No. 2, 2009

Development of national oil, petroleum products and gas transport systems remains a priority objective

The Russian fuel and energy sector's current focus on diversifying domestic and export deliveries and directly targeting major solvent hydrocarbon consumers is fully in line with long-term economic processes. The Russian Government keeps a watchful eye on the main development trends underway in the national oil, petroleum products and gas transport infrastructure.

Development strategy

The modern oil pipeline transport system in Russia comprises over 50,000 km of trunk pipelines with an annual capacity of over 450 million tons of oil. The length of the petroleum products pipelines is over 20,000 km, of which over 15,000 km are trunk lines and some 5,000 km are distribution pipes. Their cumulative annual capacity exceeds 50 million tons. The oil tank farm volume capacity is over 15 million m3, while that of the petroleum products tank farm is 5 million m3.

Russia's unified gas-supply system (UGSS) includes over 150,000 km of trunk gas pipelines (in single-line terms) and almost 6,000 km of bends. In addition, nearly 4,000 km of gas trunk lines are outside the UGSS. The active underground gas storage capacity in Russia is over 60 billion m3. The throughput capacity of the gas transport system is about 700 billion m3 a year.

The pipelines supply more than 90% of Russian oil, nearly 25% of petroleum products and 100% of natural and utilizable associated petroleum gas. The liquefied hydrocarbon gases are transported by rail.

Changed hydrocarbon production geography and delivery diversification in the country make the pipeline transport a key element in the Russian oil and gas industry development.

Under Russia's Energy Strategy until 2020, approved by the RF Government, and the New Energy Strategy of Russia until 2030, the development of oil, petroleum products and gas transport systems should prioritize reliability of hydrocarbons and refined products supply to the economy and the population, and maintenance and strengthening of Russia's geopolitical and economic positions in the world.

The strategic objectives are: developing new oil- and gas-bearing provinces, first of all in Eastern Siberia, in the Far East and the North-West of Russia; establishing new domestic and export oil and gas routes primarily to the existing and perspective industrial centers of Eastern Siberia and Russia's Far East and to APR countries; expanding hydrocarbon transit over Russian territory; providing for oil, petroleum products and gas deliveries to bypass the customs areas of the neighboring states; achieving a balance between the required transport volumes and transportation system capacity, creating reserve capacity for immediate response to market demand fluctuations; providing for sustainable development of oil, refining, petrochemical and gas sectors, including the establishment of oil, gas, and products pipeline systems, adjusted in terms of volume and synchronized in terms of time, as well as an infrastructure for integrated processing of hydrocarbons and petrochemical production.

Three main trends

There is a number of stable trends that influence the operation of Russia's oil and gas transport sector today and will continue to do so in decades to come.

The first is the changing geography of hydrocarbon production in Russia. New major centers of the oil and gas industry will appear in the East of the country - in Eastern Siberia, the Republic of Sakha (Yakutia), on the Far Eastern shelf (the Sea of Okhotsk, the Western-Kamchatka sector of the Pacific). Hydrocarbon production will be also developed in the North of the Western Siberian oil- and gas-bearing province (OGP), first of all in Yamal Peninsula, in the Gulf of Ob and the Taz Bay, in the shelf of Arctic seas (the Barents Sea, the Kara Sea), in the Timan-Pechora OGP, in the Russian sector of the Caspian.

At the same time, oil and gas production in the traditional areas of European Russia will decrease, above all in the Volga-Urals and Northern Caucasus OGPs, in a number of areas of the Western Siberian OGP, mainly in the Khanty-Mansiysk Autonomus Area and the Tomsk Region.

The second is the transformation of the spatial pattern of hydrocarbon processing and intra-Russian and intra-Siberian deliveries of oil, petroleum products and gas. The load on the refineries is increasing, the existing refineries, gas processing, petrochemical and gas-chemical plants are being upgraded, while the new ones are being set up, first of all in Western and Eastern Siberia (Angarsk, Balagansk, Novy Urengoy, Sayansk), as well as nearby the production centers and the export terminals outside Siberia (Nakhodka, Novorossiysk, Primorsk, Tuapse, etc.). Refineries' upgrading should be continued and the output of quality petroleum products for domestic and international markets expanded. This will allow strengthening the competitive positions of Russia in the APR. Construction of an LNG infrastructure (LNG plants, export terminals, LNG acceptance, storage and re-gasification facilities) is another important objective.

Finally, the third trend is the change in global hydrocarbon production pattern. The following trends can be singled out: the appearance of major oil and gas producing centers of international significance in the Caspian region, eastern and northern Russia, on the Russian Arctic shelf; hydrocarbon production growth in the Middle East, northern and western Africa, a growing competition in the APR market among the energy resources deliveries from Siberia and from the Middle East; an anticipated production decline in the North Sea, in the continental fields in the United States and in the APR; transformation of the geographical pattern of raw materials demand on the world markets; oil consumption stabilization and a moderate increase in gas consumption in the European Union; slowly growing demand for oil and stabilization of demand for gas in North America; rapid growth of hydrocarbon consumption and imports in the APR.

Under the circumstances, the RF Government plans prioritize upgrading of oil and gas transport systems and diversification of the main domestic and export delivery routes. This will result in higher reliability of oil and gas supplies to the economy and the population, Russia's large-scale entry on the Asian-Pacific energy market, arrangement of deliveries to the U.S. Pacific and Atlantic seaboards, and preservation of positions in the European market.

It should be taken into account that along with Russian oil, Transneft and CPC pipeline systems will deliver to the European market a great deal of Caspian oil (including crude oil from northwestern Kazakhstan's Tengiz, Kashagan and other fields). At the same time, Europe will start receiving Turkmen, Kazakh and Uzbek gas via Russia gas trunk lines. Russia's interests in shaping Caspian hydrocarbon deliveries include making maximum use of its current oil and gas transport infrastructure; building new transport capacity; re-orienting part of oil flows, and after 2015 possibly gas flows as well, from the highly competitive European markets to the fast-growing APR markets and the capacious North American market, including with the use of swap deals; and minimizing economic and political risks during project implementation.

Priority projects

Proceeding from the geostrategic interests of Russia and the global processes in the world energy industry, the main directions for oil transport systems development are the North-Atlantic, South-Western and the Pacific ones.

The North-Atlantic direction involves expansion in 2010-2012, of the Baltic Pipeline System, which is 500 km long and capable of pumping through over 16 million tons of oil a year, as well as construction of the Kharyaga-Indiga pipeline with a 430 km long line part and annual capacity of at least 12 million tons.

The following projects are planned in the North-Western direction: building the Burgas-Alexandroupolis oil pipeline (length: 285 km, annual capacity: 35 million tons, potential capacity increase up to 50 million tons a year); improving process reliability and environmental safety of the oil export terminals in Novorossiysk and Tuapse; increasing Caspian Pipeline Consortium system capacity up to 67 million tons per year; and enhancing the capacity of the Atyrau-Samara oil pipeline to provide for a Kazakhstan and Turkmenistan crude oil transit buildup.

As for the Pacific direction, in 2009, it is planned to complete construction of the ESPO oil pipeline's first segment from Taishet to Skovorodino which is 2,757 km long and has an annual capacity of 30 million tons. In 2010, a Skovorodino-PRC border bend will be built (length: 67 km; the initial capacity: 15 million tons per year). The 2013-2014 plans provide for building the ESPO's second segment from Skovorodino to Kozmino Bay (length: 2,013 km; annual capacity: 80 million tons). This system is designed for the transportation of Russian oil to the promising APR market. Moreover, plans for this direction include connecting Eastern Siberian and Republic of Sakha (the Lenno-Tengusskaya OGP) to the ESPO pipeline; completing construction of the oil transport system within the framework of Sakhalin-2 Project, including construction of the 800 km long Southern Sakhalin-Northern Sakhalin oil pipeline and a special terminal in the southern part of the island; and improving the process efficiency and environmental safety of the DeKastri oil terminal (the Khabarovsk Territory).

The priority projects in the field of petroleum products transportation provide for bringing the Sever (Kstovo-Yaroslavl-Kirishi-Primorsk) petroleum products pipeline up to its rated capacity of 24.6 million tons per year; building the Andreyevka-Ufa-Subkhan-kulovo-Almetyevsk-Kstovo trunk pipe-line and its integration in the unified infrastructure of the Yug export petroleum products pipeline (Syzran-Saratov-Volgograd-Novorossiysk) with a capacity of 10 million tons per year; expanding and upgrading the Nikolskoye-Stalnoy Kon-western border of Russia (Tambov-Orel-Unecha) petroleum pro-ducts pipeline.

Another major strategic objective for the Russian oil and gas sector is developing the transport system for piping associated petroleum gas, its separate components and deeper conversion products.

In Western Siberia and European Russia work is underway to construct the pipeline systems that will connect producing and coming on stream fields to operating refineries, gas processing and petrochemical plants. In doing so, priority should be attached to the geographical proximity rather than corporate affiliation of the processing facilities.

In Eastern Siberia and Russia's Far East, it is planned to construct an integrated oil and gas complex complete with systems for the production, processing, transportation and storage of oil, petroleum products, petrochemicals and gas chemistry products, including helium.

As a whole, implementation of the large-scale and all-embracing measures to develop the infrastructure of Russia's oil and gas sector will help the country retain its competitive advantages in the global hydrocarbon market.