August 18, 2011 / 12:57 PM / 8 years ago

Crude gains cause gas headache at Russian oilfield

IRKUTSK, Russia (Reuters)- By speeding up output growth at one of Russia’s newly-tapped East Siberian oilfields the operators have given themselves a headache — they are producing much more gas and have little choice but to flare it.

New oil from Verkhnechonsk, launched in 2008, has helped Russia maintain modest crude output growth over the past two years and secure new markets in Asia, even as declines accelerate in the Soviet-era oil heartland of West Siberia.

Encouraged by high oil prices and low taxes for new fields, Anglo-Russian oil company TNK-BP TNBP.MM and its partner in Verkhnechonsk, state-controlled Rosneft (ROSN.MM), pledged extra investment to bring the field to peak output four years early.

It is now expected to produce 7.5 million tons a year from 2014, instead of 2018.

It will pump 4.9 million tons this year, (nearly 100,000 barrels per day), increasing to 6.5 million tons in 2012, Igor Rustamov, head of operator Verkhnechonskneftegaz, told reporters at its headquarters in the Siberian provincial capital Irkutsk.

The plans for accelerated production growth were approved by regulators in Moscow this month, Rustamov said.

But the field is also richer in so-called associated gas than other major Russian fields. And for now, the more crude oil pumped at Verkhnechonsk, the more gas has to be wastefully flared for lack of other possible uses.

The industrial city of Irkutsk, 1,200 km (750 miles) away from Verkhnechonsk on the banks of Lake Baikal, is the nearest major urban gas market. Without a pipeline link, Verkhnechonsk can burn only some of the gas at its own two small power plants.


Russia flared 35 billion cubic meters of gas last year, down from 52 bcm in 2007 but still more than any other country, according to World Bank estimates based on satellite surveillance.

Gas flaring worldwide accounted for 1.2 percent of emissions of carbon dioxide, a gas responsible for global warming, according to climate-change scientists.

Russia wants to cut flaring to just 5 percent of associated gas volumes from the end of this year. Industry officials say privately that the goal — which has been repeatedly delayed — will impose huge costs.

For now, TNK-BP is pursuing what it sees as its best option, pumping the gas back underground in hope of retrieving it later.

The planned re-injection facility — powered by a 1 billion cubic meter per year compressor now under construction at General Electric (GE.N) — will start working at Verkhnechonsk at the end of 2013, just before the field hits peak production.

It will also add a third, larger power station to consume more gas for its own electricity needs.

The strategy, Rustamov said, reflects hope that the operators can eventually pump the gas out of underground reservoirs and into still-unbuilt East Siberian pipeline infrastructure for delivery to clients in Russia and abroad.

“Just 250 km from Verkhnechonsk is Chayandinskoye, an enormous field with enormous gas reserves,” said Rustamov.

“We are coordinating our actions with Gazprom (GAZP.MM) in order to get access to the infrastructure in 2019-2020.”

Gazprom, the state gas export monopoly and operator of the country’s unified gas supply system, is planning to bring Chayandinskoye on stream in 2016.

TNK-BP has already seen some success in winning access to Gazprom’s pipelines. It secured a six-year access deal to ship gas from its Rospan project in Western Siberia, now pumping 2.7 bcm per year, and would like to obtain a 10-12 year deal.

The No.3 Russian oil producer is pursuing an aggressive strategy to double its natural gas output to 30 billion cubic meters per year by 2020, betting that independent producers will fill more space in Gazprom’s pipelines in the coming years.

But East Siberian gas is a tough proposition, in part because of the sheer distance between the region’s gas riches and its most lucrative potential markets on the Pacific Rim.

And while Gazprom says Asian buyers must compete for its East Siberian gas, it has so far failed to secure a supply deal with China — for up to 68 bcm per year — that could underpin the vast investments needed to bring gas to market.

Editing by Douglas Busvine and Anthony Barker

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