Natural gas production has not played a major role in LUKoil's operations. It currently produces 7 billion cubic meters per year, 4.5 billion cubic meters of which is petroleum gas as a by-product from oil sites. Within 10 years, LUKoil plans to raise the share of natural gas in its business to a third of the overall turnover, while it aims to produce 45.8 billion cubic meters in the long term. LUKoil currently has 1.1 trillion cubic meters of natural gas reserves, while Gazprom, the national gas monopoly, has 26 trillion. LUKoil President Vagit Alekperov says the company's capital investment in natural gas projects could reach $3.5 billion.
Meanwhile, LUKoil's core business is flourishing. It is No. 1 in Russia in terms of proven reserves and production. Moreover, for five years Lukoil has been compensating for production with growing reserves, which reached a surplus of 3.5% last year.
However, with the oil business leaving little prospects for the future - Anatoly Ledovskikh, head of the Federal Agency for Natural Resources Management, recently said that oil production in Russia would stop being profitable after 2015, and oil wells operating today could become severely depleted from 2010 - gas production is seen as a more stable activity. Ledovskikh said gas reserves could last for 70 years given current production rates.
Accordingly, the threat of depletion of West Siberia, Russia's oil heartland, has forced LUKoil to tread on Gazprom's turf. In fall 2003, LUKoil agreed to sell Gazprom gas produced at Nakhodkinskoye until 2007. The gas giant will buy about 4.5 billion cubic meters at $22.5 per 1,000 cubic meters.
