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Tuesday, 02 December, 2008, 03:50 GMT | more >>

Russian outfits spend big to cut flaring



By Upstream staff 

Photo by Roozbeh Feiz/http://www.flickr.com/photos/rfeiz


Russian producers will invest at least $6 billion in reducing the amount of associated gas flared at oilfields, but said today they might not reach the state's target of almost eliminating it by 2011.

Each year, Russia flares more than 20 billion cubic metres of gas because there is no infrastructure to process and transport it for use.

To protect the environment and save fuel, President Vladimir Putin has ordered the government to force oil producers to reduce gas flaring to not more than 5% of associated from the current level of 24.4% over the next four years, a Reuters report said.

Producers agreed to invest massive funds to escape fines and keep licences, but say extremely tight measures may decrease the economic attractiveness of projects and lead to less investment.

"The target to utilise 95% of associated gas by 2011 will be very hard to reach," Mikhail Gordin, head of the associated gas utilisation department at TNK-BP told Reuters on the sidelines of a gas conference.

"A company can evaluate economics when considering new projects, but at old fields you have already undertaken certain obligations on oil production and have to correct your investment plans significantly," he said.

The energy ministry has a more conservative plan of increasing the gas utilisation ratio to 95% by 2015 and plans to agree on the terms with the natural resources ministry, which supports Putin's plan, later on this month.

The plan hopes to curry favour with oil companies who fear four years is too little.

"The United States utilises 99% of associated gas. But they had been going toward this for many years. Here they want to do it in just four years. Looks like it will be hard to achieve," an official from a western oil company working in Russia told the news agency.

As one of the first steps to reach its goal, the government abolished the state's regulation of prices for associated gas in September, which companies expect to go up from the current average price of 256 roubles ($10.22) per 1000 cubic metres.

The ministries also propose introducing fines and a mineral resource tax for companies which fail to meet the target.

But companies agree that economic measures will not be enough if gas export monopoly Gazprom will not give associated gas producers access to its pipeline system.

"An adjustment to the existing regulation will prioritise and go a long way to stimulating associated gas utilisation," Alastair Ferguson, TNK-BP's deputy executive director, told the conference.

He said TNK-BP, half owned by BP, uses 78.4% of the associated gas it produces and was determined to achieve the goal. It planes to invest over $1.1 billion to 2012 to ensure it.

Russia's largest oil company Rosneft has proposed that the gas utilisation target should be smaller for minor fields with little oil production, where building expensive gas processing infrastructure would be economically unjustified.

Rosneft, whose associated gas utilisation level is 59%, one of the lowest among big companies, plans to invest $2.7 billion to cut gas flaring.

Rosneft's closest competitor, Lukoil, will spend spend $2 billion to raise its current ratio of 75% to the demanded 95%.

Leading in Russia's associated gas utilisation is its fourth largest oil producer, SurgutNefteGaz, which has already reached the 95% target at 19 of its 49 fields.

Wednesday, 10 October, 2007, 16:32 GMT  | last updated: Wednesday, 10 October, 2007, 16:34 GMT

Thing of the passt? Russian producers have been told to reduce associated gas flaring
 

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