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23 Jun, 2008 05:00

Exports begin from Lukoil’s vast new reserve

Russia’s energy giant Lukoil has begun its first exports from the largest oil field to open in the post-Soviet era. The start of operations at the Timan- Pechora region marks a significant milestone for the company, in a joint venture with ConocoPhilips.

Timan-Pechora, the company's second biggest crude-production region, is becoming even more important as reserves at the West Siberian wells are becoming depleted. They passed their peak production levels at the beginning of this century.

The oil flows from the field via a 150 kilometre pipeline to the Varandey oil export terminal. From there, it is exported by tankers to Europe and the United States.

The project cost $US 4 billion to develop, double the planned figure. That outlay included field development, infrastructure and the cost of the sea terminal.

The field will reach its planned production level of seven million tonnes a year next year.

The vast expense of the project will be offset not only by record high prices for oil, but also the tax breaks promised by the government, which may save Lukoil $US 1.2 billion.

ConocoPhilips has brought 30% of the necessary investment and has allowed Lukoil to share the risks of developing the new field in the severe northern climate. Oil companies are counting on the government tax breaks initiative to help develop new fields.

Lukoil, Russia's largest privately owned oil company, has 1.3% of the world's proven reserves.

But oil production in Russia is falling. New fields like Yuzhnoe-Khilchuyiskoe, with 70 million tonnes of proven reserves, can boost the production figures of a company producing 95 million tonnes a year. However, it can't significantly improve the country's overall production figures.