting – although should demand rise, (as it well might with the closure of nuclear and coal-fired power stations) then the reserves will be drawn down considerably faster. At present the current storage has only been run down by about 48% of that available according to Gas Infrastructure Europe.

Natural gas stored in the UK (on 19 Feb 2012) (Gas Infrastructure Europe) (as an example).

This is while Russia is still flaring considerable volumes of natural gas that cannot be otherwise used. And while the trend is going down (by about 15%) it still has a way to go. There just aren’t that many folk in Siberia that appreciate the slightly warmer air that is being generated. And while that part of the news is good, the failure to date of the Polish trials to find commercial reserves of natural gas in domestic shale deposits may mean that Gazprom’s market will continue, since the presence of as much as 187 Tcf of natural gas in the Polish shales does not do anyone any good if it cannot be viably recovered.

Global gas flaring volumes (The World Bank)

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Thursday, February 16, 2012

OGPSS - Oil production from Timan-Pechora

In the review of the BP view of energy supply over the next 20 years, I noted that BP anticipated that Europe would be largely self-sufficient in Energy:
we foresee both the Americas and Eurasia - or Europe including Russia and the former Soviet Union - achieving self-sufficiency in energy
Foregoing, as yet, a review of the FSU states that lie south of Russia, the initial question that this series is, at present, seeking to examine is how sustainable, or how much potential for growth lies in Russian oil and gas production.

The major Russian oil basins (EIA)

This progressive review of Russian major oil developments has moved from Baku and the Northern Caucasus, through the Urals-Volga region into Western Siberia, and thence via Eastern Siberia to Sakhalin Island. This has been a steady progression East, and one might otherwise suspect that Russia might continue this movement, as current major fields start to play out. Unfortunately that would move exploration and development east across the Bering Sea and in 1868, for $7.2 million in gold, Tsar Alexander II sold Alaska to the United States, and much of that resource has now been developed. (And as an aside the Alaskan pipeline averaged a flow of 624,716 bd in January, enough to keep it out of trouble this winter, we hope).

So if Russia cannot move further East, then the option remaining is to move north. And that brings us initially to the fields of the Timan-Pechora Basin, which the Rosneft subsidiary Severnaya Neft ships out of Arkhangelsk, and the oil that Lukoil and their partners produce, which ship out of the Varandey Oil Export Terminal on the Barents Sea. The total basin is now producing at around 640 kbd, of which some 540 kbd is being exported.

The Varandey Oil Terminal (Lukoil )

It is expected that the terminal will also provide a path for JSC Zarubezhneft who is just starting production in the Central Khorovey Uplift. The fields are anticipated to produce some 800 million barrels of oil, but over a 57-year period, with maximum production only reaching 128 kbd in 2021. (The Vietnamese have part of this project).

The fields of the Timan-Pechora Basin (after Blackbourn)

Back in 1999 the USGS estimated that the total extractable reserve was around 20 billion barrels of oil equivalent (bboe) of which 66% was oil. Part of the problem in defining how this ranks relative to the table that I posted when writing about Western Siberia comes from the regions in which the basin lies.

Russian production in 2009, broken down by region (the total is 10.48 mbd) (EIA)

Timan-Pechora lies in the Komi Republic, the Nenetsk Autonomous Okrug and in the Arkhangelsk region, so that presumably one adds numbers in the table above to get the total production from the basin. Most of the production, to date, has been onshore, though some 3.38 bboe of the total reserves are anticipated to lie above the Arctic Circle.

RN-Severnaya Neft drilling rig in the Timan-Pechora Basin (RN-Severnaya Neft)

RN-Severnaya Neft is producing from 17 fields, with most production centered around the Baganskaya and Val Gumburtseva regions, for a total of 82 kbd in 2010 from 277 wells, with 10 added in 2010. They also have a joint venture with ConocoPhilips known as Polar Lights which had an average daily output of 14 kbd in 2010, though rising, from initial development in 2008. However this is from 28 wells, but they only appear to be adding one well a year.

The major producer in the region is Lukoil who are producing the recently discovered Bayandyskoye field with a planned production of 150 kbd, with reserves of 200 million boe. They have since found a second new discovery of comparable magnitude last November in the Vostochno-Lanbeshorsky field.

It is through discoveries like these that is anticipated that production will rise, overall. However some of the increase will come as production moves offshore, into the Trebs and Titov fields.

The development of the two offshore fields was originally licensed to Bashneft-Polus, but Lukoil has just bought 25.1% of that company for $150 million. (On a rough measure each field is considered to hold about half-a-billion barrels of reserves.) It has been estimated that it will require between $5 and $6 billion to develop the fields and Lukoil may need the boost in production, since it saw oil production fall 5.5% last year. This was partly due to a lower than anticipated yield from the Yuzhno-Khilchuyu field being developed with ConocoPhilips. The anticipated production from that field was expected to be 150 kbd, with reserves of around 500 million barrels. The total acreage that the partnership controls is, however, greater than the current development, and contains other fields within the Naryanmarneftfaz collaboration.

Areas where ConocoPhilips are invested in Timan-Pechora (ConocoPhilips )

Total production levels from Timan-Pechora are projected to reach levels of around 750 kbd by 2020. Yet, as with Eastern Siberia and Sakhalin Island production in these fields is not going to be that easy. Back in 2005 John Grace (Russian Oil Supply) described it thus:
Geography also dealt the basin a very severe climate. It is substantially north of the oil-producing area of West Siberia and its proximity to the Arctic Ocean makes it snowier and windier. With the exception of the Yamburg gas field in northern West Siberia, nowhere in Russia is a substantial volume of oil or gas produced from a worse place to work.
Production increases that are being discussed are only on the order of 100 – 200 kbd, and will require production from a number of fields to provide that volume. While the quality of the oil coming from Timan-Pechora is high, thus helping Russian income, the incremental volumes will not do a lot to provide that sustained production from Russia that the world seems to anticipate will happen.

UPDATE: I should have mentioned that the Prirazlomnoye oil field operated by Gazprom is also scheduled to come on line this year. With an anticipated production of 132 kbd it has a reserve of around 500 million barrels, and will be producing from 40 wells. It is 60 km offshore, in about 60 ft of water, and will supply oil to Varandey. In addition the Kolvinskoye oil field has just come on stream, with 24 wells projected to produce an average of 90 kbd by the end of the year. Again reserves are estimated at around 500 mb. These two oilfields are the reason that the February 2012 OPEC MOMR sees a slight gain of 70 kbd in overall production from Russia this year.

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Tuesday, February 7, 2012

OGPSS - The oil and natural gas of Sakhalin Island

The EIA Short-Term Energy Outlook (STEO) for February 2012 included a chart for anticipated changes in production for countries outside OPEC over the next two years.

Changes in liquid fuels production from NON-OPEC nations (EIA ) (Note the change from January moves Mexico past Sudan where over 200 kbd have been shut-in through conflict, and that Russia is showing negative and is towards the back of the pack).

The January STEO commented, in regard to Russian production:
EIA expects Russia's crude oil and liquid fuels production to fall by about 190,000 bbl/d in 2012 and an additional 12,000 bbl/d in 2013. These declines follow production of 10.3 million bbl/d in 2011, a post-Soviet record-high that positioned Russia as the world's top producer. Russia's government introduced tax decreases on some petroleum exports, which seems to have affected total exports in the last quarter of 2011. Additionally, production in the eastern part of the country offset the Western Siberia declines to some extent. EIA expects, however, that absent meaningful tax structure reform, investment will remain scarce, contributing to the projected drop in Russia's production in 2012 and 2013.
Having discussed the production declines in the Western Siberian Basin, and the increasing production from the smaller Eastern Siberian region, it’s time to move further East, as Russian exploration has, to find and discuss the oil and gas resources found around Sakhalin Island. The Island lies just north of Japan and off the Amur River, within the Sea of Okhotsk.

Location of Sakhalin Island (Rational Preparedness)

At the time that we first began writing about the island, back in 2005, it was still being developed and could only produce and ship product for six months a year when the weather allowed. The first phase of development, Sakhalin 1 began production of natural gas in 2005, with oil production being ramped up from the seasonal production at the start in 1996 to 250 kbd by 2010. The major gas production came with Sakhalin 2.

The locations for the fields for Sakhalin 1, and the pipeline to the mainland (Exxon Neftgas Ltd)

At present production from the Chayvo and Odoptu fields are feeding the Chayvo Onshore Processing facility, which can handle up to 250 kbd of oil, and 800 million cu ft of natural gas per day. As Chayvo declines into 2014 then Arkutun-Dagi will be brought on stream to sustain production levels. The oil feeds through the pipeline to an ice-free terminal where it is loaded onto dedicated Aframax tankers each moving 100,000 tons (720 kb) of oil at a time, and with the terminal it is possible to load year-round. A new pipeline is also being installed to carry natural gas to Vladivostok. However it is being run by Gazprom, who have found that it cannot be filled with the natural gas supplied from Sakhalin 2 and Sakhalin 3, and so Gazprom is negotiating with Exxon Neftgas to purchase all the natural gas (which will, in time, include more from Chayvo in Phase 2) that is produced from Sakhalin 1. Exxon, on the other hand, would prefer, because of the profit, to sell the natural gas to China, rather than to domestic Russian consumers, but they are going to be over-ruled. The fields of Sakhalin 1 are considered to have reserves of 2.25 billion barrels of oil and 17 Tcf of natural gas.

Location of the main production and transport facilities for Sakhalin 2 (hydrocarbons-technology)

As with other regions of Russia, the interplay and conflict between the government and their agencies and the Western oil companies brought in to develop the reserves has also been evident over the past few years. By 2006, when development of the total estimated 45 billion barrels of oil and natural gas oil equivalent, was moving into the second phase of production, Shell, who was running this part of the program, ran into an environmental problem. It had actually started with the initial agreement signed back in 1996.:
most observers agree (it) was inherently unfair to Russia - a deal signed in 1996, when oil was $22 a barrel and Russia was on its knees, that gave the Shell-controlled Sakhalin Energy Investment Corp. the right to recoup all its costs plus a 17.5% rate of return before Russia would get a 10% share of the hydrocarbons coming out of the ground.

Then there was the cost of the second phase of the project, which ballooned from $10 billion in 1997 to $20 billion in 2005, fueling a perception that the company was profligate while Russians picked up the tab. The chapters in between include a calamitous safety record, a failure to meet local expectations for new roads and schools, a fuel spill in Sakhalin's third-largest city, and environmental concerns that caused anger and resentment toward Shell's leadership, earning it a reputation for stubbornness and for consistently misreading political realities.
The end result was that while Shell had initially 55% of the shares, with Mitsui and Mitsubishi having 25% and 20% each, Gazprom stepped in to buy, for a total of $7.5 billion, half the shares of each partner so that Sakhalin Energy is now owned by Gazprom (50%) Royal Dutch Shell (27.5%), Mitsui (12.5%) and Mitsubishi Corp (10%).

The LNG terminal, supposed to come on line in 2008, was targeted to supply 156 tankers a year, with the output pre-sold for the next 20-years. The terminal did not come on stream until 2009 when the first 67,000 tons of LNG were shipped to Sodegaura, Japan. Japan is taking some 60% of production, with the remainder initially going to South Korea and the United States. This was followed by shipments to Tohuko in May 2010, and while production still lagged the original delivery volumes, it was increased in 2010 to a total volume of 10 million tons of LNG. Additional volumes are now being shipped to South Korea and the shortfall appears to have been abated. However, such is the demand for LNG in the Pacific that the partners are now considering the addition of a third gas train for another 5 million tons/yr at the terminal in order to meet the increased demand from Japan, following the closure of some nuclear plants following last year’s tsunami. The reserves in the Piltun-Astokhoye and Lunskoye fields (Sakhalin 2) are estimated at 1.3 billion barrels of oil, and 33 Tcf of natural gas.

First LNG shipment to Japan, April 7, 2009 (Japan Times )

There will be additional projects carried out over time, going all the way up to Sakhalin-7, with Gazprom having the largest share of Sakhalin-3. That project contains an estimated 3.3 billion barrels of oil and 25 Tcf of natural gas with the natural gas estimated to come into the pipeline in 2014. (Note that the reserve figures come from the Minister of Investment and Internal Affairs of the Sakhalin Region on Jan 30, 2012).

The phases of Sakhalin Island (EIA)

Even with those phases included, and they reach far into the out years, it is difficult to see much increase being achieved over the 310 kb of production that was achieved in 2009. There will be increases in natural gas production, and this will be of benefit to Japan and South Korea, being a resource that it not that far away, but with a declining crude oil production from Western Siberia it is hard to see how Sakhalin Island production will do much to sustain overall Russian production, let alone increase it.

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Wednesday, February 1, 2012

OGPSS - The oil in Eastern Siberia

In the last post on Russian oil production I discussed the amounts of oil that have been produced from Western Siberia, the region that currently produces the most, and which in its prime contained the second largest producing oilfield in the world at Samotlor. But those fields are now in decline, and while modern technology is seeking to retain as much production as possible, Russian investment is moving further East to the region known as Eastern Siberia. It is not the most hospitable of places, even when compared with Western Siberia.
The cold is staggering, even for Siberia: winter temperatures can fall to minus 70 degrees Fahrenheit, at which point all outside work is banned. The nearest human settlement is 250 miles away, and the forests are full of bears, wolves and elk. . . . Workers shivered in winter and in summer were tormented by midges so vicious they have been known to kill cows.
Depending on who it is that you consult, Eastern Siberia can either include, or not, some of the northern part of the Western Siberia Basin:

Eastern Siberia as defined by Stratoil.

Clearly, however, when one compares the two regions, the prospects for Eastern Siberia are much less well defined, and much less well developed. However it is a region that the Government is anxious to develop and in July 2009 the export duty on the 13 oil fields in Eastern Siberia, including Vankor, was annulled. (at the time the duty on $70 a barrel oil would have been $34). This was expanded to all 22 fields in East Siberia the following January. The tax was re-instated at a lower level than usual (45% of the excess over $50 a barrel) in July 2010.

Details of some of the fields in Eastern Siberia. Note that the region is still defined as “prospective” by Irkutsk Oil. (Map from 2009)

When the Eastern Siberian Pacific Ocean (ESPO) pipeline started shipping oil to China in 2010 the two fields that it initially tapped into included both Vankor, which was defined as being in Eastern Siberia, and which was discovered in 1988 as the largest discovery in 25-years at the time, and came on line in 2009, and from Samotlor, which as was mentioned last time, is in Western Siberia. (That feed flows through the Purpe: Vankor pipeline) When phase 2 is completed this year the ESPO pipeline will be able to carry up to 1.6 mbd, which is about a third of the total amount that Russia exports. There is some question, however, whether Russia will be able to achieve the volumes that are going to be required for sales to the East, at the same time as it meets demand from the West. Projected demands of over 11 mbd would require an increase in production over last year of more than 600 kbd, and the ability of Russia to meet that increase is one of the current questions.

East Siberian Pacific Ocean (ESPO) pipeline path (Financial Times ) showing the part remaining to be completed to Vladivostok

The initial fields scheduled to feed into the pipeline included Vankor(400 kbd), Verkhnechonsk (200 kbd) and Talakan (140 kbd). In phase 1, which first delivered oil to the port in Kozmino Bay on December 28th, the oil is transferred to rail cars in Skovorodino and carried by rail the rest of the way. Phase 2 completes the pipeline.

Vankor, now that it is connected through Purpe into the Transneft oil pipeline network can supply oil to the West as well as to the East and has been delivering to both, with roughly 55% going East. Vankor is operated by a subsidiary (Vankorneft) of Rosneft, and has proved reserves of 1.6 billion barrels, and probable reserves of about the same. In 2010 there were 124 production wells in operation with another 19 drill pads completed. The average well was producing at 2,606 bd, though this was constrained as the surface treatment plant had not been completed. (It now has). Plans are for a total of 425 wells to be drilled, of which 307 will be horizontal completions. Peak production is scheduled to reach 510 kbd in 2014, and be held at that level. Gas injection will be used to hold reservoir pressure, and is expected to increase the oil recovery factor from the 0.34 Russian average to 0.434. Advanced technology has also helped:
The well drilling operations also involve advanced technologies. Rotor-controlled systems increased overall drilling efficiency by 2.5 times, while the use of smart well systems for inflow management produced over 500,000 additional tons of oil in two years.

Wear-resistant equipment used at the field ensures a flow rate of up to 1,500 tons per day (over 430 tons per day on average compared to the national average daily flow rate of 39.5 tons).
Gas production will drive a local power plant, as well as being available for re-injection.
The gas (its volume exceeds 1 billion cubic meters per year) will mainly be consumed by a gas-turbine power plant. In order to maintain the reservoir pressure, 2.5 billion cubic meters of associated gas will be re-injected annually. There are plans to deliver up to 5.6 billion cubic meters per year to Gazprom’s transportation system.
Verkhnechonsk, which came on line in 2008 is still only pumping at around 100 kbd but has recently hit a problem in that though there is more than the usual amount of natural gas coming out with the oil, there is nowhere to deliver it. (Irkutsk is 750 miles away and there is no gas pipeline) It is therefore being flared. It is hoped to start reinjecting the gas in 2013 (they have to build a compressor first) which is when the field should reach its 200 kbd peak, four years earlier than initially expected. It has around a billion barrels in reserve, and is about twice as old as the average oil field. Perhaps as a result the oil is cooler than that found almost anywhere else and, has to be heated to stop wax precipitating out and to allow the water and the high concentration of salts to be removed. It is being developed with horizontal completions.

Talakan came on line with the ESPO pipeline connection in October 2008. It is operated by Surgutneftegaz, who paid 1.66 billion rubles ($45.8 million) for it. It is believed to hold about 0.8 Tcf of natural gas and up to 2.3 billion barrels of oil.It is sometimes referred to as the Severo-Talakanskoye field and initial production has been low, until a booster station is built in 2013. Output will then be 16 kbd snd it will only slowly ramp up to the 140 kbd target.

Within Eastern Siberia’s Sakha (Yakutia) Region, the major strategic fields include the Verkhnevelyuchanskoye oil and gas field, the Sobolokh-Nedzhelinskoye and Srednetyungskoye gas condensate fields, and the Chayandinskoye and Tas-Yuryakhskoye oil and gas condensate fields.

The Chayandinskoye oil and gas field will be developed by Gazprom, starting in 2014 for the oil (576 million barrels), and 2016 for the gas deposits (about 46 Tcf), with the products being shipped to Valdivostok for export. It is expected that it will produce at around 2.9 bcf/day.

The Tas-Yuryakhskoye oil and gas condensate field will also be developed by Gazprom, however that process has just been completed last December and so plans are indefinite. The prices paid are:
The company will pay 7.29 billion rubles for the right to use the sites: the payment for the Verkhnevilyuchanskoye gas condensate field is set at 3.63 billion rubles, Tas-Yuryakhskoye is at 2.479 billion rubles, Sobolokh-Nedzhelinskoye gas condensate field is at 344 million rubles, Srednetyungskoye is at 836.6 million rubles.
(There are roughly 30 rubles to the dollar. Development of the fields will require additional pipeline construction, which is anticipated to start this year. The total gas reserve in the four fields is estimated to lie around 17.5 Tcf.

The ESPO pipeline is also now, since last November, carrying oil from the Irkutsk region, where the Yaraktinsky field has begun producing at 35 kbd.

And speaking of Gazprom they have just taken control of the Kovykta gas field from BP, after a long struggle. Kovykta remains relatively undeveloped with about 70 Tcf of natural gas and 500 million barrels of gas condensate. It is suspected that the gas will now go to a market in China, though whether this will happen before 2018, when Gazprom was anticipating developing the field, is open to question.

Possible routes for the Kovykta resources (BP )

In total the reserves in Eastern Siberia are likely to be only a fraction of those that were found in Western Siberia, but as the latter are in decline, finding a replacement means that even these smaller and more difficult reserves become more attractive. Not all the fields have yet been defined, there was a new one announced with a billion barrels of reserves, near Irkutsk in January 2010, so there is still a possibility for greater finds. It remains, however, (with Alaska and Fort McMurray) one of the last frontiers that are not in deep water.

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