Rationales, Advantages, and Possible Areas
4. RFE’s Energy Projects as a Base for NEA Energy Cooperation
Under the objective circumstances Russia is considered as an underpinned pillar in establishing NEA energy cooperation. The vast majority of the projects introducing Russian energy resources which are now under discussion/construction/realization are located within the Russian Far East being a natural part of an eco- nomic territory of NEA region.
El’ga Coal Project. The El’ginskoye coal deposit is located in a
remote area of the southeast Republic of Sakha (Yakutia). It is the first-largest reservoir of soft coking coal of high quality with the scale of about 2 billion tons.
The last Feasibility Study of the project was developed by U.S.
company “John T. Boyd.” Its key findings could be summarized in the following way. By quantity and quality of reserves El’ginskoe coal deposit is that of a world class entity with strong capacities of the largest coal-mining enterprise in construction. Development of the deposit is economically expedient while the enterprise built would extract 20-25 million tons of coal annually. Marketing research conducted revealed that it is possible to have a niche in the NEA markets for the coal of El’ga to the extent of 15 million tons for steaming coal and more than 5 million tons for coking coal annually.
The license for coal mining for the northwest sector of the deposit belongs to JSC “El’gaugol.” As of today the major share- holders of the company are the Republic of Sakha (Yakutia) (39.4
%), JSC “Russian railways” (29.5%) and JSC “East building con- tract corporation” (28.8%). However, the decision of establishing late in 2007 the auction on sale of the shares held by Yakutia and JSC “Russian railways” is already accepted.
Oil-and-gas projects of the Sakhalin shelf. In Sakhalinskaia Oblast two large-scale oil and gas projects on terms of a production shar- ing agreement are now in the process of being developed.
Sakhalin-1 projectis headed to develop three oil and gas fields in the Northeast shelf of Sakhalin island: Chaivo, Odoptu and Arku- tun-Dagi. Total sum of recoverable reserves of these exceeds 307 mln tons of oil (2.3 bln b/d) and 485 bln cubic meters of natural gas (17.1 trillion cubic feet). The project is expected to develop in four phases. The goal of the first one is to develop the oil resources of Chaivo and Odoptu oil and gas fields with limited gas produc-
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅴ
Ⅵ
Ⅶ
Ⅷ
tion (up to 3.0 billion cubic meters a year) to meet the domestic demand of Khabarovskii Krai.
The project is being run by the international consortium of energy companies including the American company “Exxon Neftegas Limited” acting as an operator of the project with 30%
share, Japan’s “SODECO” (30%), India’s “ONGC Videsh, Ltd.”
(20%), and two subsidiaries of Russian JCS “Rosneft” (20% totally).
As of today, the total investments in the project are estimated by the operator at $17.0 billion of which $6.6 billion were done as of the end of the first half of 2006. The oil and gas production under the project started in 2006.
Sakhalin-2 projectenvisages the development of Piltun-Astohskoe and Lunskoe oil and gas field in the shelf of the island with total recoverable reserves of 140 million tons of oil (1.0 billion b/d) and 550 billion cubic meters of natural gas (19.4 trillion cubic feet). The operator of the project is “Sakhalin Energy Investment Co., Ltd.”
Among its shareholders are Russian JSC “Gasprom” (50% plus a share) along with subsidiaries of Royal Dutch Shell (27.5% minus a share), Mitsui and Co. Ltd. (12.5%) and Mitsubishi Corporation (10.0%).18
The first stage of the project started in 1999 and included the development of oil resources of Piltun-Astohskoe field during an ice-free period of the year. The annual amount of oil extracted from this field varies from 1.6 to 2.0 million tons (12.1 to 15.0 thou- sand bbl). Crude oil has been delivered under spot contracts to South Korea, Japan, China, Taiwan, Thailand, the Philippines, and the U.S. In May 2003, the operator announced the start of the sec- ond stage of the project primarily associated with putting Lunskoe
18 _ “Gazprom buying ‘Shell-owned “Sakhalin-2” share interrupted,” Novast-
naya Lenta NGB (National Guard Bureau), April 14, 2007 (in Russian).
field into operation. Initially total investments in the second stage of Sakhalin-2 were estimated at $9.6 billion. Nowadays capital costs of “Sakhlin-2” project are estimated at more than $19.4 billion of that $12.5 billion are already invested.19
Besides, licenses have been obtained for the exploration of the remaining geological blocks and sectors of Sakhalin’s shelf. In the near future, the first shelf blocks targeted for exploration are:
Sakhalin-3 (Kirinskiy block, Ayashskiy and East-Odoptu sites, Veninskiy block),20Sakhalin-4, Sakhalin-5, and Sakhalin-6. Accord- ing to the forecasts, these blocks should be extremely rich in hydrocarbon resources: oil - 1.3 billion tons, gas - 1.9 trillion cubic meters.
Oil pipeline “Eastern Siberia - Pacific Ocean” (ESPO). A piecemeal plan of construction of the pipeline system ESPO with designed throughput of 80 million tons of crude oil annually was approved in April 2005. In a year, under the pressure of environmentalists, an initial route of ESPO was shifted 400 km to the north from Baikal Lake. Thus, the total length of ESPO increased to almost 4.8 thousand km. The operator of the project is Russian state-owned company “Transneft.”
After revision of the pipeline project its first phase is supposed to run along the route Taishet (Irkutskaya Oblast) - Ust’-Kut area (Irkutskaya Oblast) - Talakanskoe oil and gas field (Yakutia) -
19 _ “Inspection committee of “Sakhalin-2” - agreed to major issues of selling off
liquified natural gas,” Novastnaya Lenta NGB (National Guard Bureau), July 18, 2007 (in Russian).
20 _ In January, 2004 the State Commission on Fulfillment of the Production
Sharing Agreement of the Ministry of Natural Resources of the Russian Federation declared void the results of a 1993 tender for developing the blocks of Sakhalin-3 (except for the Veninskiy block). In 2007 the Ministry of Natural Resources of the Russian Federation plans to auction the license for the geological study of Sakhalin-3 project.
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅴ
Ⅵ
Ⅶ
Ⅷ
Aldan area (Yakutia) - Tynda (Amurskaya Oblast) - Skovorodino (Amurskaya Oblast), with a designed capacity of 30 million tons of oil annually. Simultaneously with the completion of the pipeline trunk section, launching of the first stage of the oil terminal at the Perevoznaya Bay is scheduled. Building of the ESPO’s first phase of about 2.8 thousand km long commenced in April 2006 and is projected to be completed at the end of 2008. As of the end of July 2007 more than one thousand km of pipes are in the ground.21 According to the latest announcement the cost of the first phase is estimated at $11.3 billion.22
The second phase of ESPO project is planned to run along the route Skovorodino - Perevoznaya Bay (Primorskiy Krai), with a total throughput of up to 50 million tons of oil a year, and to enhance the capacity of the first pipeline section up to 80 million tons of oil a year.
Program of creating an integrated system of gas extraction, trans- portation and supply in East Siberia and the Far East with probable gas export to the markets of China and other Asia-Pacific countries (“Eastern Program”). This program is aimed at the designing of a compre- hensive, complex and consistent policy in order to ensure Russia’s most beneficial development of gas resources and gas export scheme in the Eastern part of Russia. A developer of the program is JSC “Gazprom.” After numerous revisions the program was adopted in June 2007.
According to the program, current reserves of East Siberia and the Far East enable establishing here a high-powered gas industry
21 _ “Eastern oil pipeline now over 1000km,” data presented by the Russian
Ministry of Industry and Energy, June 20, 2007 (in Russian).
22 _ “Simon Vainshtok, Chairman of Transneft - Maintains equanimity towards
twofold increase of East Siberian oil pipeline construction costs,” Neftegas.
ru, July 19, 2007 (in Russian).
of national and international significance, with natural gas output projected at 200 billion cubic meters annually. The program assigns the four gas production centers, such as Sakhalin - on the basis of shelf fields, Yakutia - on the basis of the Chayandinskoe oil and gas field, Irkutsk area - on the basis of the Kovykta gas and condensate field, and Krasnoyarsk area - on the basis of the Sobin- sko-Paiginskoe and Yurubcheno-Tokhomskoe oil and gas fields.
In the course of the program’s preparation 12 options of gas production and transportation systems in the East of Russia were examined. Developer of the program emphasizes the “Vostok”
(East) variant as the most efficient. This option includes the follow- ing: orientation of Irkutsk and Krasnoyarsk gas production centers towards the Russian unified gas supply system (UGSS), i.e., for meeting gas demand in the western part of Russia; development of Sakhalin gas production center, independent of the UGSS and aimed at meeting the demand for natural gas of Sakhalinskaya Oblast, Khabarovskii Krai and Primorskii Krai through the con- struction of the export gas pipeline infrastructure to Northeast China and the Korean Peninsula, as well as through the develop- ment of the LNG facilities in the southern part of Sakhalin. The investment need of the variant is estimated at $62.5 - $77.7 billion subject to the scenario.
Russia - China electric power cooperation. Two inter-state power transmission lines are currently operating in the Unified Power Grid “Vostok” delivering electric power from the Amurskaya Oblast to isolated demand areas of Northeast China (as of 2006 - 0.5 billion kWh). In 2003 “InterRAO UES” company and the Chi- nese “Sirius” signed a Framework Agreement on electricity sup- plies of 13 billion kWh within 2004-2013.
In March 2006 JSC “RAO UES Rossii” and State Power Grid Company of China concluded an agreement on the elaboration of
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅴ
Ⅵ
Ⅶ
Ⅷ
a Feasibility Study of the project of large-scale electric power sup- ply from Eastern Russia, to China (nearly 60 billion kWh a year).
In November 2006 a Pre-Feasibility Study was prepared. In accor- dance with it the project is supposed to be implemented in three stages. Over the first stage, 2008-2012, the expansion of frontier electricity trade up to 4.5 billion kWh is provided. Over the second stage, 2012-2015, new power installed capacities of 3.5 GW are pro- jected to be commissioned within the southern part of RFE in order to expand the annual electricity supply up to 22.5 billion kWh. At the third stage of the project, after 2015, it is planned to build 6.0-6.4 GW in the RFE and Eastern Siberia so as to enlarge export volumes up to 60.0 billion kWh annually.
In November 2006 a contract for deliveries under the first stage of the project was sighed.23
Russian Far East - Korean peninsula electric power cooperation. In 2001, DPRK’s officials applied to the Russian party to consider the technical and economical feasibility of electric power supplies to DPRK. Over 2001-2003 the technical aspects of the power trans- mission line from the RFE to North Korea were being discussed more than once. Eventually, the format of the project was expand- ed and the specialists from Republic of Korea were involved. Thus, it was proposed to change the parameters of the project and include the construction of “Vladivostok substation - Chongjin”
500 kV AC power transmission line (380 km) to supply 500 MW of power (2.5 bln kWh annually) and the “Vladivostok - Seoul” ±500- 600 kW DC transmission line (900 km) to supply 2000-3000 MW.
Under some economic and political reasons the study of “The Far East - Korean Peninsula” power bridge project was suspended.
In August 2006, a Russian delegation visited the DPRK to revive
23 _ UESR (Unified Electrical Systems) Russia, 2006 Annual Report (in Russian).
the project but so far no developments have occurred.
Both “The RFE - Korean Peninsula” power transmission line and natural gas pipeline projects are very meaningful in realizing the NEA energy and economic cooperation. Besides economic ben- efits alone they yield some other important advantages such as the development of energy facilities in the RFE, the settlement of the energy crisis in DPRK, the optimization of electricity consumption and energy mix in the countries involved, the involvement of DPRK as an economic partner and normal member of the interna- tional community, and the establishment of real partnership between Russia, DPRK, and Republic of Korea. Finally, it is the projects that could be a real alternative to blocked KEDO project and DPRK’s nuclear development program.