Gazprom and BASF Start Joint Production at Yuzhno-Russkoye Gas Field

Despite its name, the Yuzhno-Russkoye field has nothing to do with the "south" (yuzhno in Russian). The field is located in the northern Yamal-Nenets Autonomous District, in the Krasnoselkup area above the Arctic Circle

By Elena Zhuk

The German company Wintershall has braved arctic frosts and joined Gazprom to develop this gas field near the Arctic Circle. Under the assets exchange agreement signed December 17, 2007, BASF subsidiary Wintershall will get a significant part of the “blue fuel” hidden in Yamal’s underground treasury.
Gazprom Chooses to Exchange Assets.

Under the agreement, Wintershall received 25 percent minus one share in Severneftegazprom, holder of the development license for the Yuzhno-Russkoye field, and one priority share without voting rights in Severneftegazprom’s charter capital. In total, BASF got 35 percent of the economic gains of the Yuzhno-Russkoye field. In exchange, Gazprom increased its share in Wingas GmbН, a gas trading company, from 35 to 50 percent minus one share and received 49 percent in the BASF subsidiary Wintershall, which carries out production in Libya.

In dealing with European customers, Gazprom often goes the route of assets exchange. Back in July 2006, it signed a framework agreement to exchange assets with E. ON AG, another company eager to join the Yuzhno-Russkoye development project. Gazprom CEO Alexei Miller commented on current negotiations with the German company: “We received new offers from E. ON Ruhrgas, primarily concerning energy assets in Europe. The assets will be evaluated soon, and we hope that in the nearest future we’ll round off negotiations and E. ON Ruhrgas will become another partner in developing the Yuzhno-Russkoye field.”

A JV with 100-percent Gazprom ownership, Gazprom URGM Trading, will be set up to purchase gas from Severneftegazprom and sell it in an amount proportionate to BASF’s share in the project. BASF will receive one priority share in the new venture. According to Miller, “Gas marketing is Gazprom’s undivided right.” Regarding the price for German consumers, Miller says that it consists of two components: one tied to prices in the external market (Germany), and the other to internal market prices.

Overcoming Difficulties Together

The Yuzhno-Russkoye gas field is not the first joint project for the two companies. Alexei Miller mentioned another successful JV with BASF Wintershall: Achimgas Company, which produces gas from the Achim deposits in the Urengoi field. According to Miller, “Technologically, production at this field is very difficult. Today, preparations are underway for production at the first trial field. In the event of success, it could become one of the biggest Russian-German production projects, with gas production exceeding 8 bcm.”

However, at Urengoi’s field, the low permeability gas sand of the Achim deposits occurs as deep as 3.5 km in permafrost (see OGE #1, 2007). Yuzhno-Russkoye’s Cenomanian deposits lie much closer to the surface, with an average depth of less than 1 km. Unlike its multicomponent “relative,”

Yuzhno-Russkoye’s gas is remarkable for its purity: 98 percent of its content is methane. Yuzhno-Russkoye’s reserves exceed those of Urengoi almost threefold, an amount that could satisfy Germany’s need for natural gas for the next 15 years and would make it possible to substantially increase BASF produciton capacity.

Yuzhno-Russkoye Gas to Be Shipped via Nord Stream Pipeline

In 1969, a unit of the Urengoi Oil/Gas Exploratory Expedition headed by drilling foreman Evgeny Shalyapin discovered the Yuzhno-Russkoye field, which had been listed among Gazprom’s assets ever since. The field was “reborn” more than 30 years after its first well started blowing out. This well, registered as No. 6, was spud 70 km away from the confluence of the Vorga-Kattaryl-Ky and Kattaryl-Ky Rivers. In 2005, Gazprom’s drilling company, the winner of the closed tender for well construction at the field, spud a 2.5-meter-deep exploratory well, R-35. This well, along with R-36 the following year, proved that Yuzhno-Russkoye’s reserves exceeded 1 trillion tons.

Today more than 45 exploratory wells have been drilled at the Yuzhno-Russkoye field. A total of 142 operation wells in 41 clusters are set to be drilled there. Another 15 wells will enable studies of the reservoir. Gazprom’s regional drilling subsidiary, Tyumenburgaz, needs an average of 20 days and five rigs to drill a well. In 2009, the field is projected to reach its designed yearly capacity of 25 bcm. According to plan, the gas will travel from Vyborg to Greifswald via the Nord Stream pipeline under the Baltic Sea and will then be delivered to European consumers.

Meanwhile, nearly 15 mcm of the “blue fuel” enters Siberian gas mains through a junction line almost 100 km long. Residential compounds for 420 people have already been built on the site. The occupants of the compounds will work at the field in the winter when the temperature drops to –60 C, and in the summer when it reaches +25 C. By the end of last year, construction of field infrastructure, including access roads, drill sites, field gathering pipelines, was for the most part finished.

Pushing the Button in Moscow

“Today the temperature has dropped to –40 C. Yet, the joy of this great event keeps us at Severneftegazprom and our colleagues the journalists warm.” Those words were spoken at the teleconference bridge during the official ceremony which marked the start of operation of the field. The ceremony took place on December 18 at Gazprom’s Moscow headquarters. When Dmitry Medvedev, Gazprom’s BOD chairman and likely successor to President Putin, together with Frank Valter Schteinmeier, Federal Minister of Foreign Affairs of Germany, pushed a symbolic button, the gas flame lit up the skies some 3,500 km away from Moscow.

Gazprom CEO Alexei Miller also took part in the ceremony. He commented, “Today we perhaps witnessed the most important event of Gazprom’s business life for 2007.” Deputy Chairman of BASF BOD Eggert Fosherau, who also participated in the official ceremony, listed the advantages of Gazprom-BASF cooperation: “Together, we achieved a lot. We built a gas transportation system to ensure a reliable supply of this important energy source to Germany and other European countries. Together, we invested in the construction of an underground gas storage facility. And together, we’ll lay a pipeline across the bottom of the Baltic Sea, which will play a vital part in supplying energy to Europe. It will help to bring Siberian gas closer to European customers.”

Wingas Promises an Uninterrupted Supply

Since the 1990s, Gazprom and Wintershall’s JV Wingas has sold gas in Germany and other European countries on behalf of the two companies, which have invested nearly 3 billion euros in the construction and development of both transport infrastructure and underground storage facilities.

The Saxonian town of Reden houses the biggest gas storage facility in Western Europe, a 250 million year old Zechstein reservoir located at a depth of nearly 2,000 meters. With over 4 bcm of stored gas, this underground facility holds enough to provide gas to almost 2 million single-family homes for a year. Another facility, which may become the second largest in Europe, is being built in Heidach, Austria. With these two facilities in operation, the total storage capacity of Gazprom-Wingas’ joint projects will amount to 8 bcm of natural gas.

Given the location of Wingas’ headquarters in Kassel, the sister city of Novy Urengoi and the hometown of fairy-tale authors Brothers Grimm, the company’s system of distribution pipes and large storage facilities could make the life of European customers as beautiful as a fairy tale. And there is no place in fairy tales for something as unpleasant as an interruption in gas supply.

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August
2008
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