No. 4, 2011


Oil of Russia magazine talks to Valery Gaevsky, Governor of Stavropol Territory

The Northern Caucasus branch of the Russian Research Institute for the Economics of Mineral Reserves estimates that the mineral potential of Stavropol Territory is worth around $56 billion. Among the most valuable resources are crude hydrocarbons, which account for around 38% of the total value of all of its mineral resources. The production of oil, its refining, and the output of finished products occupy an important place in Stavropol Territory's economy.

Q: Stavropol Territory is one of the most rapidly growing constituents of the Russian Federation. Its economy has proved its sustainability even under the pressure of the world crisis. How do things look now, and what place in the Territory's economy does the oil and gas complex hold?

A: For several years now, Stavropol has displayed sustainable growth in its economy, which slowed only slightly in 2008-2009 and did not turn negative. According to the figures for 2009, the Territory even grew by most indicators. The volume of investment was held at the precrisis level, there was a noticeable increase in industrial and agricultural output, and we managed to avoid a collapse in the labor market. This trend continued into postcrisis 2010. Its results were published not long ago. The Territory's industrial production grew 10% and agribusiness 2.6%, while construction rose by 7.4%. According to the estimated data, investment grew by 8.6%, reaching 88.6 billion rubles.

The strategy adopted last year for the development of the Northern Caucasus in the period leading up to 2025 lists more than 100 projects, of which 37 are in Stavropol. Every fourth one of these is a priority project. They're all of different sorts: manufacturing, infrastructure, leisure and recreation. Work has already begun on many of them.

I feel our region will manage to fully reveal its potential as the locomotive of the Southern Federal District's economy. There are a lot of factors favoring this. Stavropol Territory is at once a tourist resort and an agricultural area, an industrial and an energy powerhouse. Each of these is a vintage field; that is, they all have high production figures and investor appeal.

If we're talking about industry, it comprises some 400 large and mid-sized firms and provides one-quarter of the gross regional product and three-fourths of the Territory's exports.

The Territory has quite well-developed chemical, glassmaking, and machine building industries. A sector for innovation is gradually growing.

Stavropol's oil and gas industry has a rich history. It was here at the beginning of the 20th century that geologists searching for underground water discovered gas; by the 1950s, it was flowing to Moscow, Kharkov, Tbilisi, and many other cities of the USSR. So it's easy to explain why the Territory has always had a special relationship with gas workers. The gas industry has always been one of the strongest in the structure of the Territory's economy.

The share of fuel-and-energy mineral resources in the goods shipped by the industrial complex is around 3%. Refineries account for 71.5% of the total, while the generation and distribution of electricity, gas, and water make up 25.3%.

Q: What are the milestones in development in the Region's oil and gas industry that you can identify?

A: The long history of Stavropol's oil and gas industry began in the 1950s. The startup year for oil was 1953, when production got under way at the Ozek-Suat field in the eastern part of the Territory. Five years later, development began on the enormous Velichayevsko-Kolodeznoye field. Oil was allowed to flow naturally at first, but gradually the field switched over to mechanization.

Stavropol's production of natural gas began at roughly the same time as its oil production. The development and construction of the North Stavropolskoye and Pelagiadinskoye fields began in 1951. Just three years later, in October 1954, the residents of Sovietskaya Street in Stavropol were the first to transition to natural gas delivered to the regional capital. In another two years, natural gas came to Moscow via the Stavropol-Moscow trunkline.

In 1979, the North Stavropolskoye gas field was transformed into a subsurface gas reservoir. It is now the largest such facility in Europe, with a net storage volume of 25 billion m3. The first 50 kilometers of the Blue Stream transnational gas pipeline were laid over Stavropol land.

Stavropol now has more than 60 hydrocarbon fields. Around 1 million tons of oil and 380 million m3 of natural gas are produced there annually. Over the period of the fields' operation, the volume of oil and gas condensate production has totaled more than 160 million tons and of gas - more than 290 billion m3.

Q: How would you describe the state of the Territory's oil and gas complex today?

A: Government-owned companies are the largest mineral resource users in the Territory's hydrocarbon production sector. These are Rosneft and Gazprom, represented by their subsidiaries RN-Stavropolneftegaz and the Svetlograd Gas Production Division (an affiliate of JSC Gazprom Production Krasnodar).

Seven companies are involved in the development and additional geological appraisal of isolated, low-reserve fields. The most successful of these companies so far has been JSC Zhuravskoye.

As mentioned above, our hydrocarbon fields began to be developed more than 50 years ago. Today, most of them are in their final stage of production, which is characterized by the natural exhaustion of reserves. The water content of well production rises, and reservoir pressure falls. The level of well depletion in most of the fields is as high as 80%. This of course threatens our production figures.

Under the circumstances, the main task for oil and gas workers is reserve replacement. Hence the need to step up our searching, prospecting, and exploration efforts on operating and prospective underground blocks. Such work is being done. At RN-Stavropolneftegaz, for example, a comprehensive survey and exploration program that includes the drilling of test wells is planned for 2011 through 2014. More than 2 billion rubles will be spent on such efforts. It's forecast that oil production in 2013 will exceed that of 2010 by 110,000 tons or more as a result.

The Karmalinovskoye gas condensate field in the Novoaleksandrovsk district was opened in 2006. According to preliminary estimates, it has around 10 billion m3 of reserves.

Q: What role do the refining and petrochemical production sectors play in the Territory's economy?

A: I wouldn't call the first of those a driving force. Only three companies are operating in this sector of the economy, and they have mini-refineries. They produce diesel fuel, different grades of naptha, and fuel oil. Their share of the overall volume of manufactured goods is a paltry 0.0009%.

Here we have to consider not just economic factors, but historical factors of the development of the Territory's industry as well. How it all came about. But this doesn't mean that raising the efficiency of the Territory's economy by organizing the refining of hydrocarbons isn't being examined. For example, Stavropol is among Russia's top five users of compressed natural gas as motor fuel. On this count, we already have a special program in place for 2011-2013. The overall volume of financing is forecast at about 2 billion rubles. The Territorial budget contributes around 38 million rubles of this.

The aim of the program is to obtain the highest economic efficiency in motor transport, strengthen natural gas's position on the fuel market and reduce environmental impact. This is of major importance for Russia's vacation paradise, Caucasian Mineral Waters (the spas of the Caucasus).

Meanwhile, Stavropol's consumers are experiencing no shortage of petroleum products, since the Territory's government is cooperating closely with subsidiaries of LUKOIL and Rosneft, and other petroleum product suppliers. Problems of a shortage are quickly solved through joint efforts. In the last three years, LUKOIL-Yugnefteprodukt and Rosneft-Stavropol have sold more than 2 million tons worth of different fuels and lubricants, invested more than 1.7 billion rubles in production development, brought 460 million rubles into the Territory's budget, and allocated more than 35 million rubles for social needs and charity purposes.

Now, about petrochemicals: unlike the manufacturing of fuels and lubricants, this is one of the largest segments of the Territory's industrial complex, and it is growing rapidly. Stavropol's huge Stavrolen petrochemical complex, a LUKOIL Group company, is well known in the industry. It's the main source of employment for residents of the city of Budyonnovsk, the main industrial center in the eastern part of the Territory.

Stavrolen produces low-pressure polyethylene, polypropelene, vinylacetate, and benzol. These products are used in different fields, from the manufacturing of different types of pipes to various films and insulating cables. More than 300,000 tons of polyethylene and 100,000 tons of polypropylene were produced here in 2010, 20 and 70% more than the 2009 levels, respectively.

In matters of the Territory's social and economic development, we view Stavrolen and its parent company, LUKOIL, as strategic partners. It is enough to say that in recent years, Stavrolen has been implementing a polypropylene production project that has created more than 400 new jobs. The largest investment project in our Region's history - the creation of a complex for refining Northern Caspian natural gas into ethylene and polypropylene - is now getting under way, in accordance with the Agreement on Cooperation between the Stavropol Territory government and LUKOIL. It will be built using Stavrolen's existing infrastructure. Preliminary design work has already begun. Implementation of the project is a key point not only in the Territory's strategic development plan but also in the Strategy for the Development of the Northern Caucasus Federal District for the period leading up to 2025.

According to preliminary estimates, more than 100 billion rubles will have to be invested in the building of the gas-chemical complex. With allowance for design work, it will take 6 years to complete. The inauguration of the plant is set for 2016. More than 1,500 jobs will be created as a result. The plant's design capacity is 200,000 tons of polypropylene and 600,000 tons of ethylene and polyethylene a year.

In addition, the Budyonnovsk Regional Industrial Park project is being implemented as a spinoff of the chemical plant project. The aim is to bring a number of small and medium-sized companies working with the products manufactured by Stavrolen into the orbit of the large combine in Budyonnovsk.

Q: How do you see the future of Stavropol Territory?

A: The Territory first of all ought to be a region that is safe and good to live in, where you can reside, study, work, and earn a decent living. Natural resources alone aren't enough to reach this goal and build an economy that can weather any storm, so we're betting not on the commodities sector but on becoming suppliers of finished products and technologies. To accomplish this, we developed and adopted the Territory's development strategy for the period leading up to 2020.

The aim of this document is to ensure the maximum effective use of the Territory's competitive advantages (in recreational, agrarian, transportation, and other areas). The program's main markers are to double the regional gross product and to treble the volume of capital investment in ten years; to increase small business's share of the GRP fourfold; and to raise the quantity innovation-oriented products by a factor of seven.

In other words, Stavropol will be the forge of a smart economy. It is an ambitious task, but one that is entirely doable. All of the prerequisites are already in place.         

 - Nikolay Stepanchenko

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Oil of Russia, No. 4, 2011
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