Innovative development

April 2, 2021

Published in corporate Gazprom Magazine Issue 3, interview conducted by Sergey Pravosudov

Oleg Aksyutin, Deputy Chairman of the Gazprom Management Committee, answers questions from Gazprom Magazine

Oleg Aksyutin

Mr. Aksyutin, what are the most effective innovations among those recently implemented by Gazprom?

Gazprom has a permanent Commission for introduction of innovative products. As a result of its efforts, a Register of innovative products for use at Gazprom was established in 2020.

The Register is constantly updated; it currently includes 64 items in such categories as modular process equipment, low-emission combustion chambers for stationary gas turbine units, downhole equipment, metrology tools, power equipment, and automated control systems.

Based on the Register, R&D implementation programs, and proposals from the relevant structural units and subsidiaries, a Plan for introduction of innovative products was compiled. It includes measures on dissemination of Gazprom’s R&D results and innovative products from third-party suppliers and provides, inter alia, for the use of:

drainage protection units with telemetry systems powered by induced currents to be deployed at the facilities of Gazprom Transgaz Tomsk;
cryogel-based soil stabilization technologies to be applied at the facilities of Gazprom Dobycha Nadym;
metering systems of single-line gas metering stations to be used at the facilities of Gazprom Transgaz Kazan, Gazprom Transgaz Nizhny Novgorod and Gazprom Transgaz Tchaikovsky;
distributed automated control systems IMCS 6000 (Integrated Multiprocessor Control Systems) and linear facility monitoring systems that will be used in the projects for the Bovanenkovo – Ukhta 3 gas trunkline system and the Ukhta – Torzhok 3 (Yamal) gas trunkline system.

The Register of innovative products and the related Action Plan are regularly updated (the proposals on introducing innovations in production & economic activities and investment projects submitted by 18 subsidiaries will be addressed shortly at the meeting of the permanent Commission).

¹ Automated Process Control System for Compressor Shop(s).

² Automated Control System for Gas Compressor Unit(s).

Moreover, the year 2020 saw Gazprom carry out the following actions to implement innovations:

acceptance tests were organized for the APCS CS¹, the automatic fire alarm system, the gas hazard monitoring and fire-fighting system, and the ACS GCU² at the Pikalevskaya compressor station of Gazprom Transgaz Saint Petersburg, using the Complex-R software and hardware complex produced domestically;
equipment systems driven by renewable energy sources were installed at production sites to ensure automated control and operating mode management for gas wells equipped with concentric tubing;

Gazprom Transgaz Yugorsk and GPB-Energoeffekt signed an energy service contract to install the replaceable flow parts (RFPs) of centrifugal compressors (CCs) that have a compression ratio of 1.35 in place of the RFPs with a compression ratio of 1.44. In the normal operating mode, the efficiency of CCs with RFPs reaching a compression ratio of 1.44 can amount to 84–85 per cent. However, in variable operating modes the efficiency drops to 79–80 per cent. Advanced design and manufacturing technologies make it possible to raise the RFP compression efficiency by at least 5 per cent, thereby lowering the consumption of fuel and power, cutting production costs, and improving the environmental performance of gas transmission operations.

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An important example of the efforts for developing and adopting innovative solutions and products is the evolving cooperation with the United Engine Corporation (UEC) aimed at improving development technologies and creating 16–25 MW standardized gas compressor units (SGCUs) for Gazprom’s investment projects.

It is well-known that the main purpose of gas compressor unit standardization is to speed up the implementation of investment projects and reduce capital costs while maintaining the required quality and reliability of the core process equipment. As a result of collaborative work based on the experience of designing, installing, commissioning and operating gas compressor units at the facilities of Gazprom, specifications for SGCU-16(25) were drawn up in 2020 to be used in the construction and renovation of gas production and transmission facilities.

It was resolved to install the prototype of SGCU-16 at compressor shop No. 4 undergoing renovation at CS-16 (Yubileynaya). By now, the initial data have been submitted to the design contractor in order to incorporate SGCU-16 into the project design, priority packages of detailed design documentation have been issued to initiate the preparatory, construction and installation works, and a project schedule has been drawn up, with commissioning slated for 2021.

Digital technologies are an essential growth area for Gazprom. Currently, the initiative to create the Digital Twin of the production facilities of the Yuzhno-Russkoye field is in its final stage. We expect to complete furnishing the facility with the required equipment and carry out commissioning operations before December 2021. After the pilot operation scheduled for the first half of 2022, the Digital Twin will be put into full-time service.

In 2013, Gazprom set out to create special-purpose flaw detection scanners so as to inspect process pipelines at compressor stations.

First inspections with the newly-developed flaw detection scanners (A2072) were carried out at the facilities of Gazprom Transgaz Yugorsk in 2015.

These automated detection systems are widely used today, although they require upgrades and performance enhancements despite being rather advanced.

To this end, Gazprom and IntroScan Technology (Tchaikovsky) signed a Roadmap in 2017 to create the Unmanned Self-Propelled Robotic Flaw Detection Scanner for in-line inspections of linear gas trunklines in separate segments. Arrangements have been made to begin experimental development.

In early 2020, it was resolved to design a new-generation unmanned self-propelled robotic diagnostic complex for in-line inspections of linear gas trunklines in separate segments under the Action Plan of Gazprom’s expert group approved in May 2020.

The new-generation flaw detection scanner, which is being custom-made to Gazprom’s requirements, builds on the unique Russian technology of acoustic waveguide diagnostics. This technology provides automated control of the base metal of pipelines, welded joints and fittings. It is also possible to develop a digital passport of the facility undergoing inspections. The newly-developed equipment is expected to be put into operation in 2023.

Production and transportation

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What are the main strategic thrusts of Gazprom’s innovative development?

Today, Gazprom is active in a whole range of promising areas relating to innovative development. These include such technological innovations as:

platform-based borehole geophysical survey systems and homegrown innovative technologies for directional drilling of wells based on a rotary steerable system;
advanced methods of enhanced oil and gas recovery, engineering solutions for follow-up development of low-pressure Cenomanian gas deposits and development of deep-lying hydrocarbons and hydromineral raw materials for the production of iodine and lithium compounds;
3D modeling of fields and underground gas storage facilities;
innovative gas transportation technologies;
technologies for processing complex feedstock to expand the lineup of derived products, advance NGV and hydrogen technologies, promote the LNG business, and support the use of alternative and distributed energy sources.

All our investment projects are based on the latest available sci-tech solutions, including those developed jointly with the Gazprom Group.

For instance, a new gas production center is being actively shaped in the Yamal Peninsula and adjacent waters, which hold enormous gas reserves. The center will eventually become key to the development of the Russian gas industry. In 2020, pilot development plans were prepared for the Kruzenshternskoye and Kamennomysskoye-Sea fields. Updates to the Program for complex development of the Yamal Peninsula and its offshore areas until 2050 were initiated with due regard for the main technical solutions. The Program seeks to unlock the hydrocarbon potential of the region in a comprehensive and efficient manner, taking into account geological exploration data, including estimates of potential recovery of natural gas with a high content of C₂₊ components. In the future, the resource base of the Yamal Peninsula and adjacent waters will make a significant contribution to the reliability of feedstock supplies for the emerging gas processing and gas chemical industries.

To facilitate efficient development of helium-containing resources in Eastern Siberia and the Far East, an updated digital geotechnical model of production facilities at the Chayandinskoye oil, gas and condensate field has been created and recommendations have been issued to regulate well productivity according to the updated model. The membrane technology of helium recovery from natural gas has been successfully created and introduced at the Chayandinskoye oil, gas and condensate field. It is also going to be deployed at the Kovyktinskoye gas and condensate field.

Production and comprehensive processing of formation fluid for obtaining hydromineral products are a promising way to better utilize the resource potential of Gazprom’s fields. When fields are developed, formation saltwater containing a wealth of valuable chemical components is produced in significant volumes along with hydrocarbons.

For instance, pre-development of the Kovyktinskoye field included a geophysical survey and a resource base appraisal for setting up the production of lithium compounds and other useful components from formation brines, with resulting engineering solutions for the extraction, processing and disposal of formation brines.

Similar activities are being pursued in the Krasnodar Territory with a view to setting up the production of iodine and iodine-containing products that are highly sought after in the domestic market. The research will help identify promising development targets and appraise the resource base, as well as justify the practicability and cost effectiveness of joint production of hydrocarbons and industrial formation waters from the gas fields in the Krasnodar Territory.

The following engineering solutions were introduced in 2020 to maintain the reliable, uninterrupted and efficient operation of the gas transmission system and UGS facilities:

mechanized and manual ultrasonic inspection of welded joints of pipeline fittings during refurbishment;
algorithms for adaptive control of physical field parameters using acoustic, eddy-current and visual (television) methods of non-destructive testing;
basis of design for underground reservoirs in thin layers of salt rock.

The gas chemical business development strategy of the Gazprom Group envisages the creation of innovative production facilities to produce target amounts of derived products, such as ethane, liquefied petroleum gas, natural gas liquids, polyethylene, polypropylene, etc. Studies are underway for a possible expansion of the ethane-containing gas (ECG) production system in the Nadym-Pur-Taz region in parallel with design works to build a separate ECG transportation system that could deliver feedstock to high-potential processing facilities (such as the ECG processing and LNG production complex near Ust-Luga and the gas processing plant in the Republic of Tatarstan).

The Innovative Development Program of Gazprom also identified the key innovative projects, which are currently in progress. These include low-carbon technologies for hydrogen and methane-hydrogen fuel production; a domestically-produced manned underwater vehicle (MUV) for offshore gas pipeline operation; technical aids and technologies for horizontal well drilling, borehole geophysical survey systems, etc.

Within the project for creating a domestic MUV, the vehicle’s engineering design has been completed, engineering documentation has been developed for the manufacturing of prototypes, and breadboard models of the key components have been made. The project is being carried out by a consortium of major domestic R&D enterprises, namely Kurchatov Institute, Malakhit Marine Engineering Bureau, Bauman Moscow State Technical University, and others. The project is slated to be completed in 2023.

The growing share of hard-to-recover reserves and uncertainties regarding oil and gas prices necessitate the introduction of high-tech solutions to improve the efficiency of development operations and reduce production costs. In this regard, Gazprom is carrying out research to produce a Russian technology for directional drilling on the basis of a rotary steerable system, as well as to manufacture a high-tech research complex for the construction of directional wells.

The implementation of this technology in well construction will reduce the time required for well drilling, increase the horizontal length of wells, decrease the accident rate, cut down idle time, and ensure high precision drilling in pay zones.

When it comes to the development of fields with complex geological structure and hard-to-recover reserves, the requirements to the information value and effectiveness of geophysical well exploration increase accordingly. It has to be noted that Russian R&D achievements in the geophysical instrument making industry are objectively inferior to their foreign alternatives. With this in mind, Gazprom is looking to create a platform-based system of hardware and methods for geophysical well exploration with the use of multiple sonde measurement systems that possess enhanced vertical resolution, are integrated into modular well-logging tools, and perform high-speed two-way telemetry with real-time transmission of data to an above-ground data processing unit.

The implementation of this project will increase the productivity, effectiveness and information value of geophysical exploration works conducted in exploration and production wells, ensure the uniformity of geophysical information for geological interpretation and calculation of hydrocarbon reserves, and reduce the construction costs of exploration and production wells both onshore and offshore.

I would like to draw special attention to the digitalization of production processes. Digital technologies are already an integral part of our world, and it is impossible to achieve leadership without intelligent control and management systems. Current trends in this area involve digital modeling and experimental studies of natural environmental processes, development of software packages for processing and interpreting geological and geophysical data, and so on. Said R&D achievements will facilitate the construction of virtual images of production facilities, thereby accelerating the development of new machinery and equipment prototypes, engineering, and construction. On top of that, artificial intelligence could allow us to make a breakthrough in the modeling of gas market evolution.

One example of the efforts made towards advanced implementation of digital technologies is the pilot project for creating the Digital Twin of the Yuzhno-Russkoye field, which is being developed by Severneftegazprom.

The project is implemented as part of the sci-tech cooperation between Gazprom and Wintershall Dea and is aimed at increasing the efficiency of the joint operation of Cenomanian and Turonian deposits via a unified gas gathering network, as well as at optimizing the capital and operational costs of their joint venture, Severneftegazprom.

The software and algorithms of the Digital Twin, including its artificial intelligence elements, will make it possible to automatically improve the accuracy of physical and process simulation models on the basis of up-to-date information on the current condition of all process chain links, as well as to maintain uninterrupted modeling of the “formations – wells – gas gathering network” geological and process system on the basis of real-time data, to test various scenarios of process control on the model, and to assess the economic efficiency of development operations.

We have initiated the creation of the Unified Digital Platform for managing Gazprom’s investment projects. The main goal is to introduce the same set of IT solutions for all parties to a construction process in order to eliminate duplication and distortion of information, speed up decision making, and provide all participants with the same set of up-to-date tools and data required.

We plan to achieve this goal through, inter alia, creating uniform methodological approaches, developing 3D information models, applying cognitive technologies for expert review of design documentation, and using predictive analytics techniques and the Internet of Things in modeling and monitoring the progress of investment projects.

It should be highlighted that, in addition to technological innovations, Gazprom extensively develops and uses organizational innovations.

The year 2020 saw active work on enhancing the system of long-term forecasting, cost management, and UGSS modeling.

Listed below are some of the results of this work:

the comprehensive program for the reconstruction and re-equipment of gas production and transmission facilities of Gazprom for 2021–2025;
the comprehensive program for the reconstruction and re-equipment of gas and liquid hydrocarbon processing facilities for 2021–2025;
a unified model for calculating the economic performance indicators of Gazprom’s investment projects;
the economic and mathematical model entitled “Probabilistic model for forecasting the costs for transmission of Russian gas to Europe in the long term”;
the program for the development of the mineral and raw material base of Gazprom until 2045;
a model for long-term forecasting of inter-country supplies and in-country pipeline gas and LNG flows across the world;
comprehensive development scenarios of off-grid gas supply and distributed gas-fired power generation taking into account the implementation of the Gas House Concept.

The Company actively employs patent analytics tools as a comprehensive aid for defining the areas of Gazprom’s innovative development, preparing research and development plans and choosing R&D topics.

The key objectives for the development and practical use of these tools are as follows:

to determine whether R&D activities requested by Gazprom and its subsidiaries are viable;
to identify patenting trends for a wide range of our technological priorities;
to carry out technical analysis in line with the technological priorities of Gazprom;
to analyze up-to-date patenting strategies employed by companies for legal protection of intellectual property in promising markets.

All these projects and activities serve to continuously upgrade the technological and organizational development at Gazprom as is provided for by the Innovative Development Program.

Phasing out of hydrocarbons?

There is much talk in the world about the necessity of completely stopping the use of hydrocarbon fuel. Is this idea practicable?

Fossil fuel dominates the global energy sector today. Natural gas, oil and coal account for over 80 per cent of the entire global fuel and energy mix, and it will be extremely difficult to change this situation in the foreseeable future. This would necessitate vast investments to replace a huge scope of power generating capacities, adapt power and heating networks, as well as perform a full and complete restructuring of the transport sector. At present, it is far more realistic to significantly reduce СО₂emissions through the wider use of natural gas in both the energy and transport sectors. Natural gas has the lowest level of carbon dioxide emissions among fossil energy carriers, and if used on a wider scale in the energy sector instead of coal and in the transport sector instead of petroleum fuel, it will help not only reduce harmful emissions, but also increase the efficiency of equipment operation.

Phasing out of hydrocarbons also implies extensive use of renewable energy, mainly solar and wind. However, in many regions of the world there are no steady winds or sunlight observed over long periods of time that would be sufficient to produce enough power for uninterrupted supplies to a considerable number of consumers. This is why transition from conventional fuel to RES is especially challenging for such regions.

The situation observed in January 2021 in Europe, Japan and the US once again made it clear that RES are vulnerable to a frequent combination of factors: a decline in power generation due to cloudy and windless weather and an increase of demand due to cold weather. As a matter of emergency, the imbalance was offset mainly by gas and to some extent by coal. Accordingly, prices for energy resources and power increased greatly.

In addition to the above, it should be noted that the use of a large amount of RES creates a new problem: the need to have an energy reserve to be ready for the cases when power generation suddenly stops due to weather changes. Moreover, this problem can only be solved through either the creation of additional expensive infrastructure for power accumulation and storage or the use of additional backup capacities for conventional power generation. In contrast, the issue of sudden generation stoppage is easy to address when conventional energy is used, as it is enough just to store reserve fuel stocks directly at power generation facilities.

Gas or RES?

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It is often said that renewable energy is becoming more effective than conventional energy. Do you agree with that?

Effectiveness is a comprehensive notion that includes economic, environmental, technical and other aspects. In several of these aspects, renewable energy is inferior to conventional energy, most of all to the gas sector. That is why, even despite relatively low prices for the power produced with the use of RES, it would not be correct to say that renewable energy is more effective than conventional energy.

A key property of any energy system is the ability to work steadily for a long period of time. And it is the steady operation that is called in question for energy systems that use RES extensively, mainly due to the high dependency of RES on rapidly changing weather.

The economic benefit from the use of RES is also questionable. Although it is relatively cheap to produce power from RES, its widespread use requires the construction and subsequent constant upkeep of either energy accumulation and storage infrastructure or additional generating capacities to be used as a backup in the event the generation from renewables suddenly stops. This entails considerable costs, and if we consider them in the general context of developing renewables, the economic benefit from the use of RES appears to be much lower.

Will gas increase its share in the global energy mix?

Over the last years, it has been a key trend in the global economy and energy sector that various countries are becoming more interested in the transition to low-carbon development. And natural gas is increasingly viewed as a key element of energy strategies. An important factor encouraging the use of natural gas is the deterioration of air quality and environmental pollution caused by the extensive use of coal and petroleum products. The plans for reducing the use of these energy carriers, when achieved, will create an impetus for using natural gas in all sectors, including household use, transport, and power industry. The vast potential for the growth of gas consumption is evident, for instance, in such major energy consuming countries as China and India.

In addition to that, the systematic introduction of new environmental norms limiting the hazardous emissions content in marine fuel has already resulted in an increased use of LNG for bunkering in various regions and water areas across the world.

The main reason behind the growing worldwide interest towards the use of natural gas is the unique nature of this energy carrier, which is able to provide both energy security and sustainable development at a global level.

This is confirmed by forecasts from the world’s leading research organizations: the global use of natural gas will grow steadily, while the use of other fossil energy carriers will (in the long term) decrease.

Warming or cooling?

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Scientists continue to debate whether our planet is going to experience global warming or global cooling. Which of these points of view seems more sound to you?

We have already expressed our position on this issue several times. Indeed, the opinions of scientists vary greatly. Many of them forecast not warming but cooling, taking into account nature’s cycles and in contrast to the hypothesis of human-caused climate change. For instance, the studies of the Central Astronomical Observatory of the Russian Academy of Sciences at Pulkovo, the European Organization for Nuclear Research (CERN), and American climate scientist John Casey of NASA, as well as the results obtained from studying the relationship between solar activity and climate show that there is going to be a mini ice age that will last until the middle of this century.

The debates persist: for example, last year, the editorial board of Scientific Reports – a prestigious scientific journal – decided to cancel the publication of an article written by Russian and UK mathematicians who linked global warming to long solar cycles and variations in the magnetic field strength, but not to greenhouse gas emissions, contrary to conventional opinion. A message was sent to the UN by 700 scientists and professionals specializing in climate and related fields stating that there is no climate emergency. Climate change has now become a powerful political and economic tool.

Today, most of the planet’s climate change theories are based on the results of climate modeling, which is a complex process highly dependent on primary data selection and assessment methods, as well as on the technical capabilities of computational tools. All of the existing models include a number of estimations and assumptions. Interestingly, the Russian INM-CM4 model with low sensitivity to СО₂concentration is the only one the results of which are similar to actual observations.

As the person in charge of the Company’s strategic and investment activities, I consider it important to be able to adapt to possible climate changes, no matter their reasons.

We initiated the development of the corporate program for adapting the production activities of Gazprom to the changing climatic and geocryological conditions. A number of comprehensive activities, including the monitoring of permafrost, are being implemented under the program. In order to ensure safety, data are collected and analyzed as part of survey works during the design development of each production facility to obtain information on the natural and climatic conditions in the future location of a respective facility. This includes measuring the ranges of temperature changes, as well as average monthly and average annual temperature values. On the basis of the data collected, measures are developed for permafrost protection of pipelines and foundations, along with many other things.

We use our corporate standard for the purposes of construction and reliable operation of gas production and transmission facilities in the Arctic. The standard provides for, inter alia, the creation of an additional reliability margin above the existing norms for the facilities located on perpetually frozen soils. This is primarily achieved through extensive use of vapor-liquid cooling units for the foundations of process facilities, and thermally insulated pipes for wells and gas pipelines. These measures have minimized the influence on permafrost. Constant geotechnical monitoring is performed at all facilities.

When it comes to the matters of adapting to climate changes, we work with high-profile scientific institutes: the Sergeev Institute of Environmental Geoscience, the Earth Cryosphere Institute of the Tyumen Scientific Center, the Obukhov Institute of Atmospheric Physics, the Institute of Applied Mechanics, the Trofimuk Institute of Petroleum Geology and Geophysics, and others.

Natural gas in transport or electric vehicles?

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How do you assess the prospects for natural gas as a vehicle fuel as compared to electric vehicles?

It should be understood that there is great diversity in the transport sector, and the effectiveness of the proposed technologies needs to be assessed for each segment separately. There is no doubt today that LNG is the most marketable and promising fuel for sectors characterized by highest fuel consumption and long-distance transportation of large cargo. For instance, this is true for waterborne transport, long-haul motor vehicles, and mining and agricultural machinery.

Speaking about passenger cars, there is also a variety of consumer groups in that segment. For example, the main thing for taxi owners is cost efficiency. That is why the most effective and cheap solution in many countries is to retrofit a car so that it could run on compressed natural gas. In Russia, the government even grants subsidies for converting vehicles to methane. For instance, under Gazprom’s customer loyalty programs, a car owner can retrofit his/her vehicle for 20 per cent of the equipment cost as of 2021.

Electric vehicles, of course, have their own niche: higher-priced passenger cars and special-purpose vehicles that travel over limited distances and can be put to charge for long periods (for example, warehouse machinery).

However, it is important to bear in mind that battery-operated electric vehicles have a number of weak points from the environmental perspective:

the issue of effective battery disposal still needs to be solved;
the mining of rare earth metals for battery production is not always consistent with the current environmental requirements;
the amount of harmful emissions from mass use of electric vehicles depends directly on the energy mix, which is still dominated by coal in many countries.

That is why, when it comes to electric vehicles, the truly promising line of development is hydrogen fuel cell vehicles. And it has to be noted that the development of the NGV market provides the required foundation for a breakthrough in using hydrogen for vehicles.

This is because hydrogen, due to its storage and transportation specifics, should be produced in close vicinity to its consumption points. Considering that the most effective way of hydrogen production is to produce it from methane, the methane refueling network which is currently being created near major transportation routes is a natural base for future hydrogen refueling stations.

Hydrogen

How do you assess the prospects for hydrogen in the global economy?

According to the International Energy Agency, the global consumption of pure hydrogen currently stands at about 73 million tons per year. The share of hydrogen produced from natural gas is currently about 76 per cent (steam and autothermal reforming, partial oxidation of methane, etc.). Around 205 billion cubic meters of natural gas is used in these processes, which is approximately 6 per cent of the global consumption.

Many countries consider hydrogen as a new energy source for solving climate issues and reducing greenhouse gas emissions, as there are zero CO₂ emissions during the use of hydrogen as a fuel per se. Hydrogen can be used for energy accumulation, storage, and delivery. At the same time, it should be taken into consideration that hydrogen is a secondary energy source, i.e. additional energy is required to produce it, which will always have an effect on its cost price (unlike hydrogen, natural gas is a primary energy source).

According to expert estimates, hydrogen may play a certain role in various sectors of economy in the long term, and may also be used for large-scale and long-time storage of power in order to offset the latter’s seasonal fluctuations.

The hydrogen market outlooks vary to a great extent. According to Bloomberg, IRENA, and other organizations, the share of hydrogen in the global energy mix may range between 7 and 24 per cent by 2050, depending on different scenarios of decarbonization of the global economy.

It should be understood that hydrogen energy is not entirely carbon-free, as the carbon footprint of hydrogen production depends on greenhouse gas emissions from the supplies of feedstock, materials, equipment, and electricity. At the present time, there are no definitive assessments as to the influence of hydrogen on climate that can be observed during large-scale development of the hydrogen energy sector. Technological leakages of hydrogen can disrupt natural removal of greenhouse gases from the atmosphere (for example, hydrogen in the atmosphere is able to react with hydroxyl, which is responsible for natural removal of methane).

Today, the hydrogen energy sector is marked by the high cost of “energy” hydrogen as compared to conventional energy, the absence of low-carbon hydrogen production facilities on an industrial scale, and the lack of economically efficient hydrogen transportation technologies, as well as insufficiently developed regulations. The pilot projects currently being implemented across the world are funded with state support. Elimination of these main obstacles, including through the creation of commodity and logistics chains of hydrogen deliveries (testing grounds and hydrogen clusters), seems to be an effective way towards the successful development of the global market of “energy” hydrogen. However, natural gas remains an optimal and affordable solution for meeting the climate and environmental goals thus far.

Gazprom supports the development of this promising sector by participating in a number of projects in Russia and abroad.

LNG

What is Gazprom’s strategy for LNG production?

As is commonly known, LNG is one of the ways to transport gas, which defines Gazprom’s approaches to this line of business. LNG makes it possible to enter the markets that are hard to access by gas pipelines due to their geographical setting. The share of LNG transportation in global gas consumption is about 12 per cent, and is estimated to possibly go up to 16 per cent by 2030. Gas pipelines will remain the mainstay of global gas supplies and a guarantee of reliable deliveries, and our Company will remain a global leader in pipeline gas supplies.

Last year was challenging for the LNG sector and revealed several bottlenecks at once. The COVID-19 pandemic has had a negative influence of the LNG sector, including the latter’s long-term development. Quarantine measures and rules imposed due to new sanitary norms have led to delays in the completion of LNG production and regasification projects under construction. Final investment decisions (FIDs) on new LNG projects have been postponed: throughout the entire year, only one FID was made regarding a small project in Mexico, and this is very different from the year 2019, which showed an all-time high for FIDs made on LNG projects. In the future, the postponement of FIDs will have a considerable impact on the amount of LNG supplied.

The second important factor that has had an impact on the LNG sector is weather. Its influence, although not as widespread as that of COVID-19, was quite prominent last year. Cold weather settled in by late 2020 – early 2021 and created difficulties in LNG supplies to northern China, because the coastline froze over in that area.

Besides, the public image of LNG was hurt in 2020 in connection with the efforts made by developed nations to reduce carbon footprint. Independent studies revealed a considerable difference between the carbon footprint of various gas transportation methods, and the carbon footprint of LNG turned out to be much higher than that of pipeline gas.

Therefore, we can generally note that LNG as a way of gas transportation is more sensitive to weather and is less eco-friendly than pipeline gas transportation.

At the same time, not all countries can be provided with pipeline gas due to objective reasons. That is why LNG is an effective way of entering remote sales markets. Gazprom is the pioneer of Russia’s LNG sector. The first LNG production plant in Russia – Sakhalin II – was launched in 2009; the construction of the complex near the Portovaya CS, which will produce 1.5 million tons of LNG per year, is nearing completion; and the complex near Ust-Luga, which will produce 13 million tons of LNG for export annually, is also under construction now.

However, we consider it important not to create direct competition against our own pipeline gas in foreign markets when developing Russian exports of large-scale LNG. At present, export duty on pipeline gas, which constitutes 30 per cent of the export sales price, is to be paid to the state budget, whereas LNG exports are exempt from this duty. Therefore, Russian pipeline gas supplies are being forced out of foreign markets by Russian LNG exports, and this leads to a decrease in overall state budget gains from Russian gas exports.

In view of that, Gazprom supports the development of the LNG sector in Russia, while simultaneously creating a mechanism to control and eliminate competition between Russian pipeline gas and liquefied natural gas exports in the world’s markets. The government generally shares the position of our Company: for instance, the necessity to create the abovementioned mechanism is stipulated by the Russian Energy Strategy up to 2035, a key strategic document of the Russian fuel and energy complex.

In principle, Gazprom, with its unique system of cutting-edge and efficient export gas pipelines stretching to Europe and Asia, views the development of the LNG business primarily as a way of reaching out to new remote markets that cannot be supplied with gas via pipelines. Through the implementation of prospective projects, the share of LNG in the export profile of our Company may increase to 10 per cent by 2030.

Shale gas

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What do you think about the economic status of shale projects in the USA?

The crisis events of 2020 have seriously affected the US oil and gas production sector, including shale gas production. Let us recall what happened.

In April, the prices for American WTI oil for the next month under fixed-terms supply contracts dropped below zero for the first time ever. That happened against the background of oil demand contraction observed both in the US and in export markets, as well as high inventory levels of oil. Low prices for oil led to a decline in the production of associated gas at shale deposits. During the first six months of 2020, the average monthly prices for gas in the US were generally below the range observed in the previous years.

Apart from the unfavorable pricing environment, the US gas producers faced additional challenges in 2020 due to a decrease in demand for feed gas on the part of American LNG plants, which saw their workload falling to a record low level. Among other crisis signs in the US shale sector, we should also note a considerable decrease of investment in shale projects. According to the preliminary results of 2020, the amount of investment in oil and gas production from unconventional sources in the US lowered by more than two times compared to 2019. The US shale industry is sensitive to the pricing environment, and this has an impact on drilling activities. Given the record low prices observed during a considerable portion of 2020, drilling in the US was much less active than in the previous years, and one should keep in mind that the scopes of drilling have a direct influence on future gas production volumes. Another unfavorable sign for the sector is that major foreign investors withdrew from the US shale assets, and have continued to do so in 2021. Just recently, in February 2021, Norway’s Equinor sold its assets in the Bakken shale formation (one of the largest in the US in terms of shale oil reserves) for less than a fourth of what it had paid to purchase them before.

As a result of low prices, the recess in drilling activities, the decrease in investment and the deterioration of financial and economic performance of companies, shale gas production growth in the US was substantially lower in 2020 than in 2019 (+11 billion cubic meters vs +100 billion cubic meters a year earlier). In 2021, the development of the shale gas sector in the US will to a large extent depend on the prices.

Can we expect significant growth in China’s shale hydrocarbon production?

Chinese government agencies associate the shale industry with the prospects for increasing China’s gas production, reducing the dependence on imports, and, accordingly, strengthening the energy security of the country. The shale industry of China shows production growth every year, but the actual figures keep falling behind the planned ones. The long-term goals set by the government of China (80–100 billion cubic meters for 2030) seem to be too optimistic. According to independent estimates, the production of shale gas in China may reach about 45 billion cubic meters per year by 2030.

Moreover, foreign analysts and Chinese companies engaged in shale gas production note the presence of negative geological, technological and economic factors that hold back the development of the industry. Low economic efficiency of Chinese shale projects is evidenced by the absence of attention from foreign corporations towards the industry. In contrast to the US where shale gas is produced by many companies of various size, China has only two state-owned companies – CNPC and Sinopec – involved in shale gas production. After the last foreign corporation – ВР – withdrew from shale gas exploration projects in 2019, no foreign companies have publicly stated their intention to engage in shale projects in China.

Does Gazprom have any plans for shale hydrocarbon production in Russia or abroad?

We do not consider shale gas exploration and production to be a promising direction for our mineral resource base development, be it in the medium or long term, as there are plenty of proven gas reserves at conventional fields and there are economic and environmental advantages associated with conventional gas.

Apart from the use of fracking technology, which is forbidden in many countries because it causes water pollution and increases the risk of earthquakes, the production of shale gas on an industrial scale requires, due to geological specifics, a large number of wells to be drilled over an extensive area. By contrast, Gazprom tries to preserve the unique pristine beauty of Russia’s nature as much as possible when expanding its activities.

Gas hydrates

How do you assess the prospects for gas production from hydrates?

The assessment of the potential offered by methane hydrates is one of the research areas for the modern gas industry to explore. For the last decade, the interest towards the development of methane hydrates has been driven by high prices for hydrocarbons, as well as by the fact that the resources of methane hydrates are more extensive than the conventional reserves of natural gas, are distributed across the world, and are mainly concentrated in the areas that are currently dependent on energy imports.

On the basis of scientific studies, some experts came to the ambitious conclusion that the world is at the threshold of a new energy revolution. It has to be noted, however, that high production costs remain the main obstacle for producing gas from gas hydrates, and these costs will be considerably higher than the costs for conventional gas production even in the long term. On top of that, large-scale implementation of methane hydrate development projects involves many technical and environmental challenges.

Considering the availability of traditional gas reserves, which are a cheaper option, the production rates of gas hydrates will most likely have no significant influence on the global gas trade in the long term.

What are the prospects for technological cooperation between Gazprom and Chinese companies?

At present, Gazprom and China are implementing a whole range of joint infrastructure projects in the gas sector, for instance, the construction of the Power of Siberia gas pipeline. Naturally, such large-scale infrastructure undertakings require new scientific and technological research and development to be performed. That is why, the epidemiological restrictions notwithstanding, Gazprom continues to actively develop its cooperation with Chinese companies in the sphere of science and technologies.

Our cooperation with China National Petroleum Corporation (CNPC), which has lasted for over 12 years, deserves a separate mention. The most intense efforts are being made to devise engineering solutions and tools for the efficient development of fields with complex porous-fractured reservoir rocks, extraction of coalbed methane, optimization of flooded well operation and production from multi-zone gas deposits, operation of UGS facilities, and many aspects of energy saving and environmental safety.

We are currently preparing the new General Cooperation Agreement and another three-year scientific and technical cooperation program to be signed. Almost 50 cooperation topics have already been proposed for inclusion in the draft program, from joint research activities and experience sharing on issues of mutual interest to commercial projects related to specific gas production facilities in China and Russia.

The main avenues of cooperation are:

research concerning natural gas-based technologies for hydrogen production, utilization and storage;
research concerning comprehensive measures for the reduction of greenhouse gas emissions;
analysis of geological and engineering indicators during the construction of UGS facilities in aquifers in the seaside area of Bohai Gulf;
efficient and safe drilling and injection technologies for deep and super deep wells.

The scientific and technical cooperation involves leading research institutes of the companies: Gazprom’s head R&D centers Gazprom VNIIGAZ and NIIgazeconomika, as well as PetroChina Exploration and Development Research Institute on behalf of CNPC.

Photos by Gazprom and Sakhalin Energy