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   As a result, Russia sustains losses equal to 362 billion rubles per year, suffers environmental degradation and increases greenhouse gas emissions.
At the end of the last century, development of remote and northern fields started in Siberia, and almost no one was thinking of associated gas. The primary target was oil. If at that time an APG utilization infrastructure were created, pipelines laid, processing facilities constructed, and technologies developed; oil production companies today would happily secure profits from APG utilization. Unfortunately, even now, many are not ready to invest into APG utilization facilities. The payback period is quite significant and can reach 5 to 8 years based on different assessments. Production costs of APG products derived in the process of its utilization depends on many factors, such as remoteness of a field, gas-oil ratio, quantities of various contaminants, liquid hydrocarbons, water, and sulfur compounds contained in gas. A gas utilization method should be selected based on a combination of all these factors with a preliminary feasibility study to be conducted. APG can be processed to produce dry gas with properties similar to those of natural gas and broad fraction of light hydrocarbons (BFLH). BFLH is subject to further fractionation to produce various chemical compounds used  in the chemical industry.

   APG can be used for the generation of electric power needed to operate equipment directly in the field. APG can also be utilized for oil production by the gas-lift method.

   InterAviaGaz has developed a technology to produce condensed aviation fuel of APG. After minimal additional processing, this fuel can be used for helicopters and other aircraft.

   Condensed aviation fuel is 2-3 times less expensive than aviation kerosene. It also increases engine service life by 20-30 percent, reduces pollutant emissions and fuel consumption, and increases the flight distance by 5 percent. The project payback period is 4 years and requires an inital investment of 272 million rubles. However, oil producers are not in hurry to use this gas in their helicopters and prefer to flare it.

   Different sources provide different quantitative assessments of APG flared in Russia, since no reliable system for metering flared gas is available. According to domestic assessments, about 15-20 bcm of APG is flared annually in Russia. Western countries using satellite data estimate 50 bcm per year. According to the Global Gas Flaring Reduction Partnership (GGFR), which operates under the auspices of the World Bank, at least 150 bcm of gas is flared annually in the world. It increases annual greenhouse emissions approximately by 400 million tons, which is almost equal to the total annual reduction of emissions from projects declared under the Kyoto Treaty.

   Yet, there is good news too. Some oil companies have vast positive  experiences  with APG utilization, such as Surgutneftegaz, Sibur, ТNК-ВР, and TatNeft. In 2007, Surgutneftegaz achieved the highest level of APG utilization in Russia equal to 95 percent. ТNК-ВР and Sibur set up Yugragazpererabotka JV in order to ensure maximum efficient receiving and processing of all available APG.  This JV plans to process APG produced by other market participants as well.

   The RF government understands the importance of finding a solution to this problem. In August 2007, then president, Vladimir Putin directed appropriate agencies to bring the APG utilization level to an averaged world index of 95 percent. Initially it was planned to introduce high penalties for flaring more than 15 percent of produced gas starting from 2009 and for more than 5 percent starting from 2011. However, the global financial and economic crisis complicated the implementation of these plans as budgets decreased in size. The RF Ministry of Natural Resources (MNR) and Ministry of Energy (Minenergo) offered to postpone the introduction of the compulsory APG utilization rate of 95 percent until 2014, in order to ease the significant financial burden to oil companies.

   Head of the MNR, Yuri Trutnev, told OGE, “We proposed a stage-by-stage increase, but Minenergo offered a one-time increase starting from 2014 and we agreed.”

   Valeri Plotnikov, Chief Manager of Stroitransgaz’s gas projects believes that reduction of APG flaring requires significant investments; therefore, a special federal program should be developed to unify efforts of state, business and science for solving this problem.

   “The introduction of associated gas utilization requirements and penalties will not result in significant gas flaring reduction if factors preventing APG commercialization are not eliminated,” GGFR Partnership’s representative, Anastasia Rozhkova believes. “The gradual increase in domestic gas prices to stimulate investments and ensuring transparent access to the gas transport system are two other important steps in the right direction,” continued Rozhkova.

   In global terms, major APG flaring regions are Russia and the Caspian basin countries (about 60 bcm) followed by the Near East and North Africa (about 45 bcm), then countries of the Central Africa (35 bcm), and Latin America (12 bcm). The situation is much better in other countries. APG flaring is completely prohibited in the USA and Norway, and in 2004 the same prohibition was introduced in Kazakhstan as well. In other developed countries, APG utilization is between 97-99 percent due to the technologies of the oil majors and severe environmental requirements. So, there is a goal to strive for.

   Anton Gladchenko, Director of ТNК-ВР Associated Gas Processing Projects Department, made a report at the recent conference “Future of Gas Processing Plants in Russia.” In his report, Gladchenko outlined ТNК-ВР’s approaches to the existing problems, the progress to date and shared the plans for the future.  Anton Gladchenko recently sat down with OGE to further explain his views on the subect of APG utilization.

   Oil&Gas Eurasia: Can you comment on the fact that according to Western assessments, Russia and Nigeria are major contributors to air pollution due to flaring large quantities of associated petroleum gas?

   Anton Gladchenko: As a rule, Western specialists apply the satellite assessment approach to quantify gas volumes flared, and this method is not quite suitable because of its poor accuracy since quantification is based on thermal plume parameters. But the question is different. In our company we review a lot of projects of associated gas utilization. The thing is that there are not so many fields with a potential for utilizing gas, and it is not easy to find an optimal commercial and technical solution of APG utilization. In our opinion however, it is always possible to find a way to utilize gas; it can be processed, injected or utilized for some other purpose. Therefore, Russian oil companies can solve this problem providing that they have organizational and technical resources available as well as investment funds. Our experience proves it. Another thing is that funding of such projects is quite problematic under conditions of global financial and economic crisis.

   OGE: Why is it so difficult to implement APG utilization projects at certain fields?

   Gladchenko: It is caused by objective conditions. Fields differ from each other in gas-oil ratio values, i.e. in gas quantity per ton of produced oil. Gas composition can be different: gas can be fat in one field and therefore more suitable for processing, but it can be less suitable in another field. One of the most important conditions is remoteness from the existing infrastructures for APG utilization (gas processing plants (GPP), hydroelectric power plant (HPP), etc.). If a field is, say, at a distance of 30 km from a gas processing plant, it is not a problem to deliver gas there, but if it is 300 km, it will require quite different investments. Besides, it should be kept in mind, that gas production at oil fields is featured as a rule by increase in APG production at the initial stage with subsequent decline. It is different from production at gas fields with a longer production period. Thus, it is much more complicated to process APG under such conditions. At the initial stage, significant financial investment is required to create gas processing or electric power generation capacities, or anything else to process a maximum volume of produced APG. After a while, this capacity is no longer required, it becomes inefficient and does not provide a return on invested capital. Therefore, finding an optimum solution is sometimes difficult and requires a lot of time and efforts. It is possible to say that the majority of fields where APG is not utilized are remote fields, and for such fields the economics of APG utilization projects may be absolutely negative. It’s a complicated issue that cannot be solved overnight. Oil companies are to review all options and to complete design, research and survey works to be sure that they will select the optimal option before investing in it.

   OGE: Can small business enterprises be involved in this process?

   Gladchenko: As with any other project, a gas utilization process consists of engineering design, procurement, and construction stages. Small businesses can be involved at the design stage since many Russian design institutions do not meet modern requirements and the involvement of Western companies implies high costs. Modern, flexible small businesses with qualified specialists are quite welcome, though they need time to accumulate experience and earn reputation. As for procurement and construction, a potential for small business involvement is unlikely.

   OGE: How does the crisis impact APG processing projects?

   Gladchenko: There are two basic APG derived products, namely BFLH and dry gas with properties similar to those of natural gas. BFLH is then subject to further fractionation to produce propane, butane, and other valuable compounds. However, under the current crisis conditions, BFLH processing is unprofitable in its essence. Dry gas is a profitable product so far, but costs for APG processing are quite significant. For example, electric power costs are about 60 percent of the gas production cost at some gas processing plants. If electric power costs continue to increase further, APG processing will be absolutely unprofitable. The global financial and economic crisis has adversely affected these projects. Today the APG value sharply declined because APG products are not demanded in those quantities that were expected earlier. Many industrial productions that consumed dry gas and BFLH are now cut down or suspended.

   OGE: In your opinion, how will the situation in the industry develop?

   Gladchenko: It is difficult to predict something at the moment. I think that 2009 will be extremely tough. If the oil price stabilizes between at least $60-70 per barrel, it will allow companies to develop their businesses, though in less volume than in previous years.

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