Russian Oil Firms Turn Associated Gas into Valuable Resource

By Elena Zhuk, April 28, 2014

Gas Energy Operations and Petrochemicals & Gas Processing Products Sales, told the conference.

Among the factors influencing the APG pricing he singled out the lack of solvent quotations, lack of state regulation of this type of product, logistic limitations – the possibility of only using pipelines, and the high incremental cost of logistics compared to oil and petroleum products. “The lack of a justified price of APG is the problem,” Gurbanov said, adding that, according to LUKOIL data, the cost of APG production on average in the industry ranges from 4,000 to 5,000 rubles per 1,000 cubic meters, while estimated cost is 3,036 rubles per 1,000 cubic meters and the gas is eventually sold to gas processing plants at a price of 600 to 1,200  rubles per 1,000 cubic meters. In this situation, produced APG becomes a concern for the producer in terms of environmental responsibility and requires utilization, so the producer can honor his commitments to the public, while the gas processing plant is making a profit. 

LUKOIL also proposes processing gas with a C1/C2+ ratio less than 130 grams per cubic meter. According to data, cited by Gurbanov, such gas could yield more than 15 million tons of natural gas liquids. In addition to that, current taxation policy that has seen a hike of the subsoil tax from 14 percent in 2008 to 27 percent in 2013 makes gas processing of low-fat gas non-viable economically. The company intends to submit a proposal to the Energy Ministry requesting reduction of the subsoil tax rate on gas, which could be delivered for high conversion with greater content of fat fractions. According to LUKOIL’s calculations, under this scenario the revenue from high conversion would be higher than the loss of potential gain resulting from a lower subsoil tax rate. 

According to Energy Ministry’s official statistics, the rate of APG utilization in 2011–2012 totaled 76-79 percent, in 2013 it reached 78.8 percent and this year it is expected to hit the 85.4-percent mark. Among Russia’s vertically integrated oil companies who account for 86 percent of national APG production, Surgutneftegaz was the 2013 champion utilizing 99.3 percent. Tatneft trailed in second place with a 93.6-percent utilization rate. At the bottom of the list were Rosneft (63.6 percent), Russneft (77.1 percent) and Gazprom Neft (79.5 percent).   

The utilization rate, traditionally determined to a large extent by the level of development of infrastructure, also varies from one region to another. In West Siberia it stands at 91.2 percent – the highest margin nationwide – followed by 80.1 percent in the European part of Russia and rock-bottom 41.5 percent achieved in East Siberia.  

For example, at Vankor field, on which Rosneft has put its stakes seeking to expand the company’s gas portfolio, last year’s APG utilization rate was less than 1 percent, according to official statistics (as of October 2013). In November, that figure rose to 10.6 percent and last December it surged further 16.9 percent. Sharp growth occurred after Rosneft began to reinject