Kovykta development on hold as Resources Ministry calls for licence

Russia's nature protection watchdog has recommended revoking TNK-BP's licence to develop the huge Kovykta gas field. It’s fate may, may be decided on Thursday, at a meeting of the state regulator for deposit use.

A huge Siberian gas field with some 2 trillion cubic meters of natural gas – relatively close to the insatiable Chinese market across the border. Kovykta has been developed by TNK-BP and is once again in the spotlight.

That's after Russian billionaire Viktor Vekselberg, Head of Renova Investment, which in turn is a stakeholder in TNK-BP, which holds the licence to operate the field complained to the President. On February 12 in Omsk, Vekselberg highlighted the need to develop Kovykta, and the role of the Natural Resources Ministry in frustrating this.

“We are losing the Southern Asian market. China is among the first to go. In the past year we have seen our CIS neighbours building a gas pipe to China so it made entering the Chinese market more difficult for Russia. Here I also need to mention our Kovykta gas deposit. The Ministry of Natural Resources has resumed an unscheduled inspection of the Kovykta field. This does not support the investment climate in our country.”

The TNK-BP subsidiary holding the licence to develop the field is currently extracting up to 40 million cubic meters a year instead of the billions specified in the licence. Viktor Mishnyakov, Senior Oil and Gas analyst at Uralsib says a key player in the issue is Gazprom.

“The investor in this very case knows that nothing will be happening in this licence, in this area till Gazprom constructs the pipeline. I believe it would be quite smart to put it in the kind of a state depository or a chest to leave it for a while there maybe for 5 years till the time Gazprom thinks its necessary to construct the gas pipeline in eastern Siberia.”

Gazprom has been dragging its feet to build the pipeline. But it wants to play the leading role when Kovykta is developed. It agreed with TNK-BP to take a stake of more than fifty percent in the field. The sides have yet to agree a price.

At a time of falling demand for gas and increased competition developing Kovykta would be risky. It will require plants to produce petrochemicals as Kovykta contains sizable amounts of helium. It's a complex formula – but one which could prove lucrative once market prices rebound.