In 2018, the Company launched active implementation phase of the second largest gas business development project – the Kharampursky and Festivalny license areas in cooperation with ВР.
The Company is developing vast gas reserves in Western and Eastern Siberia, holding a unique license portfolio for hydrocarbon resource development on the Russian continental shelf.
Rosneft produces gas using the resources of more than 35 subsidiaries and joint companies in Western and Eastern Siberia, Central Russia, the south of European Russia, the Far East, as well as in Egypt, Vietnam, Venezuela, and Canada.
ROSNEFT’S STRATEGIC GOAL
in gas business development involves a consistent increase in the Company’s shareholder value through higher gas production, supported by a highly efficient long-term sales portfolio.
Strategic Objectives of Gas Business
The following strategic objectives were set for the Rosneft-2022 Strategy in terms of gas business:
- Development of major gas production projects, including Rospan and Kharampur, on time and within budget, thereby raising gas production to more than 100 bcm per annum.
- Improving the cost efficiency of gas sales in the Russian Federation, particularly by creating a favorable regulatory environment such as equal access to infrastructure and consumers.
- Improvements in production performance and expansion of technological competence, which should provide for:
- development of reserves of the Turonian deposit;
- development of liquefied petroleum gas (LPG) and natural gas liquids (NGL) production;
- increased APG utilization, including through the development of captive power generation and petrochemicals;
- gas reserve monetization in the long term within Eastern Siberia and the Far East.
In December 2018, the Company’s Board of Directors reviewed the year-end progress status of the Rosneft-2022 Strategy. The relevance of the approved strategic objectives and target values was confirmed for the gas business.
Meeting the strategic gas business objectives will enable an increase of Rosneft’s free cash flow between 2019 and 2022, secure a 20% share in the Russian gas market, and support growth of the Company’s long-term shareholder value.
Achievements in gas business development:
- In December 2017, Rosneft and BP announced the execution of the project for mineral resources development by the Company’s subsidiary – LLC Kharamputneftegaz (BP Plc share is 49%). In accordance with the arrangement, the parties began an active phase of the project in Q2 2018. The start-up is scheduled for 2020.
- As part of the Zohr field development offshore Egypt, Rosneft began gas production as an international consortium member in December 2017. In 2018, the field development was ahead of the schedule, which enabled the Company to increase the natural gas production by a total of 2.4% year-on-year. A project of this scale in cooperation with foreign partners will further increase Rosneft’s expertise in offshore field development and reinforce its position in the strategic Egyptian market.
- In October 2018, Rosneft and ExxonMobil signed concession agreements for hydrocarbons exploration and production in three areas – A5-B, Z5-C and Z5-D – offshore the Republic of Mozambique. Exploration has been launched with the prospect of significant gas discoveries.
- The Company and Beijing Gas Group Company Limited signed a joint venture agreement for construction and operation of the NGV filling stations network in Russia based on LLC Vankorskoye UTT. Under the terms of the agreement, Beijing Gas Group Company Limited will get a 45% stake. The parties are planning to build about 170 NGV filling stations in Russia. They will also consider a possibility to use LNG as a motor fuel.
- In May 2018, Rosneft and the Iraqi Kurdistan Regional Government signed an agreement that formalized the parties’ intentions to prepare a comprehensive plan of the gas industry development in Kurdistan. Taking into account the efficiency assessment of potential cooperation in exploration and production, transportation and trading, Rosneft will estimate the feasibility of participation in the regional integrated gas project.
Production Figures for the Current Year
In 2018, Rosneft’s gas production both in Russia and abroad totaled 67.26 bcmRecovered gas volume excluding flared gas and gas used for liquid hydrocarbons production., including 32.33 bcm of natural gas and 34.93 bcm of associated petroleum gas. 2.96 bcm of total gas production and 2.93 bcm of natural gas were produced by the Company’s foreign projects in Vietnam, Venezuela, Egypt, and Canada, while 64.3 bcm -by the Russian projects. A portion of the Company’s domestic gas output is used for liquid hydrocarbons production. In 2018, the Company’s gas production in Russia, including gas used for liquid hydrocarbons production, totaled 64.68 bcm.
While APG production at several fields somewhat reduced due to changes in the economic efficiency and the external restrictions, the natural gas production in 2018 went up by 2.4% year-on-year and was mainly driven by higher gas production at the Zohr field offshore Egypt. The field is developed ahead of schedule. The gas production level of about 57 mmcmFrom100%. per day was achieved in under a year after the field was launched, through commissioning of five gas treatment plant trains and putting two transportation pipeline strings into operation. Achievement of the design capacity - 76 mmcm of gas per day - is scheduled before the end of 2019.
According to the approved strategy, the Company has focused on implementation of the projects with a high return of capital employed. The main objective is to initiate such projects on time and on budget, which will allow achievement of the gas gross production of 100 bcm and expand the gas share in the total hydrocarbons production.
Key Assets and Promising Gas Production Projects
Start-up of the Rospan project is a key phase in execution of the specified objectives, as it is the largest gas asset in the Company’s portfolio. The full-scale development of the fields operated by Rospan International makes the largest contribution to the Company’s production of both gas and hydrocarbons in the near future.
Total recoverable reserves of АВ1С1 + В2С2 as of 1 January 2019:
- 1 tcm of natural gas
- 157 mmt of gas condensate
- 45 mmt of crude
Annual production in the medium term:
- >21 bcm of gas
- >5 mmt of gas condensate and oil
- up to 1.3 mmt of commercial butane and propane mixture
Active construction operations continued on key infrastructure facilities throughout 2018:
- gas and condensate treatment unit at the East Urengoysky license area
- oil treatment unit, condensate stabilization unit
- methane removal system for propane-butane
- the East Urengoysky Gas Turbine Power Plant, the Korotchaevo station’s loading railroad terminal
- trunk pipelines, infield pipelines, and power supply facilities.
- Completion of the facilities construction and commissioning.
The second largest project for the gas business development is Kharampur which is implemented by Rosneft in partnership with BP. The project is due to develop the Cenomanian deposit’s conventional gas reserves and launch pilot production, with subsequent transition to the full-scale field development of the Turonian deposit’s reserves. The Company has the expertise and experience necessary for efficient development of such complex projects.
Total recoverable reserves of АВ1С1 + В2С2 natural gas were about 1 tcm as of 1 January 2019.
The production rate upon reaching the design capacity will be 11 bcm of gas per annum with potential growth to 24 bcm per annum.
The Company put the Berezovskaya suite gas reserves on books for the first time: geological reserves of АВ1С1 + В2С2 gas at the Kharampur field grew by 80 bcm in 2018.
FEED is being completed, production wells are being drilled, construction and installation works are being executed on the outbound gas pipeline, preparatory operations for construction of the comprehensive gas treatment unit are nearly finished.
- Setup of the Cenomanian deposit’s gas field.
- Construction of the gas treatment unit.
- Execution of a preliminary feasibility study relative to the full-scale development of the Turonian deposits’ sites.
The project start-up is scheduled for 2020.
Currently, JSC Sibneftegaz is the Company’s largest gas producing asset.
2018 production rate was 11.96 bcm of natural gas.
The cumulative gas production by the end of 2018 was 114 bcm.
As of 1 January 2019, total recoverable reserves of АВ1С1 + В2С2 natural gas approximated 613 bcm, of oil and gas condensate - 32.7 mmt.
- Production drilling and construction of well clusters were completed.
- Construction of new significant infrastructure facilities was underway:
- gas and condensate treatment units and associated infrastructure facilities for lower horizon development at the Beregovoye OGCF,
- a booster compressor station at the Beregovoye OGCF for compressing the total gas volume produced.
On a horizon to 2022, through implementation of projects to maintain production at existing fields and the development of lower horizons of the Beregovoe field, which do not require large capital investments, gas production will exceed 16 bcm.
Throughout 2018, the Company continued its efforts to develop new gas production centers at Rosneft’s fields in Eastern Siberia and the Republic of Sakha (Yakutia).
Rosneft and Beijing Enterprises Group Company LimitedBeijing Enterprises Group Company Limited has a 20% stake at PJSC Verkhnechonskneftegaz. are currently developing the Verkhnechkosnkoye oil, gas and condensate field in the Irkutsk Region. A new gas production center and the transport infrastructure are due to be created under the project. The strategic partnership opens up new prospects for monetizing Eastern Russian gas reserves. In 2018, the Company signed an indicative agreement on the basic conditions of gas supply to China. The agreement allowed the parties to confirm their intentions on gas supply to China and record the key supply parameters, such as supply volumes and preliminary terms.
Rosneft continues the Srednebotuobinskoye oil, gas and condensate field development in the Republic of Sakha (Yakutia) in cooperation with BP and the consortium of India’s Oil India Limited, Indian Oil Corporation Limited, and Bharat PetroResources Limited. The Company plans to implement a large-scale gas extraction project for the longer term based on that field.
Kynsko-Chaselsky license area
In the long run, a creation of a new gas production center is planned on the basis of the Kynsko-Chaselsky license area in the southeast of the Yamal-Nenets Autonomous Area. It is supposed to expand the production through involving seven previously acquired license areas and in perspective – the neighboring areas in the open acreage eastern zone.
The project provides for 15 bcm production with a growth potential of up to 19 bcm per annum.
Gas Processing and Improved APG Utilization Rates
In 2018, the Company continued the comprehensive works to achieve higher APG utilization rates. 19 ground infrastructure facilities were built and renovated. Several subsidiaries reached 94–97% APG utilization rate.
The project for Maysky gas processing complex construction is being implemented in Western Siberia for further gas processing and gas-to-chemicals development. In 2018, Rosneft conducted engineering surveys and developed the design documentation, including for the execution of the environmental and state expert reviews.
For more details see Section The Long-Term Development Program.
As part of the Sakhalin-1 consortium, the Company is participating in the Far Eastern LNG project for monetizing the Far Eastern gas. In 2018, seasonal lithodynamic and hydrological studies were performed on the De-Kastri site, and the surveys at the Chaivo onshore facility were commenced. The project is ready for transition to the FEED phase.
Gas Production by Regions
Rosneft’s largest gas producing region is in Western Siberia, where the gas production in 2018 was equal to 47.45 bcm or over 70% of the Company’s total gas production. The natural gas production of 25.35 bcm was delivered at the fields operated by JSC Sibneftegaz, JSC Rospan International, and LLC RN-Purneftegaz. The associated petroleum gas production amounted to 22.1 bcm, primarily produced by the JSC Samotlorneftegaz, LLC RN-Yuganskneftegaz, LLC RN-Purneftegaz, and PJSC Varyeganneftegaz fields.
In Eastern Siberia, gas is produced at the Vankor group of fields, which are the largest in the region and where associated petroleum gas (APG) production amounted to 6.23 bcm in 2018, while natural gas production totaled 1.97 bcm.
In the Far East, Rosneft primarily produces associated petroleum gas and natural gas at onshore fields and offshore Sakhalin Island, where JSC RN-Shelf Dalny Vostok provided the bulk of the 3.7 bcm of total gas production in 2018.
Gas production in Central Russia totaled 2.40 bcm in 2018 and was primarily provided by the JSC Orenburgneft, JSC Samaraneftegaz, LLC Bashneft-Dobycha fields.
In Southern Russia, LLC RN-Krasnodarneftegaz is the main gas-producing asset that produces both natural and associated petroleum gas, the region’s production amounting to 2.31 bcm in 2018.
Gas production abroad as part of the Company’s foreign projects was carried out in Egypt, Vietnam, Venezuela, and Canada.
International Gas Business Development
Rosneft’s primary objectives are to enter foreign gas markets and to become a global player on the international LNG market. The Company’s involvement in international gas projects ensures a significant and cost-effective increase in its natural gas reserves and a balanced risk profile of its asset portfolio.
For more details see Section 2.8. Development of International Projects in Promising Oil and Gas Regions.
Gas assets abroad
Egypt: A 30% stake in a unique Zohr field development project implemented together with Eni, BP, Mubadala, and the Egyptian State Oil and Gas Company EGAS. The field production capacity went up to about 57 mmcmFrom100%. per day from the moment of its start-up in December 2017. The projected plateau rate of 76 mmcmFrom100%. per day is expected to be achieved before the end of 2019.
Venezuela: A 100% stake in the Patao and Mejillones field development projects. Operator with a right to export the produced gas.
Vietnam: A 35% stake in the gas and condensate production project at Block 06.1 (Operator); a 100% stake in the exploration of Block 05.3/11; a 32.67% stake in Nam Con Son gas pipeline.
Mozambique: A 20% stake in three offshore gas exploration blocks (A5-B, Z5-C, and Z5-D) with a potential for significant gas discoveries.
Brazil: A 100% stake in the Solimões Basin blocks exploration. Operator. In 2018, two exploration wells were drilled that confirmed the basin’s gas bearing capacity.
Latvia: A 10% stake in AS Latvijas Gaze, one of the largest gas sales company in the Baltic states’ markets.