Gazprom plans to increase the
capacity of the Northern Lights pipeline from Ukhta to Torzhok by 110 billion cubic meters a year (bcm/y), which
is more than the combined capacity of the Blue Stream, Nord Stream and South
Stream projects. However there are no plans for the construction of new
pipelines out of Torzhok. The purpose of this capacity bubble at the
inlet of the Yamal-Europe pipeline, 350 km east of the
Russian border with Belarus, is unclear. The Yamal-Europe
pipeline that delivers Russian gas to Germany via Belarus and Poland has the
capacity of 33 bcmy.
The pipeline construction program of
Gazprom looks irrational. Most of the announced projects are designed to deliver
gas to the three compressor stations of Gryazovets, Torzhok and Volkhov. In the
scheme above, the lines' thickness roughly corresponds to the combined capacity
of the pipeline sections. SRTO stands for the Russian abbreviation of "Northern
Regions of Tyumen Province".
Gas pipeline project
SRTO - Torzhok
Pochinki - Gryazovets
Bovanenkovo - Ukhta -
Shtokman - Murmansk -
Total to Gryazovets and
In the next 10-12 years, Gazprom
expects to commission the total new capacity of 166 bcmy in Northwestern region,
including 138 bcmy to deliver more gas to Gryazovets and at least 28 bcmy to
Volkhov. The capacity for exporting gas out of the region is set to grow
by 55 bcmy (the Nord Stream project).
The Gryazovets-Torzhok section is to
get three new pipelines with the combined capacity of 110 bcmy. The purpose of
building all this capacity is unclear. Gazprom can increase the flow out of
Torzhok by a maximum of 48 bcmy by taking the following cost-efficient steps.
About 19-20 bcmy can be used for
exporting additional volumes to Europe. This is the least expensive option of
increasing Gazprom's exports that involves the completion of all compressor
stations at the existing Torzhok-Dolina pipeline (56" or 1420 mm) and the
construction of new pipeline Dolina/Bogorodchany-Uzhgorod
in Western Ukraine. From the standpoint of Gazprom, this project has a major
disadvantage: the pipelines run through the territories of Belarus and Ukraine.
Gazprom can utilize another 28 bcmy
of capacity by reversing the flow in the Tula-Torzhok section of pipelines.
These pipelines would deliver gas from Torzhok to Moscow and Central Russia.
However this technically feasible option would significantly increase the load
of the pipelines in Central Russia in the period when the flow is being reversed.
It would be difficult to use the additional gas south of Torzhok. There is no
spare capacity to export more gas through Ukraine in winter, and the Russian
consumers of Moscow and central provinces can hardly buy all this gas at the
Thus the Gryazovets-Torzhok
section gets an excessive capacity of over 60 bcmy. Theoretically, Gazprom may decommission
the two oldest pipelines Ukhta-Torzhok-1 and -2 built in 1969 and 1971, then the
excessive capacity would be reduced to 45 bcmy. In fact, the
decommissioning is very unlikely to happen. Gazprom is steadily increasing pipe
reinsulation and replacement works, which has already resulted in a
significant reduction of pipeline failures.
Defectoscopy and rehabilitation of the Ukhta-Torzhok system is being performed
on regular basis and the pipelines operate under the full load.
Gazprom wants to reduce its
dependence on Ukraine and Belarus for the transportation of gas to Western
Europe. So, the Russian gas monopoly does not announce plans for a
Yamal-Europe-2 project across Belarus and/or Torzhok-Dolina-2 pipeline across
Belarus and Ukraine. However, the declared buildup of excessive capacity at
Torzhok drops a hint that Gazprom may have secret plans of laying these
pipelines in the former Soviet states.
Note that the flow reversal and the
additional exports through Belarus and Ukraine are just our assumptions.
Official publications of Gazprom describe pipeline projects with the capacity of
0.8-4.8 bcmy. Nevertheless the documents do not give any information about the
pipeline capacity of 110 bcmy that can transport two-thirds of the total Russian gas exports
Gazprom's plan also assumes the
construction of a new pipeline corridor from Ukhta to Pochinki
to feed the Blue Stream and South Stream pipelines via the route
The described construction program
needs significant additional investment to create reserve capacity while gas
flows in some pipelines are reversed. It also requires a very accurate
synchronization of the commissioning of new pipeline projects. The program does
not allow any flexibility in respect of the Shtokman project. The second
pipeline Murmansk-Volkhov would mean the major portion of the Gryazovets-Vyborg
pipeline is out of business. Gazprom is building the Gryazovets-Vyborg pipeline
now at the record high cost (see below).
The alternative route from
Bovanenkovo (Yamal peninsula) to Yamburg requires much smaller investment (the
route is shown on
the map of
Gazprom and our map). The completion of all
compressor stations at the SRTO-Urals and Yamburg-Tula-2 pipelines (both running
from Yamburg) can create enough spare capacity to take the flow from the first
Bovanenkovo-Yamburg pipeline. Later on, the deliveries to Yamburg from Yamal
peninsula can be synchronized with the depletion of production at Yamburg,
Urengoy and other gas fields of the region.
The capacity problem in the
Nadym-Pur-Taz region of West Siberia can be solved without Gazprom's investment
by the construction of an independent gas pipeline from West Siberia to
Orenburg or Central Russia.
Investment costs of Gazprom are very
sensitive to the choice of the route for Yamal gas and to the synchronization of
the commissioning time of the production and pipeline projects. For example, a
one-year postponement of the startup of Bovanenkovo can save Gazprom $10-20
billion of investment costs. An relatively small additional investment into the
expansion of underground gas storages can facilitate the fulfillment of
contractual obligations of Gazprom in this period. High investment costs mean
high profits of contractors and low profits of the shareholders of Gazprom.
We plan to run a detailed analysis
of Gazprom's construction plan in the coming 2-3 months.
April 2, 2008
(with additions of April 4, 2008)
Construction Cost per 1 km of
Pipeline, Excluding Compressor Stations
Wall thickness, mm
RUR Million per 1
Stream, average per 1 line
(a) Cost in
Russian rubles as of November 2005 (!)
the RUR/EUR exchange rate of April 2, 2008.
OMK (Russian pipeline manufacturer).
Note that 1 meter of steel pipe used
at the Nord Stream project is 42% heavier than that of the Gryazovets-Vyborg
line. Considering the growth of price of steel pipe in the past years, the real
procurement expense (in Russian rubles) per 1 m of pipe bought for the
Gryazovets-Vyborg pipeline in November 2005 should be about half of the price
paid by Nord Stream AG in November 2007. On top of that the concrete expense at
the offshore pipeline is several times higher than at the
land pipeline Gryazovets-Vyborg. It looks like the construction cost of
the onshore pipeline is seriously overestimated.