Russia: Fines increase for burning associated gas at oil wells

Energy Trade

The Ministry of Natural Resources wants to increase payments for burning associated natural gas at oil wells fivefold. By 2011, 95% of associated gas has to be utilized, and officials consider it necessary to institute punitive measures to prepare the market. 

Oil companies may pay $580 million per year in fines. That is still cheaper than preparations for utilizing the gas. Rosneft alone expects to spend $1.8 billion on for that purpose by 2010. Less than a month ago, Russian President Vladimir Putin held a meeting with ministers and the heads of Transneft, Rosneft and Gazprom at which he pointedly demanded that the problem of associated gas be dealt with.
Current licensing agreements allow no more than 5% of associated gas to be burned. The remainder has to be either utilized as fuel for electricity generation or processed into residue gas and broad fraction of light hydrocarbons. The burning of 1000 cu. m. of natural gas within the allowable limit costs 6 rubles. Beyond the limit, it costs 140 rubles.

Nonetheless, according to Natural Resources Ministry statistics, 25-28% of associated natural gas, 15-17 billion cu. m. of 60 billion cu.m. produced annually, is burned in Russia, and only a third of the amount remaining is processed. Analysts say that, in reality 30-40% of associated gas is burned. The processing of associated gas is unprofitable. Oil companies see the production of broad fraction of light hydrocarbons, a basic ingredient in the petrochemical industry, as the most promising use of associated gas.

TNK-BP, Rosneft and Gazprom Neft already have formed a joint venture with SIBUR for its production. SIBUR plans to increase its production of broad fraction of light hydrocarbons from 14 billion cu. m. in 2006 to 22 billion cu. m. in 2011. (


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