The Sixth International «APG 2015» Conference was organized by CREON Energy in Moscow on March 23. The event was supported by WWF and All-Russian Non-Commercial Organization Business Russia. Russian Business Newspaper was the General Media Partner.
APG flaring or its utilization, investing in technologies or staying on the old track – the controversy concerning associated petroleum gas is still unabated for several years now. The difficult economic situation undermines positions of E&P companies. It is the right time for the government to take a tough stance against intimidation attempts of the oil companies to mitigate penalties for gas flaring. Even a possible downturn in oil production should not count.
Sandjar Turgunov, General Director of CREON Energy, noted in his welcome address that the APG conference is held within the “Rational Approach” Project. In December 2014, the results of the first RussianEnvironmental Responsibility Rating of Oil & Gas Companies were announced and revealed the real achievements of companies in utilization of associated petroleum gas. Some of them accomplished the target value of 95%, while others still have to invest major efforts in this field. CREON Energy as a consultant in the petrochemical sector constantly emphasizes the value of APG as a feedstock. However, in the current crisis, oil companies are trying to find the ways to reduce fines for gas flaring. Mr. Turgunov said that it is important now to stick to the government’s enforcement policy aimed at utilization of associated petroleum gas despite the difficulties of E&P companies. Otherwise, the implications for the already commissioned projects in oil and gas processing will be extremely negative and irreversible.
The address by Oleg Lebedev, Member of the State Duma of the Russian Federation, Member of the State Duma Committee for Natural Resources, Environment and Ecology, said that the rational use of APG was one of the main topics of the Parliament hearings devoted to the «Legislative regulation of improving the investment attractiveness of subsoil and off-shore use of mineral resources in the Russian Federation» held recently by the Committee. The participants estimated that the Russian budget is missing more than $15 billion as a result of APG flaring, while the oil companies are losing even more.
Natalia Sokolova, Head of State Environmental Control Department at the Federal Service for Supervision of Natural Resource Usage (Rosprirodnadzor), presented the results of APG use inspections held in 2014. The Department conducted 77 inspections on 218 licenses; 59 instructions were issued. Main violations were non-compliance with conditions of license agreements with respect to APG utilization and deviation of actual APG production and utilization from design target values. The speaker noted that final figures of Rosprirodnadzor activities regarding APG utilization in 2014 were still to be published. In 2013, oil companies were charged 2.2 billion rubles in penalties; the average APG utilization figure was 83.4%. The leading Russian region in APG flaring was Siberian Federal District (4.4 mln cub. m); followed by Ural Federal District (3.3 mln cub. m). At present, 84% of facilities in Russia are equipped with measuring devices, and it is necessary to increase this number.
As Mrs. Sokolova explained, the lack of unified APG utilization database makes it difficult to conduct comprehensive accounting and analysis. Currently, the data is spread between the Ministry of Energy, the Ministry of Natural Resources, and the E&P companies, so the aggregated information has a considerable margin of error. The unified data center that would collect and monitor information on APG is a necessity. Rosprirodnadzor is ready to take over the functions of such a center. Apart from this, Rosprirodnadzor proposes to establish a legal definition of «associated petroleum gas» and to tighten the responsibility of the businesses with respect to ensuring instrumental quality control over APG at all stages – from production to processing and sales.
Representatives of oil companies commented on APG utilization issues. According to Akhmed Gurbanov, Chief Manager ofCoordinating Department for Gas and Energy Activities and Petrochemicals and Gas Processing Product Sales at Lukoil, oil companies consider APG utilization to be the necessary environmental part of their activities, but it is far from being commercial. Long-term practices have proved the negative margins of such projects. The ongoing drop in oil prices is aggravating the situation even more: revenues from APG utilization continue to decrease. «Public authorities have considerable opportunities to soften the financial burden on oil companies. But will the government take this opportunity, is a question», noted Mr. Gurbanov. He stressed that the oil industry will comply to legislation in any case. However, if nothing changes, the margins of oil companies will decline, and the revenues of the budget will fall accordingly.
Salym Petroleum Development (SPD) reached the 97.2% rate of APG utilization in 2014, said Elena Gerasimovich, Head of Environmental Response Unit of the company. The achievement became possible due to implementation of the company’s program aimed at rational use of associated gas and, in particular, upon commissioning of APG processing unit of SPD at Salym group of fields in 2012. The facility performs processing of the full volume of associated gas produced by SPD at Salym group of fields, and also at Shapshinskaya group of fields, developed by RussNeft Company. Incoming APG is processed into dry topped gas, natural gasoline and propane-butane mixture. According to Elena Gerasimovich, good operation rates of the plant can be explained by proximity of the license areas to each other, which provides an opportunity to make use of a single infrastructure.
Overall by 2014, there had been a steady trend to reduce flaring inRussia. However, there is a risk now that the current difficult economic situation can change this trend. Such a concern is shared by Alexey Knizhnikov, Extractive Industry Environmental Policy Officer at WWF Russia. Various sources estimate the volume of flared associated petroleum gas from 15 to 30 billion cub. m per year.Eastern Siberia (44%), Khanty-Mansi (25%) and Yamalo-Nenets (11%) autonomous districts are among the three largest regions flaring the APG.
The target rate of 95% of APG utilization was achieved by five companies in 2013: Gazprom, Salym Petroleum, Sakhalin Energy, Surgutneftegaz and Tatneft. The speaker mentioned that the best utilization rates for APG projects with foreign participation belong to Sakhalin-2 and Salym Petroleum, where information is transparent and rational use of APG is high. At the same time, Mr. Knizhnikov noted, Sakhalin-1 (Exxon Neftegaz) and Kharyaga PSA (Total and Statoil) projects are not providing information on APG utilization at all.
In February 2015, five Russian oil & gas companies addressed President Vladimir Putin asking support to the oil industry, including reduction of calculation ratios for penalties for excessive gas flaring for the period of economic crisis (until 2018). However, as Minister of Natural Resources Sergey Donskoy was quoted, «… postponement of measures for APG utilization can hardly be considered as lifting administrative barriers …». WWF believes that an effective crisis response measure would be lending support to gas processing industry in APG utilization.
It is unreasonable now to continue offshore oilfield development in the Arctic as environmental and economic risks are high. More affordable alternatives include APG processing rather than flaring, development of infrastructure for gas processing at traditional fields, improving recovery index, replacement of pipelines.
Higher utilization of APG becomes increasingly important in the light of the expected growth of its production. According to Elena Strakhova, Leading Expert of CDU TEK, the forecast for 2015 is 78.3 bcm of APG production (compared to 76.2 bcm in 2014), with estimated 10.5 bcm to be flared. About 86% of produced APG traditionally belongs to operations of vertically integrated companies, and the share is expected to stay the same in 2015. The forecast for APG utilization rate is 86.6% in 2015 (compared to 84% in 2014). The speaker noted that back in 2010 the utilization rate was 76.3%, i.e. the rate grew by 7.7% in 4 years, and it should be increased by the same value in the nearest future.
Main application of APG is its processing at gas processing plants. 49% out of utilized 84% of APG was processed at GPPs. 20% was consumed in-plant and accounted to losses, 8.5% was supplied to the gas transportation system, and 6.7% was delivered to local consumers. The highest APG utilization rate was recorded in theSouthern Federal District (96.3%) and Ural Federal District (93%). The lowest rate of 58.7% was in Siberian Federal District.
Thus the volume of APG production grew by 2.6% in 2013-2014 and will increase by another 2.8% in 2015. The volume of gas flaring fell by 22.8% and will decrease by 13.9% in 2015. The expert summarized that rational use of APG grew by 5.2% in 2014 and will increase by 2.6% in 2015.
Bakhtiyar Karimov, Regional Coordinator of the World Bank forEurope and Central Asia Global Gas Flaring Reduction public-private partnership (GGFR), spoke on activities of GGFR. The purpose of this Partnership is reduction of APG flaring worldwide. Participants work cooperatively on elimination of the barriers interfering gas flaring reduction by the use of the best international experience and implementation of special country programs. In particular, it is planned to reach 30% reduction of APG flaring by 2017 (from 140 bcm in 2011 to 100 billion by the end 2017).
According to the speaker, the satellite data show that Russia is on the top of the list of countries where gas flaring is occurring, then followed by Nigeria, Iran and Iraq. In this case, the official information on the volume of flared gas has discrepancies with the satellite data. For instance, in 2011 the difference was almost two-fold: 16.7 billion cub. m versus 37.4 billion cub. m.
Mr. Karimov said that the main obstacles for the development of APG utilization in Russia include geographical factors, imperfection of legislation, structural and economic constraints.
GGFR actively cooperates with the government of Khanty-Mansi autonomous region, providing technical assistance in improving accounting for flared gas volumes, as well as in searching for the most effective and economically feasible approach to APG utilization. As a result of this work, several APG utilization projects were implemented within the regional program in 2007-2010. Activities in Khanty-Mansi autonomous region are continued; several new projects have been determined and prepared for implementation in the nearest future.
Gazprom has elaborated the program of measures aimed at synchronizing its activities with independent suppliers of associated gas in order to improve the efficient use of APG in Russia. This was commented by Ivan Kaznacheev, Chief Technologist of Marketing, Gas and Liquid Hydrocarbons Processing Department. Gazprom has spare capacities for APG processing, so the proposals for joint projects on rational use of associated gas were sent out to independent E&P companies. The feedback is being processed now.
Aleksey Shatalov, Head of Laboratory at Tatneft Company’s TatNIPIneft Institute, spoke on specifics of associated gas utilization at oilfields in the Ural-Volga region. Given the small amount of gas and high concentration of hydrogen sulfide, the optimal solution is refining of APG. Now the region has 8 oil refineries, with operation rates much lower than full capacity. Creation of compact GPP blocks is rational only when the deposits are spread over remote distances from the existing gas processing plant.
For the past three years, 3 compact GPP projects were implemented in Samara region; they have small capacity (18-80 million cub. m per year) and were all launched directly by oil companies. Products of APG processing at these plants include dry gas, NGL, technical propane butane mixture and natural gasoline.
The compact GPP project at Irgiz field in Samara region showed that the Russian market of such small plants (capacity up to 100 million cub. m per year) is underdeveloped. There are only several companies that are engaged in development and design, and their services cost often more or the same compared to offerings by foreign companies.
In 2015, Gazprom Neft plans to increase the level of APG utilization to 84% from current 81%. Maksim Misharin, Head of Projects Implementation Department at Gas Business Development Directorate of Gazprom neft, spoke on the company’s results in 2014 and its plans for the next three years. According to him, Gazprom neft is able to achieve the 84% rate through collaboration with Sibur. This would mean supplying APG to South Priobskiy GPP, where the gas will be processed into the final product by Sibur. GPP is scheduled to be commissioned in the end of 2015.
While back in 2010 APG utilization rate of Gazprom Neft was at 55%, the company is expected to reach the 95% rate by 2020. Another problem to solve is infrastructure development at oilfields. Mr. Misharin noted that operation of APG-rich oilfields is unprofitable because it is necessary to build expensive infrastructure to collect large amounts of associated gas, which will not bring return on investment anyway. In such cases operations are stopped, said the speaker, and added that the Company did have such examples.
Major projects of Gazprom Neft for the next few years are Messoyakha and Novy port in Yamal-Nenets autonomous region, and also the Western group of fields in Orenburg region. In particular, two options of APG utilization are considered at East Messoyakha oil and gas condensate field: reinjection or supplies to Gazprom’s gas transport infrastructure. The final decision will be taken by Rosneft together with the project partner.
Stephanie Saunier, Senior Manager of Carbon Limits, suggested several technologies for APG utilization at small fields. According to her, a standard technical solution for utilization of associated gas does not exist, and technology that is suitable for some oilfields, is not suitable for other fields. Solutions for small and medium-sized oilfields are becoming more and more important, as most of large oilfields have solved the problem of APG utilization. According to Ms. Saunier, utilization problem can be effectively solved by small modular units. Many of these technologies have been tested and are used for processing small volumes of gas; they are scalable upwards and downwards. Also, apart from applying technologies, some oil companies are trying new approaches to APG, such as leasing the necessary equipment.
Lubov Matich, Chief Expert of the International Scientific and Educational Foresight Centre ISSEK HSE, spoke about management of innovation activity in the field of production and utilization of associated gas with the help of technology roadmaps.
Yugra Gas Processing Cluster is taking practical steps towards improving APG utilization rates. According to Igor Loparev, General Director of the Cluster, the mission of the organization is to achieve or to exceed the 95% rate by joining the efforts of oil and gas companies. The Partnership is actively involved in establishing «cluster development centers», including APG processing complex (feedstock capacity of 600 million cub. m per year, pipeline for dry topped gas supply to Gazprom’s transport system), LNG plant for autonomous gas supply (capacity up to 25 tons per hour) and APG to natural gas conversion unit (capacity up to 1 thousand cub. m per hour).
One of the reasons for flaring large volumes of APG in Russia is the lack of effective equipment based on small-scale GTL technology, said Sergey Dolinsky, General Director of Gazohim Techno. Currently Gazohim Techno is the only company in Russia that developed technological solutions able to solve the problem of gas processing efficiency based on compact GTL technology; it attracted investment in Russia and started construction of a pilot compact GTL plant for processing up to 12 million cub. m of APG per year at the field in Komi Republic.
Dean Fantazzinini, Associate Professor at Moscow State University, presented a paper devoted to the economics of GTL & CTL Technologies. Today there are three problems to solve. First, significant amounts of coal and gas would be required to obtain anything more than a marginal production of liquids. Second, the economics of CTL plants are clearly prohibitive, but are better for GTL. Nevertheless, large-scale GTL plants still require very high upfront costs, and for three real-world GTL plants out of four, the final cost has been so far approximately three times that initially budgeted. Third, both CTL and GTL incur significant environmental impacts, ranging from increased greenhouse gas emissions (in the case of CTL) to water contamination. Environmental concerns significantly affect successful implementation.