FSU GAS RESOURCES-1 RUSSIAN GAS RESOURCE BASE LARGE, OVERSTATED, COSTLY TO MAINTAIN

John D. Grace
Troika Energy Services
Dallas

The natural gas resources of the Former Soviet Union are immense, with an officially estimated initial recoverable endowment of 250.7 trillion cu m (8,852 trillion cu ft). Of this volume, 85% or 212 tcm (7,486 tcf) is located in the Russian Federation, which will be the dominant world supplier of gas through 2015.

Although Russia possesses an amazing gas resource base, official figures overstate both the recovery factor for gas in place and appear to systematically overestimate volumes of recoverable gas in undiscovered fields.

Of the 212 tcm (7,486 tcf) of initial recoverable resources in Russia, approximately 33 tcm (1,165 tcf) of remaining recoverable gas is concentrated in 16 fields that constitute the nation's key gas resources. It is this gas which will support most of the volumes supplied over the next 20 years. These key resources are very unequally distributed with respect to the technology and investment required to bring the gas to market.

The cheapest and most easily accessible sources of new productive capacity will come from development of the deeper, condensate-laden reservoirs at super-giant Urengoy and Yamburg fields. These are followed by Zapolyarnoye field and the "Urengoy satellites," a group of seven fields close to the Urengoy production/transportation complex.

Production and transportation of gas from the Yamal peninsula and the new discoveries in the Kara and Barents seas will cost many times the current average cost of gas production in Russia. These resources will also require long lead times, new technology, and in the case of Yamal onshore gas substantial efforts for environmental protection.

By 2015, FSU production capacity can be expanded from current levels of 0.8 tcm (28 tcf) to 1.2 or perhaps 1.5 ton/year (42-53 tcf/year), but only at several times the cost currently paid to produce and transport gas. Technological advances are likely to make the cost of base-load production rise at a slower rate than it would otherwise. However, it will not lead to a significant expansion of production capacity beyond these limits because of the challenges posed by the geographic distribution of Russian gas resources.

INTRODUCTION

The FSU's natural gas resource endowment is immense. Based on Soviet-vintage data, the original recoverable resources are 250.7 tcm (8,852 tcf).1 2 Accepting these data or even more conservative Western estimates makes the collective resources of the FSU nations the largest in the world. The world record for resource volumes is matched by world records in current production and production and reserve growth over the last three decades.

Approximately 85% of the FSU's gas resource is concentrated in the Russian Federation, particularly within the supergiant gas fields of the northern West Siberian basin. Official estimates put Russian initial recoverable discovered and undiscovered gas resources at 212 tcm (7,486 tcf). Of this volume, 6.4 tcm (226 tcf) has been produced and 61 tcm (2,154 tcf) is classed as discovered recoverable resources. Production in 1993 was 612 bcm (21.6 tcf), giving Russia a reserve-to-production ratio of 101 years, supporting broadly-held optimism for future growth in volumes supplied to both the domestic and export markets. Official estimates of undiscovered gas are 144 tcm, or 5,085 tcf (Fig. 1) (54309 bytes) and (Table 1) (35496 bytes).

The remaining 14 nations of the FSU collectively contain an estimated 39 tcm (1,377 tcf) of discovered and undiscovered gas. Resources are concentrated in four countries: Turkmenistan, Kazakhstan, Uzbekistan and Ukraine.

Cumulative FSU production outside Russia is 4.1 tcm (145 tcf), discovered recoverable gas is estimated at 9.3 tcm (328 tcf), and undiscovered gas is assessed officially at 25 tcm (883 tcf). Gas potential is concentrated in Turkmenistan and Kazakhstan, with 35% and 28% of all non-Russian FSU gas resources, respectively. While these nations contain significant volumes of gas which are regionally important sources of supply, Eurasian gas supply will be dominated by the Russian Federation. The present analysis is largely restricted to Russia, although some of the systemic observations on the Russian resource base apply to its sister states of the FSU.

With over a third of the world's gas resources, there is no doubt that Russia will lead the planet's gas production for at least the next 20 years. However, two general problems temper the simple extrapolation of past successes in adding to production capacity. The first relates to the Soviet concept of gas reserves and the systematic tendency to substantially overestimate undiscovered resources. The second is the cost requirements of maintaining and adding production capacity in Russia between now and 2015.

RESOURCES, RESERVES, REALISM

Although Russia's primacy in gas resources is unassailable, for the purpose of understanding future supply it is appropriate to critically examine the strength and reliability of Soviet-vintage data.

Two issues relate directly to the basic volumes in the official statistics. The first is the definition of reserves, the second is the reasonableness of estimated undiscovered resources.

In the West, a distinction is usually drawn between oil and gas categorized broadly as "resources" and its smaller subset of volumes called ,reserves." This latter category implies a high level of engineering and geologic certainty about the existence and technical producibility of the gas or oil. It also carries an economic judgment about the profitability of production.3

The larger class of "resources" allows inclusion of volumes for which technical and economic feasibility, and even their very existence, are open to much wider uncertainty. However, even in this more liberal category, Western convention requires that the existence of assessed volumes be scientifically supported and that the economic and technological prerequisites to their recovery do not demand conditions clearly over the horizon.

The Soviet concept of "reserves" stretches the Western concept beyond its normal limits. Soviet recoverable volumes are typically estimated based on virtually unlimited budgets and the presupposed application of almost any conceivable technology. Therefore, it is surprising, but not inconsistent, that gas recovery factors still used in official statistics from the FSU assume 100% recovery of gas in place.

While empirical data on post-abandonment recovery factors in the FSU are not generally available, if the oil experience provides any guidance, actual gas recoveries are substantially (and not unexpectedly) less than 100%. In the case of oil, while 42% is a commonly assumed recovery factor in the FSU, experience yields an average in the range of 22-28%.3

With this guidance, it is appropriate at a minimum to reduce Soviet-vintage estimates by 20% across the board to bring the implicit recovery factor into line with the high end of observed recoveries in large Western gas fields. This would reduce the estimated discovered resources from 61 tcm (2,154 tcf) to 49 tcm (1,730 tcf). If the same correction is applied to the undiscovered volumes, those volumes drop from 144 tcm (5,085 tcf) to 115 tcm (4,068 tcf), which reduces the total Russian unproduced recoverable resource base from 206 tcm (7,274 tcf) to 165 tcm (5,819 tcf).

The second area of concern in analysis of Sovietvintage resource figures are the estimates of undiscovered gas. For the Russian Federation, 70% of the unproduced resource base is assumed to exist in presently undiscovered fields. Of that quantity, 96 tcm (3,390 tcf), or two-thirds is expected to be found onshore. More specifically, of the postulated onshore undiscovered volumes, 43 tcm (1,518 tcf) is proposed for the West Siberian basin. West Siberia is already the largest gas province in the world, with 53 tcm (1,871 tcf) in almost 100 discovered gas fields. Fig. 2 (178687 bytes) shows the fields of northern West Siberia.

To suggest that there is again over 80% of what has been found remaining to be discovered is untenable from both geologic and exploration viewpoints.4 The existence of such large volumes must rely on one of two highly unlikely scenarios. First, that the additional volumes will be found in established Cretaceous Neocomian/Cenomanian play, which contains virtually all of the gas discovered to date. Despite extensive exploratory drilling in this play through the late 1980s, the last field over 1 tcm (35 tcf) discovered was Kruzenshtern, found in 1976.

If the remaining undiscovered gas is in the Neocomian/Cenomanian play, it would have to be distributed among what would be many hundreds of fields, virtually all many times smaller than Kruzenshtern. In this case, the overwhelming majority would be so small they would be uneconomic. This is because there would be insufficient economies of scale for production and because of the daunting transportation costs to the remote and lightly explored Gydan peninsula and eastern part of the northern basin, the only places where the postulated fields might have escaped detection.

The remaining potential of the Neocomian/Cenomanian play was assessed by discovery process modeling based on 1980 data, which indicated that an approximate one third addition to discovered volumes would come through new field discoveries. Considering the discoveries over the last 14 years, an updated estimate would probably be that 20-25% of the discovered resource base remains to be found. This would put the basin-wide undiscovered volumes at 8-15 tcm (282-530 tcf).5

The second hypothesis is that there is a play roughly the size of the Neocomian/Cenomanian which was missed entirely. Not only is the Neocomian/Cenomanian gas play the largest in the world, it contains most of the largest fields in the world. Its five largest fields alone represent targets with a collective area of over 35,000 sq km (3.7 million acres), targets hard to miss even if exploration efficiency were abysmally low. However, exploration in northern West Siberia, as measured by barrels of oil equivalent per meter of exploratory drilling, has been among the very highest in the history of the world oil and gas industry.

While there is demonstrated potential in the deeper Jurassic section, it is unlikely that even at a relatively low density of deep drilling, Soviet explorationists would not have at least blundered across one of these postulated super-giants. A Jurassic play where the size of the top fields is far smaller than the 3-10 tcm (106-353 tcf) range of the Neocomian/Cenomanian play is certainly possible, if not likely. However, even a play whose largest field was 3 tcm (106 tcf) would imply far less gas than postulated in the official estimates.

A similarly unlikely situation arises in East Siberia. While the drilling density in onshore East Siberia and the Russian Far East is minuscule, there is very good geologic reason to believe that the region cannot hold nearly the same potential as West Siberia. Therefore, 41 tcm (1,448 tcf) postulated in official statistics for undiscovered fields in East Siberia seems extremely optimistic compared to the 53 tcm (1,871 tcf) discovered onshore in West Siberia. East Siberian gas (including Yakutia, but not the rest of the Russian Far East) has been estimated by subjective assessment in the West at a mean of 4.5 tcm (158 tcf).6 The context drawn around these assessments of undiscovered resources is formed by the methods of estimation and sources of bias on the part of estimators. There are two basic divisions of undiscovered gas (or oil) in the Soviet reserve/resource classification scheme. The first is C3 resources, which are associated with identified discrete exploration targets and are generally reliable numbers for gas in place. The second is the D class resources, which are bulk-volume estimates of undiscovered gas not associated with identified traps. If an area has established potential, the resources are called D1, if it is a frontier they are called D2.3 Although very sophisticated models for resource assessment were developed during the Soviet period, the D class, or bulk-volume undiscovered gas, particularly in frontier areas like East Siberia (class D2) are usually subjectively estimated.7 8 Unfortunately, promises of great potential were, in the Soviet period, a critical factor in garnering exploration budgets and therefore subject to considerable exaggeration. Of the 96 tcm (3,390 tcf) of gas estimated to be found onshore in the Russian Federation, only 19 tcm (671 tcf), or one-fifth, is in discrete identified targets (i.e., the more reliable C3 resources). The remaining 77 tcm (2,719 tcf) is equally split between D1 and D2.

Only a few offshore fields will contribute to supply by 2015. Collectively, these fields contain about 9 tcm (318 tcf) of gas. They are the fields offshore Sakhalin Island in the Pacific, the Shtokmanovskoye field in the Barents Sea and the Rusanovskoye and Leningradskoye fields off the northwest coast of the Yamal peninsula (discussed below).

Probably all of the approximately 39 tcm (1,377 tcf) of offshore undiscovered gas is irrelevant to Russian supply through 2015. These resources include those distributed in the Laptev, East Siberian, and Bering seas, where costs of production and transportation will be astronomical and unquestionably place these volumes (which are probably exaggerated anyway) well beyond the pale of supply over the next 20 years.

While the suite of Sovietvintage figures could be adjusted, the fact is that attention can more easily be concentrated on the 16 fields which constitute Russia's key resources and will support supply for the next 20 years. These fields include the world's two largest fields, Urengoy and Yamburg, and 13 giant non-producing fields (Fig. 1) (54309 bytes). With respect to these key resources, the critical issue is not estimated volumes, but the cost of maintaining production capacity in the producing fields and adding it in those fields which are not yet on line.

Because supply turns not on volumes in place but cost and technology, official Russian figures are used in this discussion, not adjusted for overstatement of the recovery factor of 100%.

Next: Cost of production capacity and future supply.