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Russia’s embarrassment of riches

With the world’s largest reserves of conventional gas, the country can afford to leave shale gas in the ground

As Russia’s conventional reservoirs mature, shale will be critical to the country’s future production – of oil, that is. The Bazhenov shale-oil formation, in Western Siberia, is a world-class deposit, with about 75 billion barrels of recoverable oil thought to be within reach. Some estimates put the figure at 1 trillion barrels, suggesting the source rock dwarfs the US’ Bakken. ExxonMobil and Rosneft are about to begin fracking it.

Shale gas reserves are big, too. The US’ Energy Information Administration says Russia has 285 trillion cubic feet (cf) of recoverable shale gas. But that figure only covers the Bazhenov and the data were too sparse to offer a telling figure from several other structures. Include those fields, and the country’s reserves are probably much higher. Gazprom says Russia’s unconventional gas deposits could be two and a half times greater than its conventional reserves.

But the state-controlled firm, the biggest producer and exporter of gas in the world, doesn’t really need to bother with shale. It has other big fish to fry. Russia’s conventional reserves still stand at 35.1 trillion cubic metres (cm), or 1,239 trillion cf, the largest in the world. While a looming gas deficit helped spur the US shale-gas revival and could do the same in China, Gazprom faces no such pressure.

Its focus remains on big upstream projects and strategic export ones. More quickly than some of the company’s critics expected, Gazprom last year started up production at the Bovanenkovo field, part of the firm’s mammoth development plan for reserves in the Yamal peninsula. By 2015, Gazprom says, Bovanenkovo will produce 115 billion cubic metres a year (cm/y), or almost 20% of the firm’s output now, and rise to 140 billion cm/y later.

Meanwhile, other megaprojects are underway, including liquefied natural gas plants and a broad programme to develop eastern Siberian deposits and begin substantial exports to China.

That leaves little space for the company to go after shale gas. Wood Mackenzie, an energy consultancy, says large-scale unconventional-gas production is unlikely in the next decade. Gazprom is already acting as a swing producer, cutting production as necessary even while it invests heavily upstream to increase capacity, says Wood Mackenzie. Unconventional gas just isn’t needed.

Unconventional, Russian-style

But stretch the definition somewhat and Russia is already an unconventional producer, says one executive at a gas firm in the country. “In Russia, unconventional means difficult.” Gazprom and its partner Wintershall have been drilling horizontal wells at the Achimov formation for some time. Other deviated and horizontal wells have pierced plays elsewhere.

Tight gas also makes sense in some plays. At Medvezhye, Gazprom’s mature but super-giant field, the tight Turonian formation is shallower than the main reservoir, points out Wood Mackenzie, and using existing above-ground facilities while drilling the tight reserves could yield “backfill” production. This would be a costlier method of extraction initially, but the total spend (and volume produced) would be lower. Gazprom is also testing extraction of coal-bed methane deposits in the Kuznetsk basin, in Kemerovo oblast.

Some other less conventional opportunities exist, but probably not for Gazprom. Recent changes to Russia’s mineral-extraction tax, designed to increase competition in domestic supply, should spur smaller independent firms to target more complex, marginal plays. For example, while Gazprom will now pay almost $25 per cm of gas produced from the Cenomanian, the geological age that is responsible for Russia’s most prolific gas wells, an independent firm drilling in the Turonian or in East Siberia would pay less than $2.50/cm.

That’s not a policy that, on its own, will launch a Russian shale-gas industry. As Wood Mackenzie Russia analyst Duncan Milligan says, “there’s still so much easy geology there’s no need for shale”. But the new tax regime will support drilling of more complex formations by independents looking for the kind of opportunities Gazprom can afford to ignore.

Some of the plays will need multi-stage fracking. For now, Russia doesn’t have much capability for that. Bakken drillers, for example, can drill horizontally for 3.5 kms and include 30 fracking stages, points out Milligan, while in Russia the wells can reach 1 km with six stages. However, as the shale-oil drilling begins in earnest, the oilfield-services sector will grow more specialised. That might eventually boost unconventional gas prospects for some small players, too. Even so, with so much easy stuff left, Russian shale gas will be a minority pursuit for marginal players. 

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