Monday, May 19, 2008

Reserve Growth Expected Soon at Sinopec's Upstream Segment

It is argued in this article that Sinopec should see significant reserves growth over the next 1 to 5 years, more than doubling current reserves, due to reserve additions in both domestic (Chinese) and international areas. Sinopec as covered in an earlier article has a substantial exploration and production division with proven reserves under SEC reporting guidelines of approximately 3.77 Billion Barrels of oil equivalent (86% oil)- compared on a reserve basis to Conoco Phillips (at 6.85 Bn BOE (42% oil) ex affiliates -- mainly Lukoil) and Chevron (7.85 Bn BOE, excluding affiliates). Expected growth in Sinopec's reserves and production, based on Sinopec's statements concerning oil and gas development activities, should make Sinopec approximately equivalent to both Conoco Philips and Chevron on a reserves basis over the next five years.

Potential Reserve Additions Within China:

Domestically, Sinopec has two very promising areas within China for reserve growth: Sinopec's Puguang Gas field in Sichuan -- the second largest known gas field in China -- and the Tahe Oil Field in Xinjiang. Both have high estimated reserves (over 1 billion barrels of oil equivalent) and are in production or close to production currently (mid-2008), but have not been consolidated on Sinopec's reserves statement.

Puguang Gas Field:

The giant Puguang gas field, with between 300-400 bcm of recoverable reserves (approximately 2-3 billion barrels of oil equivalent) is expected to come online at the end of 2008, at which time the pipeline to Shanghai will be completed. The reserves have not been consolidated in Sinopec's 2007 Annual report filed with the SEC, due to the fact that only proven and producing oil and natural gas reserves can be consolidated according to SEC guidelines. Initial production per year is expected at 4 bcm per year -- approximately 68,000 barrels per day of oil equivalent, and increase to a final production figure of 8 bcm (136,000 barrels per day oil equivalent) by 2010 by Rigzone -- this is estimated to add approximately 15% to Sinopec's 2007 production of approximately 900,000 barrels per day of oil equivalent by 2010.

Tahe Oil Field:

In the far West, in the Chinese province of Xingang the Sinopec's Tahe field, located in the Tarim Basin, is up and producing an estimated 100,000 barrels per day at the end of 2007 according to Sinopec's 2007 annual report (large pdf warning), although the Tahe field has not been consolidated in Sinopec's 2007 annual report (there are no direct references of Tahe or Tarim on Sinopec's 2007 reserves statement, and the production has not been included in the oil production in the 2007 Annual Report, in at least a review by the author). The overall field is estimated at 1 billion tons of oil equivalent (approximately 7.4 Bn barrels of oil) -- what is ambiguous in reports concerning Tahe is whether or not this number refers to recoverable oil or oil in place -- it is more likely that the oil reserve number refers to total oil in place (as Chinese reports typically indicate total oil reserves, as is the case with the recent oil and gas discoveries in Bohai Bay). At a recoverable percentage of 35% for Tahe of total oil, the reserves booked would be 2.6Bn barrels. The author cannot find additional information concerning final production rates, but at 200,000 bpd in 2010 (estimated), this would add 22% to Sinopec's 2007 production of 900,000 barrels per day of oil equivalent production. Chart 1 below shows the Tarim Basin in Xinjiang, where the Tahe Oil Field is located, in comparison with the other oil and gas fields in China. (note that this chart was completed in 1999, before the Puguang Gas Field was discovered, so this field is not indicated below):

Chart 1: China's Oil Fields, Including the Tarim Basin in Xinjiang:

Source: FromtheWilderness

It should be noted that there has been some criticism of Xinjiang's oil potential in the past by analysts. Chinese officials had throughout the 1990's and early 2000's made optimistic claims about the region's oil and gas potential, even claiming that Xinjiang could potentially overtake production from China's eastern Daquing and Bohai Bay areas (Daquing is one of the four largest oil fields in the world, owned and operated by PetroChina). Some analysts have poked holes in this argument about Xinjiang's oil potential -- it is likely according to Beijing based petroleum geologists that there is not one single, giant field in Xinjiang but rather a series of medium sized fields, and the oil is more viscous (closer to heavy oil), that the depths needed to drill are several kilometers deep. However, this does not mean that Xinjiang should be taken to the opposite extreme, that there no little or no economically recoverable oil in the region, as has been done in certain publications -- the achievement of initial production of 100,000 barrels per day from the Tahe Oil field in 2007 shows that the Tarim basin has significant potential, if not as high as China's eastern coast.

Overall, from domestic areas -- Puguang and Tahe -- Sinopec can expect to book an additional 4.5Bn to 5.5Bn barrels by the end of the 2009 to 2010, which compares to an existing reserve base of 3.77Bn barrels at 2007, and add an additional 200 -300,000 barrels per day of oil equivalent production, taking Sinopec over 1 million barrels of oil per day by 2010 -- a very high production number for a firm selling at around $US80Billion in market capitalization.

Potential Reserve Additions Internationally:

Internationally, Sinopec has three main areas which have high potential, Angola, Iran and Venezuela, and two areas of good potential: Russia and Africa. The larger areas of reserve potential, Angola, Iran and Venezuela, will be discussed below.


Angola is one of the world's hottest areas for oil investment, with projected daily production by 2010 of 2.6 M bpd by Rigzone, and Angola is projected to overtake Nigeria after 2010 in terms of oil production. Sinopec Group -- the parent of Sinopec Corp, the publicly listed subsidiary (ticker SNP) has a 37.5% interest in Angola's offshore Greater Plutonio field, which is up an running in 2007 with production of 240,000 barrels per day (Sinopec's proportional interest of 90,000 bpd). This production number has not been consolidated into the publicly held Sinopec Corp at the end of 2007, although Sinopec Group has indicated that overseas properties will be transfered to the publicly listed subsidiary (see this article for details). Total reserves of this field are estimated at 750M barrels, which translates to a productive field life of 8-9 years at current production rates.
Sinopec also owns equity shares in other offshore oil fields -- ranging from 20% to 40%, in offshore Angola Blocks 17, 18, and 15, which, as reported by the University of Alberta, contain a total of 3.2 Billion Barrels of oil. Production dates are expected within the next 5 years., with initial production undisclosed. Overall, Sinopec's Angola oil fields can potentially add approximately 1 billion barrels to reserves when the oil fields are developed, in the 2010 time frame.

Chart 2 shows the relative distribution of Blocks in offshore Angola -- it is noted that the majority of blocks have not been awarded as of 2007 (when this map was constructed) -- Sinopec, having won positions in three blocks is strongly positioned over the long term for future block bidding in Angola.

Chart 2: Map of Blocks in Offshore Angola:

Source: SubseaIQ

It should be noted that there is some resentment of Sinopec by certain international oil majors over Angola, due to the fact that Sinopec bid very high rates for the rights to participate in Angola's oil fields -- the amount Sinopec paid was approximately 10x higher than Exxon Mobil's bids for the same fields. Critics have stated that Sinopec "will pay any price to participate in international oil" and that Sinopec could not possibly develop Angola's oil fields profitably due to the high prices paid for the fields. However, the respected consultancy Woods McKenzie has stated that's Sinopec's international activities should be profitable at current prices, despite the high acquisition prices paid -- further, with the current, very high (in mid 2008) oil prices, it is more likely that Sinopec's Angolan operations will be profitable.


One of Sinopec's most promising international ventures is Iran, and particularly Iran's Yadavaran oil field, which has an estimated 3 billion barrels of recoverable oil in place, and is currently undeveloped. Sinopec has signed agreements to develop this oil field in early 2008. The reserve numbers will likely not be able to be consolidated on Sinopec's reserve statements, however, due to the fact that under Iranian law, foreign firms are not allowed to own Iranian properties of oil and gas. However, Iranian law does provide a guaranteed return of between 10-20% per annum to oil firms on production -- with essentially no risk, as there are no exploration costs. The details of Sinopec's deal with Iran are opaque currently, but it has been rumored that Iran has intended to provide good terms for Sinopec in order to attract interest by International majors in undeveloped oil fields going forward. Terms are rumored to be 15% with a 4 year payback period, according to the Oil and Gas Journal (Yadavaran Buyback Contract Signals Better Iranian Terms, Oil and Gas Journal, Jan 14, 2008), which is considerably better than other deals in Iran in recent years. Overall, the Iranian Yadavaran oil deal should boast profitability at Sinopec for several years going forward.


Sinopec -- along with PetroChina -- have moved into Venezuela on a large scale after Exxon Mobil, Conoco Philips, and many other Western oil majors were expelled of the country in 2007 without significant compensation. Venezuela has publicly stated that its massive Orinoco oil heavy oil belt - with comparable recoverable oil reserves to those of Saudi Arabia -- will be developed mainly by Venezuela's national oil company PDVSA with a large contribution from Sinopec and PetroChina, as reported by YaleGlobal. Sinopec has taken a 32% interest in certain regions of Venezuela's Orinoco's heavy oil belt -- with 60% owned by PDVSA (Venezuela's national oil company). Current production is estimated by Schlumberger of Venezuela's total oil sands territory at 600,000 barrels per day, while Venezuela would like to increase this number to at least 2 million by 2020.

As the reserve numbers are very large in Venezuela's heavy oil belt, more informative is to look at potential production numbers. Venezuela has indicated that it wants to increase combined production with Chinese (both Sinopec and PetroChina) to 200,000 bpd by 2010 and 400,000 bpd by 2011, with further increases thereafter (Venezuela-China Team Sets Orinoco Target, Platt's Oilgram News, August 25, 2006). Assuming 50% of the Chinese production goes to Sinopec, at 32% equity ownership, this translates to 64,000 barrels per day by 2011.

Overall, Venezuela is a growing source of petroleum production for Sinopec over the long term. There is some doubt that Sinopec will receive a high margin on oil operations in Venezuela, as Hugo Chavez has stated: "The days of private enterprise in oil in Venezuela are over," (during the expulsion of Exxon and other western majors in 2006) but the operations should add some value to Sinopec.

Chart 3: Potential Reserve and Production Additions to Sinopec over the Next 1 to 5 Years:

Potential Reserves

Potential Production (est)

Expected Date of Production


2-3 Billion BOE

136,000 bpd



2-3 Billion BOE

200,000 bpd



1 Billion BOE

200,000 bpd



1.5 Billion BOE*





100,000 bpd **



5-7 Billion BOE

636,000 bpd

Notes: * Under Iranian law, the Yadavaran Oil field, will not be able to be consolidated as reserves, and potential production numbers of this field have not been disclosed as of 5/08.
**Venezuelan heavy oil production can go much higher than 100,000 bpd proportional interest to Sinopec, but a 100,000 bpd number is used here to indicate potential taxation/expropriation issues.
Potential Reserves are presented as a mean number for estimates of resource size. Potential production numbers are estimated in peak production years based on preliminary data from reports and articles cited above.


Sinopec has several areas both domestically and internationally that show high promise for substantial reserve additions going forward. In particular, Sinopec's domestic Puguang and Tahe gas and oil fields are almost certainly going to add substantially to reserves in the next 1 to 3 years. Internationally, Angolan production is currently up and running, with potentially for further production and reserve addition increases. Iran and Venezuela also show high promise for Sinopec profitability. Note that this article did not discuss potential problems with the Shengli oil field after 2010 -- many analysts believe Sinopec's main oilfield -- Shengli, which is decades oil -- could decline after 2010. Also, other divisions within Sinopec, namely Sinopec's refining division, was not discussed in this article, but was addressed in an earlier article. Finally, cost projections were not discussed, in that Sinopec's potential may exist, but profitability of these potential oil fields was not discussed.

Monday, May 12, 2008

Payback Period Calculations for Gazprom's Yamal Peninsula Projects

The previous post did not analyze cost factors for Gazprom's proposed Yamal Peninsula projects, but rather argued that it was more likely than not that Gazprom would produce significant quantities of gas from this region in the intermediate term. An investor would be most interested in whether or not the field would be economical to develop. As such, a range of payback periods (a payback period is defined as the amount of time required to "repay" a project's investment) are presented as follows, with differing assumptions of average production, gas prices and costs.

Note that oil and gas firms would like to see a payback period of 5 years or lower, but will go beyond 5 years if the reserve is a a long lived asset (over 15 years) -- the fields in Yamal appear to qualify as long lived assets as the largest field, Bovanenko, has estimated reserves of 4.4 tcm and a projected annual production of 115 bcm, which implies a field life of 38 years at peak production rates.

Forecasts by the respected consulting firm Oxford Analytica has estimated development costs of all areas of the Yamal Peninsula to total in the range of $US160Bn, spread over the time period from 2008 to 2020. Gazprom has forecasted annual production of 170Bcm by 2020 from all fields in the Yamal Peninsula.

Payback Period Calculation: Base Case

Assumptions: natural gas price per mcfe received of $10, average production of 170 bcm, total costs $US160Bn, operating margin of gas production at 40%: payback period: 6.13 years.

Payback Period Calculation: Cost Overrun Case:

Assumptions: natural gas price per mcfe received of $6, average production of 150 bcm, total costs $US220Bn, operating margin of gas production at 30%: payback period: 21.2 years.

Payback Period Calculation: High Gas Price Case:

Assumptions: natural gas price per mcfe received of $14, average production of 170 bcm, total costs $US160Bn, operating margin of gas production at 40%: payback period: 4.65 years.

Notes: In all calculations, the payback periods are simply done, by taking final total production and not accounting for time periods to reach total production -- so for example, if Gazprom takes 6 years to reach final production of 170 bcm, the payback calculations above do not account for this. Further, natural gas prices are assumed to be constant.


Gazprom's Yamal projects appear positive under expected cost and production figures, leading to economic development of the Yamal Peninsula, with the exception of the "Cost Overrun Case," which assumes higher costs and a lower price for natural gas ($6 per mcfe). It should be noted that 170 bcm (billion cubic meters) is a huge amount of natural gas, approximately equal to in oil barrel equivalent to 2.9M barrels of production per day -- with high energy prices, this produces a very high future income stream. Note that it is not expected that natural gas prices will fall significantly to the $6 level going forward -- this would be equivalent under an energy equivalent basis to $36 per barrel oil prices -- but it is possible. Further, note that domestic Russian prices of natural gas are expected by Gazprom to reach parity with exported prices by 2012 -- Gazprom is raising Russian prices of natural gas by 20% annually over the next several years -- which means that a calculation requiring separate prices for domestic and exported gas after 2012 is not critical.

Wednesday, May 7, 2008

Gazprom Releases Official Projections of Natural Gas Production: Is It Realistic That Gazprom Increases Output Through 2030?

Gazprom, Russia's largest company and the world's largest natural gas producer, has released projections for future expected production of natural gas until 2030 on its website, which overall show moderately growing production and comfortable maintenance of gas export capacity. Gazprom's projections stand in contrast to doubts raised by several analysts (the reports of whom will be discussed below) as to whether or not Gazprom can maintain production at current levels. Criticism of Gazprom's future production has been mainly directed toward potential decline rates at current producing fields and the perceived lack of initiative by Gazprom to bring new fields online. The questions concerning decline rates and new fields have led to a significant segment of the media questioning Gazprom's ability to increase future gas production. Newsweek, as an example, published an article in 12/07 titled: "Russia's Big Secret" which states as a subheadline: "Russia Can Barely Meet its Own Demand," implying heavily (although not outright stating) that Russia's future gas production will decline while domestic consumption continues to rise.

This article will analysis Gazprom's ability to meet its future projections, and address Gazprom's response to criticism. All in all, a review of Gazprom's evidence shows that Gazprom makes a strong case against key criticisms -- and it is more likely than not that Gazprom's future natural gas production will increase through 2030. The question of future production at Gazprom holds significant importance to interested investors. Is Gazprom a firm in decline or ascension? Key points will be discussed below.

Gazprom Overview:

Gazprom is currently the world's largest natural gas producer, producing approximately 20% of the world's natural gas by volume. Gazprom is Russia's largest company -- the newly elected President Medvedev currently serves as Gazprom's chairman of the board, although a replacement is expected soon. Gazprom's currently ranks as the world's third largest publicly held firm by market capitalization at approximately $US315Bn, and has a trailing p/e ratio of approximately 13x. Gazprom is also a major oil producer through the acquisition of the Russian oil firm Sibneft in 2005, and is the fifth largest oil producer in Russia, behind TNK-BP.

How should a firm the size of Gazprom be analyzed? The main approach taken in this article -- and incidentally in criticisms of the company -- is by analyzing first and foremost the main producing natural gas fields of the firm, that is, its Exploration and Production segment. Although Gazprom does not break out revenues and earnings by division in its Annual Report or on its website, it is likely that Gazprom's internal structure is like most integrated majors in that its Exploration and Production segment comprises the majority of overall firm profits.

Overview of Gazprom's Exploration and Production Activities:

Gazprom produces currently a majority (over 70%) of its Gas from four main fields -- three of which (Yamburg, Urengoy, Medvezhye) are over a decade old and are in decline -- although at what degree of decline is a key question -- and one field (Zapolyarnoye) which was brought online in 2001. (an interesting fact is that the unusual names of the fields are due to the fact that Gazprom has named them after words in local native tribal languages -- Urengoy, for example, can mean "an island in a former riverbed" in the northern Siberian Khanty language). Historical production from these fields can be seen in Figure 1 below -- note that this chart is cited most often by critics of the company -- what's important in the chart below is the historical production -- future production is in question, as will be discussed below.

Criticisms of Gazprom's Future Natural Gas Production:

A summary of the criticism leveled at Gazprom can be found at the consultancy Stratfor
titled: "Gazprom's New Field and Enduring Supply Problems." Much of the data -- including the chart below -- is taken from data presented by Jonathon Stern of the Oxford Institute for Energy Studies in his book titled: The Future of Russian Gas and Gazprom (published 2005). Chart 1 has also been published by the EIA. The criticism are summarized in Chart 1 below, which shows high rates of decline at existing fields, only one new, major field brought online in 2001 (Zapolyarnoye), and in many versions (as the one below) the forecast does not list new potential fields.

Chart 1: Critical View of Gazprom's Future Natural Gas Production (Historical until 2004, Projected 2005 Onward)

As can be seen in Chart 1, there are two main sources of controversy over future natural gas production: 1) the rate of decline of the three decade old fields -- critics point to high rates of depletion without stabilization or expansions of the 3 decade old fields, and 2) the potential to bring online new fields -- critics state at the most extreme that no new fields of giant size from the Yamal Peninsula will come online going forward, due to economic issues, difficult terrain, and/or lack of project management expertise at Gazprom -- but more commonly state that new giant fields will come online but be delayed past the planned 2011 start date. Note that the above chart sometimes is presented as forecasting new giant fields in future years by drawing a higher line going forward but with a "?" or something to this effect (implying significant doubt as to whether the fields will be brought online).

Gazprom's View of Its Future Natural Gas Production:

Gazprom -- not unexpectedly -- takes a more optimistic view of its future natural gas production, which is summarized in Chart 2 below.

Chart 2: Gazprom's Projections:

Source: Gazprom's Website

Gazprom's official projections of Gas production by area in Chart 2 presents several items that differ from Chart 1. First, Gazprom projects production will be heavily dependent on the onshore Yamal Peninsula -- as distinct from the offshore Yamal (Shtokman gas field) with production starting in 2011 and then comprising about 50% of Gazprom's production by 2030. Gazprom's core current producing areas -- represented by the light blue area above and dependent on Gazrpom's current four major gas fields (Urengoy, Yamburg, Medvezhye and Zapolyarnoye) will decline gradually going forward, but still make up a large (approximately 60%) of total company production in 2020, and comprised approximately 350 bcm of annual production in that year. Note that in contrast, in the projections presented in Chart 1, the three decade old fields, only make up approximately 30% of total Gazprom production, and only produce approximately 100 bcm of gas in 2020. Gazprom as a whole is projected to produce approximately 300 bcm of gas in 2020 in Chart 1 -- as compared with approximately 580 bcm in Chart 2 -- a difference of 93% between the two forecasts in 2020.

Gazprom's Proposed Stabilizing Measures at Existing Fields:

Gazprom's additions to these core fields -- to the approximately two decades old Urengoy, Yamburg and Medvedyze fields -- is projected by Gazprom to make up a significant contribution to total Company production. These additions are represented by the yellow area above -- estimated at 5% of total production in 2010 at approximately 50 bcm of annual production, and also by a lower decline rate in the light blue area in Chart 2. Certain critics (to the author's knowledge, having read the EIA, Oxford Institute for Energy Studies's presentations and material) do not address Gazprom's stabilizing measures at its Urengoy, Yamburg and Medvedyze fields. According to Gazprom, a key strategy of the firm is to stabilize production at its core fields -- production at the three core decade old fields can be stabilized by exploiting new areas of these existing fields. According to Gazprom's website:

"A production decline in 2006 was mainly offset via production growth in the Pestsovaya area of the Urengoyskoye field, Zapolyarnoye field, Aneryakhinskaya area of the Yamburgskoye field, Komsomolskoye field."

"Up to 201
0, scheduled gas production rates will be maintained through the development of existing and new fields in the Nadym-Pur-Taz region: Yuzhno-Russkoye field, Neocomian deposits in the Zapolyarnoye and Pestsovoye fields, Kharvutinskaya area in the Yamburgskoye field, Achimov deposits in the Urengoyskoye field."

Recent production data points to more evidence for Gazprom's stabilization of existing fields: the rapid decline rates for Urengoy did not occur in 2006, (the last date for which production data is available). Urengoy produced approximately 138 bcm according to Gazprom's "Facts and Figures" Datasheet compared to the projections in Chart 1 which projected Urengoy to produce approximately 110 bcm -- a difference of 25% in only two years (chart 1 was completed with data historical data from 2004).

Russian petroleum geologists V. I. Marinin and V. A. Isotomin presented two papers in 2006 at the 23 World Gas Conference addressing expansion of the Urengoy gas field: Prospects of Resource Increase of Urengoy Complex and New Technologies of Gas Production at the Urengoy Gas-Condensate Complex which both argue that new areas of the Urengoy gas field can be developed, which will stabilize overall production. The papers present data that the Urengoy gas field is a multi-layer, complex and geographically large (the Urengoy gas deposit is over 120 km long) with several undeveloped segments.

Gazprom's Proposed New Fields: The Yamal Peninsula:

According to Gazprom's website, production is projected by Gazrpom to hold steady through about 2013 without the contribution of the Yamal Peninsula, which is forecasted to come online in 2011 -- giving Gazprom a significant cushion in which to bring online Yamal before production declines. The Yamal Peninsula has three major fields, the largest of which is the giant Bovanenkovskoye gas field with reserves at an estimated 4.4 tcm (equivlent to approximately 23 bn barrels of oil equivalent) (Reference see page 26 of Gazprom's stats and figures 2002-2006 data sheet here). The Bovanenkovskoye field is approximately the same size as Urengoy and Yamberg according to Gazprom -- reserves of these fields are estimated at 5.3 tcm and 3.8 tcm, respectively. Production is estimated to come online at 2011 and produce 115 bcm per year by 2019.

Gazprom has budgeted approximately $4Bn to Bovanenkovskoye in 2008 out of a total capital budget of $25Bn, and has budgeted approximately half the Company's exploration and production budget on other areas associated with the Yamal Peninsula in 2008.

Can Gazprom Bring Yamal Peninsula Production Online?

There is less debate as to whether or not the natural gas exists in meaningful quantities in the Yamal Peninsula -- the US Geological Survey has consistently rated Gazprom as having the largest reserves of natural gas in the world, with only a fraction developed -- more debated by critics is whether or not Gazprom has the project management expertise and/or initiative to bring these new fields online. 2008 t
he first year that Gazprom has dedicated significant funds towards developing infrastructure and field development in the Yamal Peninsula. There were earlier reports that the Bovanenkovskoye field would be developed as early as 2000, however, Gazprom has not included Yamal-based projects as a major expenditure in its budget as the firm as been more busy doing acquisitions (which has subjected the firm to criticism apart from the decline rates and "lack of prospects" as described above). Additionally, Gazprom has focused on bringing its massive Zapolyarnoye field online in 2001. According to the Deputy Chairman of Gazprom, Alexander Ryazakov, Gazprom has been confident of the productive capacity of its 3 major fields so Yamal has not been a priority until recently. (quote by Ryazakov below is from a question and answer session in 2004 which can be found here):

"We still see prospects in withdrawing gas at the Yamal Peninsula containing huge reserves. We’re very likely to do it but, in my opinion, the local gas production and marketing home and abroad are not that interesting for us, at present. We’ve endeavored so far to operate on the traditional extraction sites, developing there the existing fields. And some 5, 6, may be 8 years later we’ll move on to the Yamal Peninsula."

Gazprom bought online the massive Zapolyarnoye field in 2001, which is currently producing approximately 100 bcm per year of natural gas -- some critics have alleged that Gazprom has not brought online any fields since 1991 (as in the Newsweek article cited above) but this is incorrect.

Note: Other Projections of Gazprom's Future Gas Production:

Jean Laherrere, who has worked for over 30 years as a Petroleum Geologist at Total (biography here) has provided the following Chart of forecasted natural gas production at Gazprom. As seen below, Laherrere has forecasted overall increasing production, driven by the development of new fields -- note that Laherrere's decline rates are faster than Gazprom's projections, but, as a knowledgeable petroleum geologist, he does not discount the extent of production from new fields. It should be noted that other sources have Laherrere projecting declines for Gazprom past 2030 (source here) -- the projections below only go out to 2020.

Chart 3: Laherrere Forecast of Gazprom Natural Gas Production:

Source: 321 Energy

Laherrere is a member of the Association for the Study of Peak Oil and Gas, and has projected a near term peak in oil production, so his projections may lie on the conservative side -- it is noted that Laherrere has projected only 60 bcm in final annual production while Gazprom has reported that Zapolyarnoye production reached 100 bcm in 2004 (the projections are a bit dated with historical data beginning in 2001). Even with the conservative projections, Laherrere has projected an increase in Gazprom production through 2020.

Note: Gazprom Does Not Produce from a Single Dominant Field:

It should be noted that Urengoy has been labeled by some as "Gazprom's Ghawar" -- Ghawar as the largest oil field in the world, held by Saudi Aramco (
Saudi Arabia's national oil company). Saudi Aramco is heavily
dependent on its massive Ghawar oil field -- the world's largest oil field -- which produces slightly more than 50% of Saudi Aramco's total oil production. Gazprom, despite certain reports to the contrary, does not hold a single dominant gas field to the same degree as Saudi Aramco, as shown in Chart 1 and 2 above. This distinction is important in that the declines from Urengoy and other Gazprom fields can be more easily replaced going forward verses potential declines from one massive field, without another single, massive field ready to be brought online in the near future.

Further, Urengoy -- or any other Gazprom owned Gas field -- cannot be compared in size to Ghawar. In the natural gas world, only the Pars natural gas field, which is held by both Iran and Qatar, can be compared to Ghawar in terms of reserves (note that the Pars natural gas field is approximately 5 times larger from a reserve basis than Urengoy). Gazprom's Yamal Peninsula and Northern Siberian regions are major gas reserve regions as shown in Chart 4 below, but this region does not contain a single field where the majority of reserves are located:

Chart 4: Reserve Distribution of Gazprom's Gas Assets:

Source: Gazprom's website
Note: Dark blue areas represent undeveloped resources of natural gas under the Russian classification system for reserve reporting.


Gazprom has provided projections and supporting evidence that address the extent of production declines at existing fields, and the timing and size of future field production rates. Gazprom has made a persuasive argument that Gazprom's three decade old fields -- Urengoy, Yamburg and Medvezhye are large in terms of territory -- each approximately 100 km in length -- allowing for development of subsections of each field, which, in turn, allows for some stabilization of natural gas production. Gazprom is currently allocating a high percentage of its current budget to the development of the Bovanenkovskoye gas field and the Yamal Peninsula, and has shown ability to bring new projects online as evidenced by the commissioning of Zapolyarnoye in 2001. Overall, the majority of evidence points to additional natural gas production stabilization and moderate growth for Gazprom. Note that this article did not cover economic costs of developing new fields -- including pay back periods under certain cost and natural gas price assumptions, and did not fully address the timing and risk of delays of production at the Yamal Peninsula.