Kirinskoye Boosts Vladivostok LNG's Potential

BMI View : Gazprom's positive assessment of reserves and production level at its South Kirinskoye field bodes well for the planned Vladivostok LNG terminal. Current estimates of peak production at the Kirinskoye block - part of Gazprom's Sakhalin-3 project - and the onshore Chayandinskoye field under development in Yakutia amount to 45bcm per year. At this scale, it could leave room for further expansion of the Vladivostok terminal beyond the 15mn tpa capacity that is currently planned.

Gazprom 's South Kirinskoye field, located in the Kirinsky block offshore Sakhalin Islands, could hold sufficient resources to support a liquefied natural gas (LNG) development. In a Platts report, Gazprom's head of economics and finance department , Andrei Kruglov , revealed that the field's reserves are 'comparable' to that of Shtokman . This giant field in the Barents Sea contains an estimated 3.2 to 3.9trn cubic metres (tcm) in commercial gas reserves. South Kirinskoye's gas reserves have been projected at about 260bn cubic metres (bcm).

This positive assessment of South Kirinskoye's potential supports Gazprom's plans to develop the field as part of its Sakhalin-3 project. Chairman Alexi Miller had stated that the state-owned gas firm will begin production from Kirinskoye later in 2013. It will be the first gas project to be produced via subsea production systems in Russia as the country seeks to build up its underdeveloped offshore expertise. The facilities being developed for this purpose can also accommodate the development and processing of gas from other Gazprom fields to be developed in the area in the future.

More Support For LNG Expansion

At 20bcm per year, the latest peak production estimate for the Kirinskoye block is larger than initially expected. During its 2013 Investor Day presentation, Gazprom stated its expect ations for all the fields that make up the Sakhalin gas production centre - which includes all of its Sakhalin concessions - to hit peak output of only 13bcm. Our forecast for Kirinskoye's output from 2016 is only about 4.2bcm, which is line with Gazprom's own initial projections. Therefore, if confirmed, the latest news regarding Kirinskoye's output potential poses a significant upside risk to both our gas production forecast and export for Russia . This will be particularly so towards the tail-end of our forecast period, as we had expected Russian gas exports to be squeezed by declining production , mainly because of reduced output from the core but mature fields in the Nadym-Pur-Taz area , and rising domestic gas consumption.

Kirinskoye Resources Poses Output & Export Upside
Russia Gas Production & Net Exports, 2012-2022 (bcm)

Larger-than-expected reserves at Kirinskoye can also help ensure that the planned Vladivostok LNG export terminal will have sufficient feedstock for production when it comes online in 2018 with an initial capacity of 5mn tonnes per annum (tpa) - or 6.9bcm. In Gazprom's development plan, gas from Kirinskoye is to feed into the new Sakhalin-Khabarovsk-Vladivostok gas transmission system, which allows for this gas to be taken to the LNG facility.

More importantly, Kirinskoye's production potential supports Gazprom's plans to boost Vladivostok LNG's capacity to 15mn tpa (20.7bcm). Gazprom's Kruglov is optimistic that peak levels from the Kirinskoye block could be reached after 2020. If Chayandinskoye, the onshore gas field in Yakutia that is also underpinning Gazprom's Vladivostok project, does hit peak production of 25bcm by the 2020s, it could support plans to further expand the capacity of Vladivostok LNG in the Russian firm's bid to win market share in Asia.

Up Against Domestic And International Peers

This fight to seize market share is important for Gazprom, in face of weakened demand in its core market in Europe and increasing competition for the Asian gas market from new projects in Australia, East Africa, North America, and from traditional LNG exporters such as Qatar, Malaysia and Indonesia. While Gazprom has been underplaying the threat of LNG alternatives to its pipeline gas supplies to Europe in its public rhetoric, the speed at which it has advanced a final investment decision (FID) for its Vladivostok LNG project shows that it is clearly aware of the need to build up its strength in the growing LNG market and to expand its business into Asia.

In addition, competition could also come from compatriots, if the Kremlin does indeed succumb to pressure and liberalise Russia's policy to break Gazprom's gas export monopoly. Novatek 's Yamal LNG project in the Arctic is eyeing the Asian market ( see 'Yamal LNG Steps Up The Export Challenge', May 23 ), and so is Rosneft 's proposed Sakhalin-1 LNG project ( see 'Rosneft Ups The Ante On LNG Export Policy', April 18 ) . The latter project could be a particularly big threat, as its location in Sakhalin would cancel out Gazprom's geographical advantage in shipping LNG cargoes to the Asian market.

This article is tagged to:
Sector: Oil & Gas
Geography: Russia

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