OREANDA-NEWS. April 25, 2007. TNK-BP is going to implement a number of associated gas processing projects in Yugra. Experts assure that implementation of even one investment plan related to associated petroleum gas processing will have favorable effect on the environmental situation of the entire region. In an interview with Novosti Yugra, Mikhail Gordin, Director of the Associated Gas Projects Department, TNK-BP, speaks about the plans and measures of the Russian-British company for putting out all flares in Yugra.

— Mikhail Valeryevich, so far most associated gas in Russia is simply being burnt, whereas in the rest of the world almost all associated gas from oilfields is processed at petrochemical plants. Experts say that only two countries – Russia and Nigeria are squandering this valuable resource. Will you please explain the position of TNK-BP in this issue?

TNK-BP has developed a general program of associated petroleum gas processing. We cannot afford working according to outdated oil production models, because associated petroleum gas is methane that turns into usual natural gas after drying. Its heavier components (broad fraction of light hydrocarbons, or simply natural gas liquids) are valuable raw materials for the petrochemical industry.

The Nizhnevartovsk Region in Yugra plays a special and important role in the associated gas utilization system. The company produces more than a half of its associated petroleum gas in this region. The Samotlor field, which is the main field of TNK-BP in the region situated near the city of Nizhnevartovsk, and several smaller fields nearby of less importance make up the oil production basis of the company.

We have divided all projects related to commercial utilization of associated gas into three groups. The first includes projects of associated gas gathering and its transportation to the places where it can be processed. The second group embraces gas processing projects. And the third group involves projects for prudent utilization of processed associated gas.

— Can we say that, instead of burning associated petroleum gas, TNK-BP will soon start constructing pipelines and infrastructure facilities, such as compressor stations, etc., and transport associated gas to regional gas processing plants?

In the nearest future, TNK-BP will create all necessary conditions for utilizing associated petroleum gas instead of burning it in flares. Currently, we are processing up to 95% of associated petroleum gas in the Samotlor field. The percentage of associated petroleum gas utilization varies from 15% to 100% for the Bakhilovskoe group of fields in the north of Yugra depending on a number of reasons. There are fields that are not connected to pipelines yet. In some fields the laid pipelines are not sufficient for transportation of the increasing volumes of produced gas. For this reason, we have to build compressor stations and many other infrastructure facilities. The most important tasks of the company are known and clear. We have to lay pipelines to the compressor stations in Tyumen, Bakhilovsk, and Khokhryakovsk or directly to the gas processing plants in Belozernoe and Nizhnevartovsk. Now, we are designing a number of infrastructure facilities for Varyeganneftegaz, the Nizhnevartovsk Oil Production Unit, and Samotlorneftegaz.

Without going into details, I would like to note that in several places of the Samotlor field we have to solve problems for utilization of gas of final separation stages. For this purpose, we have to build a number of vacuum compressor stations in order to raise the utilization extent by another 3% and separate the fattest and most un-stripped combination gas, that is, associated petroleum gas rich in valuable hydrocarbons.

The Khokhryakovsk compressor station being constructed by TNK-BP is an interesting project: there we will collect gas and supply it to the pipeline system. Implementation of this project will be completed by the end of 2007. Construction and commissioning of the Khokhryakovsk compressor station will increase the volume of gas supplies to gas processing enterprises of the region and raise the extent of associated gas utilization in the Khokhryakovskoe field up to 95% and higher. Later, we will achieve the similar results in the Koshilskoe field and Permyakovskoe field and solve the problem of associated gas utilization in this group of field. Approximately $100–200 million will be invested into these projects.

— Mikhail Valeryevich, let us return to the set of comprehensive measures for prudent utilization of associated petroleum gas that you mentioned earlier, namely, the projects of associated gas treatment at gas processing plants.

These projects and measures make up the second group of projects. In November 2006, TNK-BP and Sibur established a joint venture for solving the problems of commercial utilization of associated petroleum gas. I am speaking about Yugragazpererabotka, an oil producing and gas processing joint venture, which has no analog in Russia yet. This new enterprise is an important link in the plans of the company related to commercial utilization of associated petroleum gas. Utilization of associated gas is very important for two reasons. First, Russian state authorities are paying particular attention to compliance with all associated gas utilization requirements of license agreements. Second, production of additional volumes of dry stripped gas at the Nizhnevartovsk and Belozernoe gas processing plants will add reliability to gas supplies to consumers in the Khanty-Mansi Autonomous Area, Tomsk Region, Novosibirsk Region, Kemerovo Region, and Altai Krai.

Yugragazpererabotka will extend the processing capacity of its gas processing plants. The current load of the Nizhnevartovsk and Belozernoe gas processing plants is often far from maximum, but sometimes these plants cannot receive all the amount of gas supplies to them. Apart from that, any complex equipment, such as the equipment of gas processing plants, needs maintenance and repairs. This is why the construction of more processing facilities in the region for processing associated petroleum gas and turning out final products is one of the most important problems facing the management of Yugragazpererabotka. This is a complex and difficult problem both financially and organizationally, and its solution will take considerable time. Even if some $200 million is allocated for this purpose, actual solution of the problem requires selection of special contractors and purchase of special equipment. Only manufacture and delivery of compressors, the main elements in the process of gas processing, may require up to 18 months. Apart from that, considerable time is also required for thorough, meticulous and immaculate design.

The capacities of Nizhnevartovsk and Belozernoe gas processing plants will be increased. Currently, the most immediate task is expansion of the Nizhnevartovsk gas processing plant through restoration of oil-absorption unit 3 (MAU-3). Sibur has done an excellent job of its deign. Now, we have to make a final decision for its implements with out joint investments. Sibur and TNK-BP, the cofounders and owners of Yugragazpererabotka, will finance restoration of production facilities of the Nizhnevartovsk gas processing plant on parity basis.

There are some other plants for expansion of Yugragazpererabotka, but it is too early to discuss them now. First, we are not sure yet whether and to what extent we will have to extend the system of pipelines and compressor stations for transportation of gas from the fields to the places of their processing. Second, we are still thinking on which of the gas processing plants, including Varyeganneftegaz, is better to expand. I would like to repeat that, most probably, as we see it now, we will first expand the Belozernoe and Nizhnevartovsl gas processing plants. Nevertheless, we will have to study and analyze all possibilities in greater detail to rule out all possible errors. The time required for implementation of these projects, especially those related to construction of long pipelines, is 3–4 years.

Implementation of projects of the second group, that is, projects for converting associated petroleum gas into useful products, will help production of commercial-grade dry stripped gas and marketable natural gas liquids at gas processing facilities.

— Who will buy these products? Production of dry stripped gas in Nizhnevartovsk is only part of the project. How this gas will be used?

This takes us to the third group of projects. I would call them prudent utilization projects.

Our first option of this kind is participation of TNK-BP and the Unified Electric Power Generating Company OGK-1 in the joint construction of the third generating unit of the Nizhnevartovsk State Electric Power Plant. For us, this would be investment of a considerable part of dry stripped gas into generation of electric power. Is it good and inexpensive for the company? Well, everything is relative. We hope that this will be beneficial for TNK-BP. At least, the company will be able to plan its consumption of electric power at predictable prices. The risk of sharply rising prices for electric power will be eliminated. Predictable prices for electric power will help implementation of large-scale oil production projects. Apart from that, according to our preliminary economic estimates, this is one of the best ways to turn dry stripped gas into money. This project does not imply construction of additional pipelines and, therefore, is quite profitable in terms of payback time.

Another option of prudent utilization of dry stripped gas is expanding the network of gas pipelines and selling gas to Gazprom. Currently, both gas processing plants of  Yugragazpererabotka are connected to the Parabel–Kuzbass trunk gas pipeline. Gazprom is working hard now to extend and replace gas pipelines and install new compressor stations, so we hope that the volume of gas accepted for transportation through the Parabel–Kuzbass trunk gas pipeline will grow in the course of time.

We are also assessing different versions of connecting our gas processing facilities to other trunk gas pipelines. This will require construction of a pipeline branch 120 km long to reach the Urengoi–Chelyabinsk trunk gas pipeline. However, if the third generating unit of the Nizhnevartovsk State Electric Power Plant is built and the throughput capacity of the Parabel–Kuzbass gas pipeline is increased, construction of this 120-km pipeline will not be needed.

— Are the payback periods of these projects known? As far as I know, TNK-BP does not use payback periods of over 5 years. Is it different in this particular case?

Speaking about payback periods, we mean the payback period of the entire complex of measures. This is a very difficult question as all projects are different, require different times for implementation, and have numerous alternatives within themselves. Most probably, all our plans will be accomplished by 2012. Will they all pay back by that time? It is hard to predict it now.

For example, how shall we estimate the time required for payback of a prudent utilization project or, so to speak, a project of prudent non-utilization of gas, which does not imply construction of pipelines and investment of millions of dollars into the projects of associated petroleum gas utilization mentioned above? Immediately after production of associated petroleum gas, it may be simply injected back into the gas-bearing horizons lying over oil deposits, which are often called gas caps. Gas may be recovered from these gas caps when the oil deposits are deplete and the situation on the market is more favorable for implementation of associated petroleum gas processing projects.

We still have to estimate what part of produced associated petroleum gas is worthwhile to utilize, process and sell. Construction of additional processing facilities or, say, a pipeline branch to the Urengoi–Chelyabinsk trunk gas pipeline may simply turn out to be economically inexpedient. Maybe, injecting a part of associated petroleum gas into gas caps for a few years and then recovering it and supplying to the Parabel–Kuzbass trunk gas pipeline or elsewhere is more profitable. Maybe, expansion of production and processing capacities is not expedient right now. Injection of gas into gas caps and its recovery in several years when the demand for energy resources and electric power is high enough to sell the recovered gas at higher prices may also be more profitable.

— You said several times in this interview that such projects require investment of millions of dollars. Can you specify the size of such investments, or such information is not intended for publication?

We are not concealing anything. Our company says that different projects require different investments. We would like to be sure that the funds of TNK-BP are invested into the very best of them. We know a tentative size of investments. Implementation of all these projects may cost more than $500 million. Some investments will be made by TNK-BP and some together with Sibur in the framework of the joint venture Yugragazpererabotka.