Gazprom is increasing its investments in Yamal

03.12.2012 — Analysis

For the second time this year, the Gazprom corporation has increased its investment program: the company is continuing its development of the Yamal peninsula and plans to add new lines to its gas-transmission network. Developing the Russian North requires huge investments. But as this columnist for RusBusinessNews has determined, those will be repaid with interest: Yamal has been given a real opportunity to support its traditional livelihoods while establishing new industries.

On a map of Russia, the Yamalo-Nenets Autonomous District can be found in the center of the country's northern regions. Ambitious projects are brought to life in Yamal, a peninsula that has for many years been one of Russia's biggest outposts in its development of the Arctic.

In late October 2012, the Bovanenkovo oil and gas-condensate field was officially put into operation. At the same time, the first line of the Bovanenkovo - Ukhta gas trunkline system opened, through which fuel is shipped to Europe via Gryazovets and Vyborg. Observing the event, Russian President Vladimir Putin noted that the gas from the field is of strategic importance: the country is beginning the preparation for the construction of a second line, the Nord Stream and South Stream.

Yamal has sufficient known reserves to supply natural gas not only to Europe but the whole world. Global gas consumption amounts to 3.2 trillion cubic meters a year, and Bovanenkovo alone has reserves of almost 5 trillion. Current production from the field is not great, but Gazprom plans to extract 46 billion cubic meters per year in 2013, and 115 billion cubic meters by 2017.

Experts believe that Russia needs to be prepared to increase its hydrocarbon production in the relatively near future. According to Alexander Pasechnik, the head of the analytical office at the Foundation for National Energy Security, Europe will have to increase its gas purchases, since the EU is reducing its own gas production and closing its nuclear power plants.

Gazprom's plans are very ambitious - its Program to Develop Deposits on the Yamal Peninsula includes, in addition to Bovanenkovo, the development of the Kharasavey, Kruzenshtern, and South Tambey fields with reserves of 3.3 trillion cubic meters of gas. But, according to experts, it will require colossal investment to exploit these underdeveloped areas without harming their fragile environment and while saving the unique way of life of the indigenous inhabitants of the tundra.

At the 11th session of the UN Permanent Forum on Indigenous Issues, which was held this year in New York, a report was presented discussing the effects of the industrial development of the Arctic on the lives of reindeer herders. The authors of the report believe that the coming decade will present a serious challenge to the ethnic survival of many native peoples of the North because of global warming and the expansion of oil and gas production.

The October meeting of the Committee of the Federation Council on the Federal Structure, Regional Policies, Local Self-Governance and Affairs of the North was devoted to making the federal law governing the territories that make traditional use of natural resources more effective. According to the committee's first deputy chairman, Alexander Matveev, the governments of these territories believe they need to adopt strict standards regulating the work of for-profit entities in areas traditionally inhabited by indigenous ethnic groups and to also establish colossal fines for any violations. Consequently, mining companies are required to possess the technology and capacity to clean up hydrocarbon spills, as well as the funds to pay compensation for environmental damage. The native population must also have the right to conduct environmental oversight of the oil and gas infrastructure.

Vladimir Pavlenko, the representative of the Russian Academy of Sciences in the International Arctic Science Committee, believes that it is not enough to just draw up clear rules and the consequences for their violation - what is important is that those guidelines are followed. And here Russia has no room to boast. For example, environmental quality standards were adopted for the conservation of biological resources in the Barents Sea that were even stricter than those in place in Norway, but ... they are not being observed. Therefore, this expert is convinced that it is of supreme importance to develop our thinking on the environment while developing the Arctic.

There have already been positive changes in this difficult situation. There is a growing understanding that in addition to oil and gas, the Arctic must also support itself through fishing, eco-tourism, reindeer herding, the development of science, education, new technology, and the creation of entirely new living conditions and infrastructure facilities.

One of the regions that is leading in the mastery of these areas is the Yamalo-Nenets Autonomous District. This is essentially the only territory in the Russian North that is seeing a steady increase in the birth rates of newcomers as well as the indigenous population. The traditional agricultural industry of the Yamalo-Nenets Autonomous District is quickly learning to utilize innovations, one example of which is marketing venison from Yamal overseas. Major infrastructure projects in the region get scientific backing. Very soon the government of the Yamalo-Nenets Autonomous District plans to create a multipurpose research center for the integrated exploitation and development of the Russian Arctic.

The government of the northern territory intends to go further, bringing in big business to help it carry out its plans. Thus, according to the agreement between Gazprom and the government of the Yamalo-Nenets Autonomous District, social spending in the territory is to be shared equally. According to Governor Dmitry Kobylkin, the launch of the Bovanenkovo field will give an additional impetus to the area's economic and social development, and Gazprom's CEO Alexei Miller confirmed that social spending will increase, totaling as much as 220 billion rubles in the midterm future.

The government of the Yamalo-Nenets Autonomous District estimates that in five years, 1.5 million square meters of housing, as well as kindergartens, hospitals, and other important examples of social infrastructure will be built in the district with Gazprom's help.

"Yamal's policy is unchanged. For us the most important thing is the environment and the preservation of the indigenous population and its traditional way of life," noted the governor of Yamal, Dmitry Kobylkin. "Our requirements regarding the environment are easy to understand: the Arctic is not the property of only the polar regions - the Arctic belongs to the entire world. The entire global environment depends on how we proceed with our work here. And Gazprom and Yamal want to make sure there are no problems."

Vladimir Petrov