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CIS GAS MONETISATION

09 – 10 April 2019   |   Moscow, Russia

Russian gas market development scenario by Vygon Consulting

Posted by GBC on 18.02.19

Photo :  Dmitry Akishin at the CIS Gas Monetization conference in 2018

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Currently it’s not an easy task to find a long-term forecast for the development of the Russian gas market. Russia ranks first in terms of natural gas reserves and, given the fact that the gas chemistry sector is only gaining momentum, many questions arise:

What will determine the development of the sector in the next 10-15 years? What factors will have impact on the trajectory of this development?

To clarify the picture, the Globuc team turned to Dmitry Akishin, head of the gas chemical division of Vygon Consulting.

1. At present, industry experts are facing significant difficulties in forecasting the development of the industry, often limited to a time limit of no more than 1–3 years. How does Vygon Consulting evaluate its forecasting capabilities? What timeframes can be to set limit this forecast’s probability? How does this apply to Russian realities?

In the UGSS zone, everything in the Russian gas industry is quite stable. With the current level of regulated gas prices, the surplus of production capacity will remain. This surplus has been formed in recent years, which is estimated by us at 100-150 billion m3 per year and is concentrated mainly on large Gazprom fields.

An excess of gas in the AHU zone is likely to occur in the long term. Fundamental factors for the growth of demand from existing consumers of gas are absent. Moreover, a major risk for the gas production industry still remains the energy saving and renewable energy potential in the Russian Federation, which, according to our estimates, is 50-60 billion m3. Although it is worth noting that, at current prices, its implementation is unlikely.

The growth of gas production in 2035 will be provided mainly by the development of export infrastructure oriented to new sales markets. These are LNG plants, as well as pipeline projects of Yamal and Eastern Siberia, whose resource base is isolated from the main Russian market.

Thus, the forecast horizon of the Russian gas industry can be very distant (10-15 years). And despite the existence of various uncertainties, the development scenarios are quite comprehensive.

2. What recent key events of gas processing and gas chemistry, according to Vygon Consulting, were decisive in the further development of the industry? How have these events changed previous development trends? How was it expressed at the global level and in relation to Russia?

The petrochemical chemistry is probably the only promising industry for the growth of gas consumption in the country. Two main directions should be discussed here.

In petrochemistry, the potential lies in the additional extraction of “fatty” components of natural gas which will help, among other things, monetize a resource that does not have access to the market, and also give impetus to the development of Russian gas processing. Currently, Russia is considering several integrated projects of gas treatment plants and petrochemicals. Much work is being done not only in companies, but also by state authorities that are actively developing instruments to stimulate the industry.

Gas chemistry has its own perspectives: currently, in the methanol industry alone there are about 15 major projects that can provide demand for 20 billion m3 of gas. They are all focused mainly on export, for which a number of preconditions have been formed.

Firstly, the Russian methanol industry has an important competitive advantage – low cost of raw materials.

Secondly, there is a growing demand for methanol across the world, mainly due to China. China is not only the largest consumer and importer of goods, but also shows the main growth potential provided by the development of olefins production based on MTO and formaldehyde technologies. This trend has persisted over the past few years, and we expect that the global methanol market will grow by 5-7% per year for the next 7-10 years.

3. What are the key directions for the development of the gas processing and gas chemistry business in Russia that the company considers most promising at present and in the near future?

As part of Russian gas processing, the key vector of development will undoubtedly be the deepening of extraction of valuable components, mainly ethane. This direction will go in parallel with the growth of petrochemical facilities.

In terms of gas chemistry, we can speak about the construction of large-tonnage export-oriented industries.

For both directions, at present, the essential limiting factors are the lack of cheap financing and a rather modest set of tax incentives for large investment projects. Having resolved these issues, the state will be able to receive, in the future, a multiple increase in the production of chemical products in Russia.

Vygon Consulting is a Russian consultancy that specialises in strategic consulting for business, analytical support for public authorities, energy sector research. The company majors in improving taxation and subsoil use systems. Energy production, refining and consumption models are implemented as a basis to build up scenarios of oil and gas industry development and devise proposals on the industry improvement within the external environment and regulatory options.

Dmitry Akishin will be presenting at the CIS Gas Monetization conference on the 10th of April. He will be giving an overview of Russia’s methanol industry during the session dedicated to methanol and its derivatives.

Photo :  Dmitry Akishin

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