Oil producers blamed for burning gas

The Russian President has demanded oil companies stop flaring billions of cubic meters of associated gas, but analysts warn Russia’s infrastructure cannot cope yet with the situation.

Every year Russian oil firms waste up to 50 BLN cubic metres of associated gas – a by-product of crude oil. That’s the national consumption of France. Advanced technologies can curb the wastage practically to zero. They say it is cheaper and easier to burn off this gas, than sell it through the gas-refining monopoly Gazprom at the government-fixed low price.

The issue is now being tackled by President Putin. He has told energy companies he wants 95% of associated gas to be in use by 2011.

“This wastage is unacceptable. Some of those present at this meeting are themselves guilty. We must increase environmental penalties and create stricter licensing requirements for subsoil users,” stated Vladimir Putin.

However, analysts say the government is just saddling oil companies with increased costs, until an agreement is made with Gazprom to use its distribution network.

“You still have to put it into Gazprom’s transportation system in order to be able to sell it. There is no reliability in Gazprom’s attitude towards this. Gazprom can take gas into the system but it can also refuse,” claimed Ivan Mazalov, the Director of Prosperity Capital.

The situation is made worse by a lack of infrastructure. Special adviser to the President, Sergey Fedorov, says no new associated gas processing facilities have not been built for up to 30 years.

Although all agree gas waste is a strain on the environment, as well as the economy, solving the problem remains the burning issue.