November 20, 2008
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Home / Issue Archive / 2008 / February #2 / BaltStroiService Participates in Government APG Utilization Program

№ 2 (February 2008)

BaltStroiService Participates in Government APG Utilization Program

According to the Russian Energy Ministry, Russia flares 14.9 bcm of associated petroleum gas (APG) annually. Russian Gas Society experts believe that the volume of flared gas is higher, at approximately 20 bcm, a figure which President Putin has also cited

By Yagmur Kurbanov

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However, according to PFC Energy’s estimate, the volume of flared gas reaches 60 bcm per year. This figure exceeds Russia’s gas exports to Germany and is equivalent to 25 percent of the country’s total exports to Europe.
Lack of federal regulatory control is at least partially responsible for the low rate of APG utilization. Gas flaring carries practically no penalty, tariffs for APG to be utilized are kept low, and access to the transport network for APG products, such as methane and electric power, is limited. The current economic and legal situation prompts most companies to flare APG to maximize economic gain.
To discuss APG utilization, an OGE correspondent met with Yuri Kapatsa, Chairman of the Board of Directors of BaltStroiService (BSS), and Georgiy Agadjanyan, Head of the Marketing and Sales Department.

Oil & Gas Eurasia: Please tell us about your company’s activities in general, and specifically with regard to APG utilization.
Yuri Kapatsa: For over six years, BaltStroiService has successfully operated in spheres such as power supply and power resources management. The company offers its customers an integrated approach and efficient technologies. We provide the power industry with energy from diesel generators, gas-reciprocating and gas-turbine units, as well as wind-energy devices. Today, a number of efficient solutions devised by BSS are in great demand in the oil and gas industry. They include:
uninterruptible power supply to drilling and production sites;
APG utilization;
upgrading of field power equipment using dual-fuel diesel power stations;
power supply based on long-term lease of power facilities.
Now let’s talk about APG utilization in more detail, since it’s one of the company’s core businesses. Unlike natural gas, APG contains up to 40 percent heavy hydrocarbons, which are valuable for the gas-chemical industry. Nevertheless, physical and chemical properties make APG hard to transport as hydrate deposits form on the inside walls of transportation pipes. APG also tends to liquefy when the temperature drops below the condensation point, thus causing serious problems in Siberia or in Arctic conditions. It is worth mentioning that, with few exceptions, only the first-stage oil separation gases have enough pressure either to be transported without compression or to be processed on site. Due to low pressure, the final-stage oil separation gases are flared despite their value. All of these factors leave very few options for oil producing companies with regard to APG utilization. Yet, BSS has devised a reliable, cost-effective technology that enables APG to be utilized most efficiently. Today, our company is the sole owner of the “know-how” and the only manufacturer of high-tech equipment for APG processing.

OGЕ: Today, most APG technologies in use are deficient, and the high cost of more effective technologies makes them impractical. Is that true?
Kapatsa: Some APG utilization technologies are indeed quite costly. For example, consider generators which use crude natural gas. Their moving parts are subject to significant wear, and gas-actuated engines fail after two or three years of operation. Besides, to generate an equal amount of power, one would have to use generators with the capacity half as much as the capacity of those used today; this would significantly affect the total cost. As for our company, we use a well and pipe connected to the processing unit where APG is transferred. Up to 80 percent of the APG is separated into components, such as methane and ethane used as fuel for generators. This process enables the extraction of the broad fraction of light hydrocarbons and of natural gas gasoline, which are both commercially valuable, as well as the complete separation of sulfur compounds and water. In accordance with Order No. 117 from April 30, 2002, “On Wholesale Prices for Petroleum (Associated) Gas,” issued by the Russian Ministry of Economic Development and Trade, the price of APG sold to gas plants for further processing is strictly controlled according to its content. Since methane and broad fraction prices are much higher than the APG price, gas processing plants and companies benefit economically despite processing expenses, such as those of compressing separated liquids and transporting them through trunk pipelines. However, after broad fraction separation, the APG content is similar to that of natural gas. The price of one ton of broad fraction products, such as gasoline or petrochemicals, greatly surpasses the price of an equivalent volume of associated petroleum gas.
Today, BSS’ specialists offer operating procedures and equipment which are easier to follow and operate than their analogues, including those of Western companies. The latter use expensive materials and filter elements that need frequent replacement, resulting in significant expenses and unnecessary hassle.
As Russia becomes integrated into the world community, global issues, including those raised by the Kyoto Protocol, gain paramount importance. This is why the country has to ensure the most efficient use of its natural resources.
Our solution is in high demand and is quite efficient. We delivered a report on it at MIOGE–2007 in June and received praise from both the Ministry of Natural Resources and from private companies from Russia, Kazakhstan and Turkmenistan. Since then, the equipment has been put into operation in oil and gas fields.

OGЕ: Please tell us how it was designed and implemented, and where it is manufactured.
Kapatsa: As a matter of fact, the story dates back to the 1980s, when an entire R&D center was working on the technology, and there was a test facility in Leningrad (Now St. Petersburg – editor’s note.). The ultimate goal was to use gas as a fuel for municipal transport, and to use one of the gas components, methane, as aircraft fuel.
The equipment for the APG processing plant is manufactured in St. Petersburg and Yekaterinburg. The power-generating plant, which consists of a gas compression unit, diesel generator set, and gas-turbine unit as well as switchboards and electrical equipment, is packaged at the Moselektroschit plant in Moscow.
I’d like to mention here that many oil companies, as well as Gazprom, have devised their own solutions but none compares to ours. For three years our plant has been working in Kazakhstan at the Zhanazhol field. It performed well in evaluations and has received experts’ approval and certification.
The equipment has passed all the tests required for commercialization. Even so, we understand that additional studies and tests may be necessary to optimize the separate units and the construction design as a whole. At the moment, we are working with many leading Russian R&D centers to improve our equipment and enable the plant to process APG with a higher sulfur content.

OGЕ: How is the processed APG used?
Georgiy Agadjanyan: The processed gas has various uses, for example:
providing fuel for technical purposes at oil treatment plants and boiler plants servicing production sites, as well as to neighboring settlements;
the company’s own purposes, e.g. generating power at the production site;
maintaining reservoir pressure;
satisfying the need for gaslift gas at the production site.
The product can be stored and transported as liquefied gas, and subsequently used, for example, as fuel for municipal transport. Moscow Mayor Yuri Luzhkov recently considered this option, and he is willing to put it into practice. In Europe, gas is gradually replacing gasoline as fuel for motor vehicles. In Russia special gas-filling stations are also being built.
Other APG utilization technologies require an average of ten workers, whereas two is plenty for our technology. BSS provides a wide range of services for the complete operating cycle, including installation, commissioning and start-up, maintenance, repair, testing, upgrading and dismantling of the processing plant. The same applies to generating, electrical, and heat-and-power equipment used by drilling companies and oil-and-gas producing companies. BSS maintains the electrical equipment used by drilling crews, well workover crews, well intervention crews, and well stimulation crews. It services diesel-electric stations, gas-reciprocating power plants, mains-operated substations, power supply lines, switchboards, boiler equipment, utility networks. It also maintains electrical equipment for multiple-well and loading platforms, as well as for residential compounds, storage and supply facilities, and workshops.
We offer our customers not only top-quality equipment but something even more important – an integrated approach to problem solving based on the EPC principle.

OGЕ: In your opinion, who is taking the lead in implementing the government program?
Kapatsa: I would say Surgutneftegaz, Sibur, Rosneft, TNK-ВР, and LUKOIL. Also, Gazprom Neft – I would especially mention their system approach. The company is currently working on more efficient utilization of APG. It plans to utilize at least 80 percent by the year 2009, and to increase this figure to 95 percent by 2012. In addition, Gazprom Neft is giving us a field for development work at the production site. At our own expense, we will build a plant to utilize APG. The APG, which once upon a time would have been flared, will power all the equipment and machinery at both the field and the shift camp. Of course, there are fields with greater reserves of associated petroleum gas, but Gazprom did not allow third-party companies to access its transportation system. However, we have reached an understanding, and the gas monopoly is ready to allow us access to its pipelines for transporting gas to large processing plants.

OGЕ: To improve your plant, do you exchange experience with other R&D centers and higher education institutions?
Agadjanyan: Of course, as we introduce our technology, it’s interesting to see what other research is being carried out in the same field. Often, the research process can be streamlined by exchanging experience. Our company has a special department, and the chief engineer and managing director of this department always stay in touch with specialized R&D institutions.
Kapatsa: Mostly, we work with Gazprom’s oil and gas institutions responsible for field engineering, field development, etc. Prior to the MIOGE–2007 Congress, our technology was not very popular. Today, those same institutions are willing to work with us on newly developed fields or fields in need of upgrading. It’s hard to argue with statistics, and statistics confirm that equipment used by CIS countries for oil production and power generation will need replacing or upgrading in 2008. The average wear period for equipment is about five years. When the time comes to upgrade the equipment, the companies should see clearly how to best utilize APG. It’s already obvious that APG should be utilized, as Rostekhnadzor has prepared a draft decree for the government suggesting radical changes in the standards for hazardous emissions fines. The draft proposes to increase the fines by a factor of 164.

OGЕ: Do Gazprom and other majors support your work?
Kapatsa: Of course they do. But first of all, we need access to Gazprom’s pipelines and the ability to feed our processed petroleum gas into it. Today we came to an agreement on this issue.

OGE: Is your technology protected by a patent?
Kapatsa: Sure. Otherwise we would not be able to talk about it so openly, since at some point it could simply be stolen from us. Some big oil and gas producing companies are currently offering to buy out a share in BSS. Also, some competitors have already threatened us.

OGE: Have you considered the possibility of assigning the right to use your technology under a lease contract while retaining the rights of ownership?
Kapatsa: The company is planning to enter the rapidly-growing Arab market where funding is available for such transactions. There, the business community understands the importance of investing in high technologies. We are currently negotiating the establishment of a public private partnership with some Arab states.
OGE: What methods does your company intend to use for the APG utilization program?
Kapatsa: I’d say it will use all available methods. We all realize the extent of our responsibility to our country’s history and to future generations. It will bolster their health and prosperity and the greatness of our motherland. In Q1 and Q2 of 2008, over the course of implementing the government program we will address the State Duma and the RF Federal Assembly. We will also speak at the Ministry of Industry and Energy, at the Federal Agency for Technological Development, and at Rosnedra’s Central Development Commission. Speeches before the local governments of Khanty-Mansiisky and Yamalo-Nenetsky Autonomous Districts, as well as a presentation on Central Television, are on the agenda too.

OGE: Have you ever considered establishing a production company?
Kapatsa: Frankly speaking, it’s not our “cup of tea.” The company prefers to work in such spheres as power engineering and the construction of power plants, and we do not want to change our priorities.
Implementing the government program for APG utilization calls for the founding of a consolidated company, which would focus on introducing state-of-the-art technologies and equipment designed specifically for APG utilization. It is essential to design mobile gas processing plants, which could utilize APG to generate power or process the gas to extract chemical raw materials, and which would be easy to transport and assemble. The plants could be leased or APG could be utilized according to a co-production agreement.
To use AGP efficiently instead of flaring it, BSS offers:
1. A cooling technology that does not require additional working mediums (amines), which demand continuous import and reviving. The technology separates up to 80 percent of the methane-ethane (natural gas) from the APG, extracts the broad fraction of light hydrocarbons and natural gas gasoline (products of high commercial value), and completely separates sulfur compounds and water.
2. Solutions to upgrade field power equipment using dual-fuel diesel power plants. The dual-fuel operation mode for diesel generators at the power plants allows reduction of emissions and significant savings on diesel fuel. A diesel generator with 1 MW capacity operated 24 hours at 75-80 percent load uses five to six tons of diesel fuel per day. A 50-percent reduction in diesel fuel consumption saves 2.5 to 3 tons per day for 1 MW of electrical power produced. The project pays back in three to five years.
Economic Benefits of the Proposed Solution
for APG Utilization
The APG Plant’s Advantages:
Treats 1,000 cu. m of gas per hour at a cost of $3/h.
Produces 1 ton of LNG at a cost of $13.5.
Reduces total project cost by $2 million.
Saves $750,000 per year in operating expenses.
Produces 1 kWh of electrical power at a cost of $0.01.
Reduces the generating equipment’s rated capacity by 7 MW.
BaltStroiService (BSS) assumes all risks related to the operation of recovery and power systems. In case of failure to comply with the drilling or oil production schedule due to irregular power supply, BaltStroiService is financially liable for the drilling crew’s idle-time (the cost of non-produced oil).
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