In a speech in September 2009, President Medvedev clearly formulated the goal of achieving world energy leadership by introducing new resource-saving technologies based on intense processing of renewable raw materials. Sergey Chemezov, head of the Rostekhnologiya corporation, was delegated the task of introducing high-efficiency technologies both in production and in the area of all public utilities on the basis of six key energy efficiency and energy conservation projects: “Count, Save, and Pay,” “New Light,” “The Energy-Efficient Residential Quarter,” “Small-Scale Integrated Power,” “Innovative Energy,” and “Energy-Efficient Technologies in Government Institutions.”
Today, development and implementation of a new energy policy based on the highly efficient use of every ruble invested, is becoming one of the main priorities for taking the Russian economy to a qualitatively new level. This trend is based on increasing the volume of production and the export of fuel and energy resources produced by major Russian companies combined with organizing a broad regional network of autonomous private/municipal fuel and energy conglomerates that produce inexpensive forms of fuel, heat, and electricity and are located as closely as possible both to raw material sources and to consumption locations.
The pressing problems at the current stage of development of Russia’s leading oil and gas companies are further growth in capitalization, profitability, and performance of production investments, reduction of expenses at all stages of production processes, and improvement of environmental indicators. In many cases, it is possible to achieve these goals by actively implementing the latest Russian breakthrough technologies to conserve energy resources and high-tech equipment, which have short payback periods. Conserving energy resources, a business necessity for profitability, is now a pressing requirement in light of the constant growth of energy prices and the looming shortage of electrical energy, which are hampering rapid development of most sectors of the Russian economy.
In turn, effective energy conservation, which is a powerful “hidden” investment resource, makes it possible to accelerate the resolution of the most important strategic national problems, such as achieving sustainable GDP growth, increasing national economic competitiveness, and assuring energy security. The international obligations that Russia assumed by signing the Kyoto Protocol and by its impending entry into the World Trade Organization also require increased energy and environmental efficiency in all areas of economic activity.
Currently, the most pressing obstacle to implementing a national energy conservation program for Russia’s oil and gas complex is the use of associated petroleum gas (APG). For quite a long time, oil companies considered associated petroleum gas to be a waste product of conditioning oil before it is pumped into pipelines. Nevertheless, a small part of the products extracted from APG is used as an energy fuel to service fields (in mini-generating stations and boiler rooms), and the rest is flared, releasing an enormous amount of carbon dioxide and soot into the atmosphere. According to data of the social organization Ecological Movement of Concrete Actions, in the past year, the volume of atmospheric pollution from flared APG was 12% of the country’s total volume of harmful emissions. Meanwhile, if associated petroleum gas were to be collected using gas capture systems, and if compressor stations were built and the APG were to be delivered by special pipelines to gas processing plants, it would be possible to produce many valuable products. In particular, these include dry stripped gas, whose product characteristics are close to natural gas, allowing it to be transported through Russia’s Unified Gas Supply System (UGSS) or used to generate electricity. Moreover, APG contains propane, butane, natural gas gasoline and natural gas liquids, which are key raw materials for the gas processing industry.
Russian Ministry of Energy statistics indicate that in 2009, Russian oil companies produced around 2 TCF of associated petroleum gas. The Sibur company, the main processor of associated gas, processed 494 BCF of APG and produced 353 BCF of natural gas liquids. At the same time, the Russian Ministry of Natural Resources and Ecology indicates that every year, companies write off around 47% of associated gas to process losses or use it for field needs, flare approximately 27%, and send only 26% for further processing, i.e., compression and gas fractionation. Today, many oil field license tracts lack metering systems, record-keeping documentation, atmospheric emission monitoring schedules, and a transportation infrastructure that would allow associated gas to be sent to gas processing plants. Independent experts estimate that the average level of APG recovery at Russian flaring systems was around 70–75% in the past year (that is, 25–30% of the APG, or around 530–706 BCF of gas, was flared). Russian Ministry of Natural Resources and Ecology experts have calculated that Russia loses around 139.2 billion rubles every year due to APG flaring alone, although the total benefit from APG processing in the country could amount to 362 billion rubles per year.
According to Sibur company data, only 24% of the total volume of APG produced is now sent for gas fractionation, which involves separating the liquid fraction or natural gas liquids from unstable hydrocarbon gases or condensates. In turn, only 42% of the total volume of associated gas sent for processing comes out as natural gas liquids and liquefied gases, and the remaining 58% is either used as fuel, or is exported and used for the same purpose. It turns out that, after all these transformations, only 10% of the total volume of APG produced in Russia is used to create chemical products with high added value. It can thus be concluded that the volume of APG involved in the production of expensive products in Russia is still too low. Incidentally, the US captures 97% of APG, and Norway completely prohibits flaring of associated gas.
Russia is already taking certain steps in this direction. For example, the long-awaited government decree freeing the price of APG sent to gas processing plants met the approval of the oil and gas community. However, this step fell far short of resolving the problems of the APG market. So far, the economy of projects depends greatly on the price of dry stripped gas, which is regulated by the government and still remains at a low level. To a certain extent, the freeing of the APG price eliminated some investment risks, but it did not in and of itself radically increase the attractiveness of investment in projects. Oil companies still face problems with delivering dry stripped gas separated from APG to the Unified Gas Supply System. Another factor that negatively influences the profitability of projects to collect and transport APG is the enormous distance between the fields developed by oil workers, gas processing plants, and petrochemical plants, which are frequently located in another part of the country. The number of pipelines for transporting gas condensate in Russia are all too few; for example, only a small transport line connects Tobolskneftekhim with the Sibur gas processing plants. For the most part, therefore, natural gas liquids have to be transported in railroad tank cars, and this greatly increases costs.
Unfortunately, there are complex systemic obstacles on the road to an efficient and comprehensive solution of this problem, but it is encouraging that the Russian government is now taking decisive steps to solve them. On February 13, 2008, the Public Council of the Russian Federal Service for Environmental, Technological, and Atomic Oversight approved a new version of a draft Russian government decree, “On Measures to Reduce Atmospheric Air Pollution Caused by Combustion Products of Flared Associated Gas,” whose provisions create real incentives for oil companies to develop technologies for collecting APG with the goal of separating valuable petrochemical products. On March 26, 2008, a government committee on the fuel and energy complex met in Moscow and thoroughly examined issues of APG recovery. Proposed measures included: creating an effective gas control system, implementing stricter licensing, and even substantially increasing environmental fines for exceeding limits on atmospheric emissions of harmful substances as a result of flaring gas. The meeting set the clear goal of increasing the volume of associated petroleum gas used to 95% by 2011. Companies that take real steps to utilize APG will receive preferential access to gas transportation networks and energy infrastructure. Duties on the export of propane/ butane fractions or liquefied petroleum gas (LPG) produced as a result of processing associated petroleum gas will also be abolished (currently, the export of LPG is subject to a duty pegged to the price of Urals-grade Russian oil on world markets). Thus, the government is striving to increase the attractiveness of investments in the APG segment in various ways.