Ministries clash on Russian bid to end gas flaring

A clash between ministries over how to stop Russia from flaring nearly $13-billion of gas each year is reinforcing doubts that the country can meet President Vladimir Putin’s goal to all but eliminate the waste by 2011.

Some experts say Russia, the world’s biggest gas exporter, is also the leading flarer of gas, although by its own calculations it is only the second largest after Nigeria.

Flaring gas that is found when extracting oil, and is considered too hard or expensive to get to market, sends tonnes of the greenhouse gas carbon dioxide into the atmosphere.

Putin has set a 2011 deadline to cut flaring by 95%, but government factions are split over whether that is feasible.

The National Resources Ministry says that with the help of fines soon to be agreed, the goal is realistic.

“We don’t think it’s necessary to delay the 2011 deadline. The companies tell us they’ll make it and we listen to them,” said Nikolai Gudkov, its deputy head of press.

“We’ve copied this firing technique from other countries, and should decide on the amounts and guidelines by the end of December—but they won’t be big,” Gudkov said.

The Energy Ministry thinks the deadline is too tight.

“The government is looking at our proposal to delay it by four years to 2015 and a decision will be made soon,” Energy Ministry spokesperson Konstantin Gorokhov said.

“We feel gas utilisation should be approached gradually. We need more time and the companies need to get ready.
Russia’s just started thinking about it, it’s too early,” he said.

Huge problem

The scale of the problem is huge and, according to some experts, much bigger than the 20-billion cubic metres (bcm) a year that Russia says it flares at a cost of about $13-billion. The United States National Oceanic and Atmospheric Administration (NOOA) measures gas flaring from satellite imagery, which shows the vast Siberian landscape marked by tall, orange flames.

Its findings put Russian flaring last year at almost 51-bcm, which would be enough gas to power the United States for one month and would make Russia the world’s biggest gas flarer, ahead of Nigeria.

Tackling the problem would require a combination of government enforcement and major investment in infrastructure.

Some doubt the fines would provide sufficient incentive.

“The government will have to be rigorous with them in demanding that reports and accountability be submitted,” said David Hawkins, director of the climate centre at the National Resources Defence Council, a non-profit organisation in Washington, DC.

“Historically, a lot of the fines that Russia has imposed have been a pittance.”

To avoid flaring gas and paying fines, producers will have to develop infrastructure to get it to market or return in underground.

“Most probably they will first look at the economics of marketing the gas to a Gazprom pipeline. The most likely second scenario would be to re-inject the gas,” said Bradford Clark, an executive at London-listed, Russia-focused Imperial Energy, which plans to utilise 100% of flared gas by 2010.

Pumping into the national pipeline network, owned by gas export monopoly Gazprom, would need costly facilities.

But analysts say Gazprom would be increasingly willing to buy gas in view of stagnant output at its own fields and uncertainty over gas purchases from Central Asia. Companies have embarked on significant investment.

“Whether 95% is possible is probably open to some debate, but the majority of it is achievable,” said Alfa Bank’s chief strategist Ronald Smith.

“There are a few hurdles to get over. You must have the equipment to process the gas… It’s a capex question.”

Russia’s fourth-largest oil firm Surgutneftegas is the country’s leader in gas utilisation, flaring 1-bcm of gas in 2006.

The country’s largest oil producer and biggest flarer, Rosneft, will spend 67-billion roubles ($2,74-billion) over the next five years on gas utilisation.

The state-controlled major, which so far uses only 59% of flared gas, has said it will meet Putin’s target a year early, although not everyone agrees.

“Some companies will make it on time, but Gazprom and Rosneft will do it a bit later, in 2012,” said Konstantin Reily, an analyst at Moscow-based brokers Finam. - Reuters

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