Companies guilty of wasting gas to face fines

The government is calling on oil companies to utilise more of the gas produced as a by-product of oil extraction – usually called associated gas. It wants the industry to reduce flaring – or burning off waste gas – and to

The issue has twice been mentioned by President Vladimir Putin as an area for major reform, but change in the industry is slow. Now, the Ministry of Natural Resources has promised to publish a list of fines to be levied on companies that fail to cut back on wastage. However, experts say that the facilities are not in place to make saving worth while.

Currently, about 20 billion cubic metres of gas is flared off annually in Russia – almost equivalent to peak production at the new Yuzhno-Russkoye field.

In the past the problem has been ignored, but now it's again rearing its head as the issues of environmental management and production efficiency loom ever larger.

Oil companies believe that a government target of 95% use of the by-product can be achieved by 2011. They are also saying that support and significant infrastructure investment is needed.

“It would require investing into a gas-gathering system from different oil fields. It would also require investing into new gas-processing facilities and plants and it also would require the bottle-necking of a major pipeline like the southern corridor of Gazprom, which is where the assets of most Russian oil companies producing associated gas are located,” said Vitaly Yermakov from Cambridge Research Associates.

It does not make economic sense for oil companies to build new gas-processing plants, with the gas volumes generated insufficient to warrant the investment needed. What this means is that companies are looking at joint ventures and shared costs to manage the issue.

“The practical way forward is the formation of joint ventures of companies like Sibur and TNK-BP, which are trying, step by step, to really create, essentially from scratch, this very complex system of gas gathering, gas transportation, gas processing and gas chemistry. That is really sort of new level for Russia,” explained Yermakov.

While companies like Surgutneftegas are already successfully utilising over 90% of their associated gas, others are only just beginning.