The Russian oil industry's nimble hands

07.03.2013 — Analysis

The Russian government is stiffening the penalties for the excessive flaring of associated petroleum gas. However, enormous fines are not achieving the desired result - in 2012 half a billion more cubic meters of gas was burned at the site of petroleum deposits than in 2011. And experts suspect that the numbers provided by oil and gas companies are seriously understated. This columnist for RusBusinessNews has uncovered evidence that the system for keeping track of associated gas is overrun with casual lies and chaos.

The RUPEC Information and Analysis Center, created by the Russian Union of Chemists, published a report on the production and processing of associated petroleum gas (APG) in 2012. It includes some very odd numbers. The national average utilization rate for APG was 75% - although one year ago the Russian government required companies to bring that up to 95%. Only two companies managed this task - the rest had to pay a fine of six billion rubles.

Significant progress has not been seen in the utilization of associated gas: the supply directed to gas-processing plants increased by 5% - which was exactly the same as the level of increase in the production of APG, although there is no direct link between these two numbers. Of the 72 billion cubic meters of petroleum gas extracted in Russia, 17 billion were burned in flares, which is 2% more than in 2011.

The situation is somewhat better specifically in the Khanty-Mansi Autonomous District, where flaring was reduced by 26%, due to the introduction of new gas-processing plants and compressor stations. But experts were not sufficiently impressed by this, first of all, the production of APG is declining in Yugra, and second - there is no reason to believe that the figures released are particularly trustworthy.

RUPEC's report notes that 4.29 billion cubic meters were burned in the Khanty-Mansi Autonomous District - Yugra in 2012. The Central Dispatch Office of the Fuel and Energy Complex, a federal state unitary enterprise, presented the data to the analytical center, which was subsequently further clarified by the regulatory agencies (Rostechnadzor and Rosprirodnadzor) and directly by the oil companies themselves. However, an inspection by the prosecutor's office in Yugra in February 2013 found that over five billion cubic meters of gas were flared.

Mikhail Alshevsky, the district prosecutor in charge of environmental protection, explained to RusBusinessNews that the number of five billion that was reported was derived from the official data provided by the companies. But the monitoring agency cannot confirm whether this figure accurately reflects reality, because Rostechnadzor has not finished its inspection of the flares. There is no data about how many cubic meters of gas the gas-processing plants actually received.

Meanwhile, even without Rostechnadzor's findings, one can easily draw the conclusion that oil and gas companies have muddled the numbers, providing regulatory agencies with different data each time. Vladimir Arutyunov, a professor of gas chemistry at the Gubkin Russian State University of Oil and Gas, is not willing to comment on the numbers provided by the companies, "I have the sense that everyone writes down what his boss wants or requires. So it would actually be surprising if all of this data of unknown origins was consistent."

The oil and gas companies found guilty of manipulating numbers were furious at the regulatory agencies. For example, Rosprirodnadzor's office overseeing the Khanty-Mansi Autonomous District (Yugra) ordered Gazpromneft-Noyabrskneftegaz, OJSC to keep reliable records of the amount of associated gas that was burned in a number of low-pressure flares. The company was aggrieved by this directive and demanded that an arbitration court rescind it. At the hearing, however, it was determined that the volumes indicated in the reports that were submitted about associated gas burned at low-pressure flares did not correspond to the readings recorded in the logs from the measuring equipment.

After this, the obvious inconsistencies in the oil and gas companies' reports were hardly surprising. For example, in 2012 the amount of associated gas flared at the very same company, Gazprom Neft, increased by 18%, although the production of APG rose 41%! In addition, the level of APG that is beneficially utilized grew by 0.3% overall in Russia, although Gazprom Neft's processing rates are somewhat higher due to the fact that a number of fields were fed into the Vyngapurovsky gas-processing plant in 2012, but the difference between the volume produced and the volume flared is still significant. Andrei Kostin, the director of RUPEC, believes that this discrepancy can be explained by the fact that Gazprom Neft accounts simultaneously for both the associated as well as the natural gas from the Muravlenkovskoye field. Thus an image is created of the increasing utilization of APG.

Reports filed by Surgutneftegas, OJSC are also puzzling. According to that company's official statements, 95% of its petroleum gas is utilized. But experts have reasonably questioned how the company will be able to withstand the lengthy, planned closures of gas-consuming facilities at such low levels of flaring. Andrei Kostin has the impression that Surgutneftegaz possesses a duplicate infrastructure and the reserve capacity to take in gas from the facilities that are shutting down.

But employees from the Institute of Petrochemical Synthesis of the Russian Academy of Sciences assured this columnist from RusBusinessNews that Surgutneftegaz has no reserve capacity. Therefore, when the gas-consuming facilities close, the company will have two choices: to either pump the APG back into the ground or burn it. The third alternative - processing this valuable raw material at small, modular installations in order to produce liquid chemical products - is seen as a goal for the distant future. Thus one can conclude that if the system for collecting or using APG is not working and if a company is reporting levels of flared gas that are not higher than previous amounts, it should be investigated immediately.

In addition to the outright lies offered by the producers of APG, there is yet another problem in the system for accounting for petroleum gas. Experts claim that the vast majority of Russian flares are not equipped with metering devices of any kind. In addition, associated gas is a multicomponent substance, and it is very difficult to meter its transient hydrocarbons. For example, one specialized Internet forum claims that Gazprom tried unsuccessfully to achieve this for ten years - at times the equipment fails (due to the active chemical composition, high pressure, sulfur), and at times the composition falls short. Nor can the instruments be trusted: the participants in the forum ascribe a variety of measurement errors to them, ranging as high as 30%. Consequently it is not possible to adopt a universal system of metering. And even when something is measured, it is not entirely clear what it is.

Vladimir Arutyunov believes that it's only possible to estimate the total amount of associated gas produced in Russia by making calculations. If you take the national average gas-oil ratio (which is about 110 cubic meters of gas per ton of oil) and multiply that by the amount of "black gold" produced, and then subtract the amount of usable APG available to businesses, the difference will be equal to the volume of petroleum gas that is being burned.

Experts, however, say that if you want, you can get even more accurate data. To do this, says Genrih Abramov, the managing director of Sibnefteavtomatika, OJSC, one has to use different measurement tools and auxiliary devices - such as sensors that measure the pressure and temperature of the environment - in order to provide meteorological support by using measuring equipment at the centers of oil production. That of course would be expensive, but it would make it possible for the state to tally the actual amount of cash that is being burned.

But the hitch is - does anyone in Russia today need this? Representatives of oil companies openly write on the forums that "actually, a meter is only needed to meet the requirements of Rostechnadzor and other inspection agencies." Therefore, oil and gas producers are only concerned about minimizing the cost of its installation. The regional authorities meanwhile publicly offer to release oil and gas companies from the threat of administrative sanctions for induced and excessive APG flaring and suggest handing over the right to monitor oil companies to the Russian territorial entities.

Vladimir Terletsky