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Company in Mass Media

Associated petroleum gas utilization. Medium-sized business factor


The issue of improving efficiency of natural resources consumption, raised to the Russian economy at the International Economic Forum in St. Petersburg in June 2016, was officially reinforced by declaring 2017 as the Year of Environment. This raises the importance of associated petroleum gas utilization by Russia’s biggest budget revenue generating industry, which burns APG on a scale of over 35 billion cubic meters a year – the biggest figure worldwide, WWF experts say.

Given the extent of global crisis and drop in oil prices, Russian authorities seem to be forced to change their attitude towards processing associated petroleum gas.

Just two years ago, Ministry of Natural Resources was seriously considering the oil industry’s request to abolish mandatory 95% utilization requirement for APG. Arkady Dvorkovich even suggested removing this provision from licensing agreements for extracting companies at a government meeting in December 2013. However, Sergey Ivanov, then Head of President’s Staff at the time, delivered a clear message at the SPIEF this year – environmental issues should not be neglected. Economists chimed in, calculating that flares at the oil fields literally burn 3.5 to 4.5 billion dollars a year.

Another clear indicator of the change in subsoil use policy was the Deputy Prime Minister Alexander Khloponin’s word to the President suggesting adjustment of the auction conditions for Erginskoye oil field in Western Siberia. According to the Deputy Prime Minister, only those Russian companies that guarantee processing at least 95% of the associated petroleum gas shall be allowed to take part in the auction.

Specialists believe smaller oil companies will be able to play a significant role in APG processing, as they are ready to adjust instantly to the new rules of the game, they are more sensitive to hefty fines for violating norms than major oil producers, and their compact management structure is more efficient in making decisions, including investment-related ones.

A good example of successful APG utilization is Rus’-Oil, a company that recently declared it intends to process 95% of associated petroleum gas by 2018.

NGDU Dulisminskoye LLC in Irkutsk Oblast, which increased production from 850,000 tons in 2013 to 1.5 million tons in 2016 and intends to cover all its demand for power at the oilfield by burning APG in a gas turbine electricity-generating station (GTES Ural-6000).

Rus’-Oil went even further in Nenets Autonomous Okrug and launched a low-pressure gas compression unit at the Polyarnoye Siyaniye Company LLC site, which allows using the finished product as cheap motor fuel. However, it is still too early to talk about any significant application of the technology at this moment. The company will be the main consumer of the fuel produced. Entering the regional market will require additional investment and a further increase in extraction.

Rus’-Oil has plans to build a factory processing associated petroleum gas into agricultural fertilizers and polyethylene products, along with Euro 6-compliant diesel fuel, which arms processors with significant export capabilities. The logistics remain to be sorted out, though. Low prices of the fertilizers and other chemicals produced by the factory have to be compensated by substantial production volumes, which means simple and affordable transportation scheme is required. If the factory is built from the ground up, in an area with underdeveloped infrastructure or far from major industrial and economic centers, the cost of building access roads would probably outweigh the project’s economic appeal.

However, our analysts say the demand for APG will continue to rise in the nearest years, along with the energy production industry operations and tariff policies of the sales companies.