Rosneft – Russia's largest oil producer – has become a drag on Russia's efforts to curb harmful emissions from flared gas, lagging behind its industry peers.

Russia has made significant progress in the new millennium with utilising more of this gas – extracted along with lucrative crude oil - rather than burning it off.

Rosneft's problem, however, appears to have more to do with gas flaring at its newer Siberian oilfields, rather than its legacy fields. The infrastructure for processing and monetising the by-pass gas from Rosneft's new, so-called greenfields will take time to build and bring online, whereas it already utilises more gas from its brownfields.

Before Russia signed the Kyoto Protocol in 1999 and ratified it in 2004, the nation had a big environmental problem on its hands as its oil producers burned off, or "flared", the associated gas extracted along with the oil that they produced. The emissions fouled the air in Russia, burning away an energy resource that otherwise could be used to generate revenue.

Russian oil producers are now using much of this gas to generate electricity and provide heating and fuel for oil facilities, or exporting it to Eastern European countries to be sold as fuel for automobiles.

Largely because of Rosneft's higher level of gas flaring, though, the Russian government still has work to do in reducing emissions from gas flaring.

Yet it is the United States where gas flaring last year rose more than in any other nation, climbing by 23%, according to a World Bank report.

And last month, US President Donald Trump's administration also rolled back regulations that were aimed at reducing methane emissions from US oil and gas operations.

Russia's gas flaring rose 9% last year, making it the nation with the third-largest flaring increase, after the US and Venezuela, the World Bank said.

Rising penalties

To implement its Kyoto Protocol commitments, Russia in 2008 and 2009 enacted laws that instructed oil producers to urgently invest in reducing gas flaring. The government required that by 1 January 2012, all oil producers could no longer flare any more than 5% of the by-pass gas extracted with crude oil.

Russia introduced fines for oil producers that failed to reach a by-pass gas utilisation rate of 95% by the 2012 deadline, with penalties rising exponentially each year between 2013 and 2020.

Backsliding

But over the last five years, Rosneft has dragged down the overall rate of compliance by Russian oil producers.

According to the latest available official data, more than 94 billion cubic metres of by-pass gas was extracted at Russian oilfields last year, up from 89.5 Bcm in 2018, with Rosneft accounting for 47% of that total production in 2019.

But Rosneft, which is 40%-owned by the Russian government, said it had used only 78% of its produced by-pass gas last year (and had flared the rest).

While Rosneft's legacy assets used close to 94% of by-pass gas last year rather than flaring it, the company burned off most of its by-pass gas produced from "greenfields and fields in the early phase of development" in West and East Siberia, according to its annual report.

Government officials are disappointed that the overall utilisation rate for by-pass gas in Russia fell to less than 82% last year – the lowest level seen in the last five years – from 85% utilisation in 2018.

Although Russian oil producers have yet to disclose by-pass gas utilisation figures for this year, industry observers expect the overall figure to drop again.

Output cuts

Russia's agreement in April to join with Opec members to reduce their combined oil production by 9.7 million barrels per day – to prop up collapsing global crude-oil prices – is seen as one factor in Rosneft's ongoing lack of compliance with the utilisation requirement for by-pass gas.

Rosneft's oil production fell by 13% to just over 4 million barrels per day in the second quarter of this year against the first quarter, as the company had to comply with its output-reduction quota, according to its latest financial report.

Greenfield issue

However, observers said the oil-output reduction has been distributed unevenly between the company’s brownfields, where utilisation rates for by-pass gas are high, and greenfields, where the gas-utilisation rates are low.

Rosneft, similar to other major Russian oil producers, has been shutting wells or reducing their flows at legacy assets, while maintaining or even boosting output at new developments, enjoying reduced or zero tax rates.

The company previously acknowledged that it has to flare most of the by-pass gas at its greenfields because it takes years to build in-field infrastructure to collect, process and transport such gas.

While electricity generators at greenfields that run on by-pass gas are built almost concurrently with well drilling and in-field pipelines, they usually take between 20% and 30% of total produced gas volume, with producers having to research and invest into other options to prevent flaring of the remaining volume.

Others meet the challenge

Privately held Surgutneftegaz reported the highest by-pass gas utilisation rate – of more than 99% in the last five years.

It has said about 60% of produced by-pass gas is transported from its fields in West Siberia to a gas-processing plant. There, the mixture is converted into marketable dry pipeline gas, liquids, or propane and butane used in cooking stoves and as auto fuel.

Another 22% of its volume of such gas is used for direct electricity generation, and some 15% is used for heating purposes and as fuel at in-field technical facilities, Surgutneftegaz said.

Other major Russian oil producers, such as privately held Lukoil and Tatneft, reported full compliance last year with the government's utilisation target.

Lukoil said it used almost 98% of extracted by-pass gas in 2019, up from 88% in 2013. It plans additional investments for 2020 and 2021 as the company strives to completely halt flaring by 2030.

Meanwhile, Tatneft said that it processed more than 96% of produced by-pass gas last year, against 94% in 2013.

Gazprom Neft seeks improvement

State-controlled oil producer Gazprom Neft reported a significant jump in its utilisation of by-pass gas – to 89% in 2019 from 78% in the prior year.

The company said it is working on projects at its remote onshore and offshore developments to reach the utilisation target of 95% by the end of 2021.

Gazprom Neft said it commissioned a project this summer to pump produced by-pass gas into an undeveloped gas-bearing formation at the West Messoyakha field in the Yamal-Nenets region that is operated by its joint venture with Rosneft, Messoyakhaneftegaz.

Spanning 70 square kilometres, the formation will accept by-pass gas at the maximum annual rate of 1.5 Bcm from West Messoyakha and the neighbouring East Messoyakha field, connected to the storage by a 50-kilometre gas pipeline, the oil producer said.