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No. 4, 2012


Oil of Russia magazine talks to Dmitry Kobylkin, Governor of the Yamal-Nenets Autonomous Area

It would not be an exaggeration to say that the Yamal-Nenets Autonomous Area (YNAA) has played a decisive role in the Russian oil and gas industry. The YNAA accounts for 90% of Russian total natural gas production and holds promise as an oil producer as well. Scientists and economists believe the importance of the Yamal resources will grow increasingly in the near future.

Q: What do you think about the current situation in the Yamal oil and gas industry?

A: To my mind, the Yamal oil and gas industry is today in very good shape. The fuel and energy complex is regaining momentum. We have unique agribusiness and dynamically evolving small businesses, industrial parks and innovative investment projects for the tourism and many other industries - we have made very good progress there. We are rightfully taking credit for a lot of things. Yet, Mother Nature did it for us: hydrocarbons have been, are and, judging by the proved reserves, will be for many years to come Yamal's best and irreplaceable asset. However oil and gas are the nation's strategic interests.

This year we are celebrating the 50th anniversary of the discovery of the first gas well in the Tazovsky District. During all these years the Nadym-Pur-Tazovskoye interstream area has been the heart of gas production in Yamal and Russia as a whole. I mean a cluster of the giant fields discovered in the 1960s - early 1970s: Medvezhye, Urengoy, Yamburg and, as of 2001, Zapolyarnoye. But their days of glory and high production rates are long gone. The oldest field - Medvezhye - is approximately 70% depleted, with the others close behind. Nevertheless the current aggregate production rate of these four fields is 320-350 billion m3 of gas, which is roughly a half of the total national production. And they will continue to be productive for about the next 30 years. However, we need to look into the more distance future.

This fall, Yamal will see a truly historical event - the commissioning of the Bovanenkovskoye gas field with an estimated capacity of 140 m3 per year or a quarter of the overall gas production. Bovanenkovo is the first startup project of the sweeping program for development of the Yamal Peninsula and the adjacent Arctic shelf both of which contain trillions of cubic meters of gas, billions of tons of crude oil and condensate. So it is going to be a real milestone for Russia's fuel and energy complex and economy as a whole that could only be compared with the discovery of the gargantuan fields of the previous century. Bovanenkovo could be viewed as a "beachhead" for exploration of the immense Arctic areas offering countless resources and great opportunities.

But our endeavors are not confined to hydrocarbon production alone. This July, the town of Sabetta hosted the groundbreaking ceremony of a truly epic project - burial of a time capsule into the groundwork of a new Russian seaport which is a component of the Yamal LNG project's infrastructure. The project, initiated by the Russian government, provides for construction of a Liquefied Natural Gas (LNG) plant at the Tambeyskoye field. Plans are in place to use cutting-edge domestic and international technology to make sure the Yuzhno-Tambeiskoye field development is efficient and environment-friendly.

The LNG plant is scheduled for commissioning in 2016. Tankers and ice-breakers will be built to transport liquefied gas. We are taking a brand new and innovative approach toward the use of natural resources. The fact is that the current Russian LNG production volumes are not consistent with the resource potential and status of the Russian Federation in the global energy market. The global LNG demand is growing to potentially reach 400 million tons per year by 2030. Given Russia's gas reserves and production perspects, boosting LNG production growth was declared a national priority.

The Yamal LNG project is also expected to benefit from its unique geographical setting. Yamal's location, market environment, subsoil resources, industrial and transport infrastructure allow for delivering liquefied gas to the markets of Europe, North America and the Asia-Pacific Region via the Northern Sea Route, which will significantly shorten the delivery period and, therefore, cut the transportation cost. This is a totally new route of exporting Yamal gas from Russia. Metaphorically speaking we are going to "cut a through window" from the Russian Arctic to Asia via the Northern Sea Route. It offers great opportunities for the Russian marine infrastructure, the energy sector and the national economy as a whole. This industrial and transportation hub will be a new sign of Russia's geopolitical influence in the Arctic.

Yamal is blessed with colossal mineral riches. Over the several dozen years since the start of Yamal development, a total of about 15 trillion m3 of gas was produced or approximately 11% of the known reserves. The remaining reserves are waiting to be extracted. In other words, I can answer your question about the current status of the Yamal fuel and energy complex by saying that we have very high expectations for it.

Q: Could you tell us about the relationships between the YNAA authorities and oil companies operating in the region.

A: We have a long record of mutually fruitful cooperation with the major companies operating in the region. Our cooperation is based on general agreements and new documents signed thereunder every year. These agreements regulate our relationships as regards payments for the environmental damage, preservation of the environment of the small indigenous peoples of the North, implementation of various social projects designed in improve the quality of life for the local residents, and other aspects.

Besides, as part of the tax relief program for the companies investing into vital local projects, we introduced, in 2011, new regulations that require priority hiring of local residents, contracting of local companies, vendors and other entities that are incorporated in the region and pay taxes to the local budget.

We have been doing our best to make the Area as business-friendly as possible, especially for socially responsible businesses. So, as I see it, our relationships with the local businesses and companies are fruitful and mutually beneficial.

Q: What do you think of LUKOIL's role in development of the Yamal economy?

A: LUKOIL's input into development of the oil and gas sector in Yamal and Russia as a whole can hardly be overrated. JSC LUKOIL-Western Siberia has been successfully operating in the Yamalsky and Tazovsky districts of the Yamal-Nenets Autonomous Area. Yamal and LUKOIL have a long history of good relationships, which, I am pleased to say, have become more productive recently. LUKOIL-Western Siberia has been active in the social projects implemented by the YNAA and local authorities.

Not so long ago I had a meeting with JSC LUKOIL Vice-President Sergey Kochkurov to discuss, inter alia, progress in development of fields in the Bolshekhetskaya trough. As hydrocarbons will be transported across the land plots traditionally used by the indigenous people we had to seek their consent. Before proceeding with design development we arranged for compulsory public consultations. The Yamal people gave their go ahead to gas pipeline construction.

LUKOIL-Western Siberia sponsored several charity projects that covered a wide range of social life aspects, including work with the families that have children in need of sociopsychological adaption, recreation programs for elderly people, establishment of youth environmental protection groups, development of children eco-ethnographic tourism, etc.

The socioeconomic cooperation agreements helped us implement several vital projects for the local communities - we were able to build a boarding school, apartment houses, social and administrative facilities in Nakhodka, an administrative building in Purovsky, a Russian orthodox church in Tazovsky, and to commission a boiler house and a bakery in Samburg.

In December 2010, the YNAA government and JSC LUKOIL signed the Cooperation Agreement for 2011-2013, under which the Company financed the recreation activities engaging YNAA environmental assets. Plans are in place to establish a paramedic-midwife station and provide public amenities in Nakhodka village. In addition, LUKOIL is a financial backer of the target programs aimed at promoting the national culture and agribusiness in the Tazovsky District.

A schedule the 2011-2013 Cooperation Agreement between the YNAA government and JSC LUKOIL was signed last May.

It is therefore in our best interests to see to it that LUKOIL continues operating on Yamal thus laying the groundwork for long-term and mutually beneficial cooperation.

Q: How, in your opinion, will the recently adopted 2012-2014 YNAA Mineral Resources Development Program affect the region's development prospects in the near-term?

A: The Program objectives include restoration of the commonly occurring mineral resources, enhancement of the mineral resources monitoring system, and maintenance/update of the YNAA territorial geological database.

The Program is also designed to increase the building sand reserves, provide for the monitoring of the mineral resources base, oil field development status and geological exploration rate; ensure environmental monitoring of the wells financed from the regional budget, and maintain the YNAA subsoil use database.

The YNAA government's share in program financing will be 279 million rubles, i. e. 93 million rubles for each year of Program implementation.

The Program will help build up Yamal's commonly occurring mineral resources and enhance the efficiency of government regulation of subsoil use. With the credible and accurate analytical data on subsoil use the federal, regional and municipal authorities will be able to optimize the use of subsoil resources and carry out regular monitoring of the current status of regional mineral resources and fuel, energy and mining sectors, keep a tab on all existing and potential economic threats and put the necessary prevention/mitigation measures in place. We will be able to efficiently verify the condition of the exploration wells owned by the YNAA government to prevent outbursts and assess their impact on the environment.

The Program outcomes will be gauged against a set of key benchmarks, including building sand reserves increment; analytical database usage scale; percentage of the associated petroleum gas fields studied; volume of the updated information on subsoil use submitted to the YNAA Territorial Database, etc.

Overall, the Program is to help us resolve the problems associated with the study, restoration and sustainable use of the mineral resources of the Yamal-Nenets Autonomous Area in order to improve the quality of life for the local residents through establishment and development of the competitive economy subject to compliance with the environmental regulations.

Q: When putting the Program together did you take into account the strategies of the oil companies operating in Yamal-Nenets Autonomous Area?

A: Absolutely. The Program was developed with due account for the Energy Strategy of Russia until 2030, the Transport Strategy of Russia, the Strategy for Social and Economic Development of the Urals Federal District until 2020, and the Strategy for Social and Economic Development of the Yamal-Nenets Autonomous Area until 2020, as well as the strategies of the oil companies operating in the region.

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Oil of Russia, No. 4, 2012
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