OREANDA-NEWS. July 20, 2007. The influence of the “gas factor” on the Russian economy is well-known: the situation is understandable here, more or less predictable, and stable.  The issue of gas “associated” with oil is extremely topical, and requires a solution.

Each year, up to seven billion cubic meters of casinghead gas is burnt at fields in Western Siberia—about 1,415,000 tons of oil equivalent.  According to experts’ estimates, the lost benefit amounts to 12.5 billion rubles per year.  Sale of all associated gas in Yugra to Russian consumers would bring companies about US $260 billion.

Of course, billions of dollars in profit from sale of associated gas is possible only if there is a fully-developed infrastructure for utilizing it, and if oil producers can sell the gas themselves.  Director of the Department on State Policy and Regulation of Natural Resource Use in the Ministry of Natural Resources of the Russian Federation Sergei Fedorov commented the situation: “There is currently no appropriate infrastructure, nor is there any control over the production and burning of gas.  A deficit in casinghead gas processing facilities is apparent in Russia.  In order to change the situation, a number of legal, economic, and technical measures need to be implemented.  In particular, the law on subsoil, the Tax Code, and the Administrative Violations Code need to be changed.  Furthermore, oil producers need to be given access to gas trunk pipelines.”  According to expert opinion, there is only one case of a positive composite solution to problems associated with the processing of associated gas in Russia.  It is Yugragazpererabotka, a joint venture created late last year by TNK-BP and SIBUR Holding. SIBUR transferred Belozerny and Nizhnevartovsky gas processing plants (GPPs) to the control of the joint venture, as well as the infrastructure for transporting gas to these enterprises. This allows gas producers to control 51% of the shares of the joint venture. According to the contract, TNK-BP will receive 100% of dry lean gas, and SIBUR will receive 100% of liquid products produced at the plants.

The new enterprise is an important link for utilizing and monetizing associated gas within the framework of TNK-BP’s major asset in Yugra, Samotlor field.  The enterprise’s General Director informed us that “investments in upgrading equipment, expanding productive facilities, and continuing development of Nizhnevartovsky and Belozerny gas processing plants will amount to 1 billion, 132 million rubles by the end of 2007.”  This will make it possible to extinguish all flares in the Nizhnevartovsk region where associated gas is burned within the next few years.  Works at the Nizhnevartovsky gas processing plant have already begun.  Additional equipment will make it possible to increase processing of associated gas by approximately 700 million cubic meters.  According to experts’ estimates, reconstruction of the plants will not only solve environmental problems caused by flares burning at the fields, but will also ensure the reliability of gas supply to consumers in the Khanty-Mansi Autonomous Okrug and adjacent oblasts.  Speaking about TNK-BP’s obligations to achieve 95% utilization of associated gas, the company’s Executive Director German Khan said “We will achieve this in various places by means of various constructions: this will be small-scale energy production in some places; it will be interaction with SIBUR in other places, the foundation of which we have already laid.  According to Khan, several cooperative possibilities are currently being discussed between TNK-BP and SIBUR, both based on the Nyagan complex and in Orenburg.  Small-scale energy production as a “way out of the situation” will be considered in case of implementing the company’s projects in Eastern Siberia.

Answering the question on measures that the state could undertake in order to stimulate companies to carry out associated gas utilization programs, German Khan said “I believe that priority access to the gas pipeline would make it possible to make the utilization process more economically expedient, and the question would be resolved more quickly.”