"Current state of problem of rational associated petroleum gas use in Russian

Federation" General Director

LLC "EcoNefteGazControl" Alexey N. Aksenov

Level of APG utilizationby the leading Russian oil companies

Level of APG utilization, %

Year

Resources of the useful components in APG (according to Russian State Statistics Service)

Volu

me,

thou

. ton

s

sulfur

ethane

propane

butane

pentane and higher(stable condensate)

Year

Technical Economical Institutional1. Limited capacity of gas transmission systems;

2. Current condition of APG processing capacities;

3. Shortcomings (lack) of product transportation infrastructure from gas processing plants (broad fractions of light hydrocarbons, liquefied hydrocarbon gases)

1. State control of the APG wholesale prices;

2. Pricing on the market of APG products (LHCG, dry stripped gas);

3. Dry gas transport and sales costs;

4. Cost of transportation for liquid products obtained from APG processing.

1. APG has not been designated as mineral resource, no state control of APG use;

2. Uncertainty as to who owns APG produced from the subsoil;

3. Not all of licensing agreements establish mandatory level of APG utilization;

4. No requirements outlined concerning introduction of mandatory account of APG resources, extraction volumes and utilization ;

5. No procedures developed for state control of APG utilization;

6. Procedures for access of oil companies to the APG transport and processing capacities are not legally formalized;

7. No effective pricing system developed to insure balance between interests of oil companies and natural monopoly entities.

Main reasons for wide-scale associatedpetroleum gas flaring

In order to commercialize APG, following will be required:1. Joint efforts of oil producing and oil processing

companies;

2. Well-planned long-term strategy of the Government including, along with state control and monitoring, the mechanisms to stimulate investment projects involving APG utilization with innovative technologies and equipment.

Name of Russian Federation territorial

subdivision

Quantity of flare devices

(gas bleeders)Gas bleeders

Availability of instruments onflare systems as of 01.01.08 .

As of 01.01.12 .(preliminary)

Equipped Not equipped % equipped % equipped

Northwest Federal DistrictArkhangelsk Region 2 0 2 0.0 100Kaliningrad Region 17 14 3 82.4 100Nenets Autonomous Area 24 19 5 79.2 97Komi Republic 72 41 31 55.6 93Total for Northwest Federal District 115 0 74 41 64.4 95Southern Federal districtAstrakhan Region 1 1 0 100.0 100Volgograd Region 27 0 27 0.0 93Krasnodar Territory 6 5 1 83.3 100Republic of Dagestan 15 0 15 0.0 67Republic of Ingushetia 15 0 15 0.0 80Republic of Kalmykia 14 10 4 71.4 93Republic of North Ossetiya - Alania

1 0 1 0.0 100

Stavropol Territory 13 2 11 15.4 77Chechen Republic 9 0 9 0.0 0Total for Southern Federal District 101 0 18 83 17.8 83

Summary register of flair devices of oil & gas companies by Russian Federation territorial subdivisions

Name of Russian Federation territorial

subdivision

Quantity of flare devices

(gas bleeders)Gas bleeders

Availability of instruments onflare systems as of 01.01.08 .

As of 01.01.12 .(preliminary)

Equipped Not equipped % equipped % equipped

Volga Federal districtOrenburg Region 109 23 86 21.1 85Perm Region 216 3 109 107 50.5 64Republic of Bashkortostan 152 105 47 69.1 90Samara Region 127 37 90 29.1 88Saratov Region 60 12 48 20.0 50Republic of Tatarstan 96 6 18 78 18.8 72Udmurt Republic 43 14 29 32.6 84Ulyanovsk Region 12 2 10 16.7 67Total for Volga Federal District 815 9 320 495 39.3 76Ural Federal districtTyumen Region 3 3 0 100.0 100Khanty-Mansi Autonomous Area - Yugra

561 372 189 66.3 93

Yamalo-Nenets Autonomous Area 147 62 85 42.2 84Total for Ural Federal District 711 0 437 274 61.5 92

Name of Russian Federation territorial

subdivision

Quantity of flare devices

(gas bleeders)Gas bleeders

Availability of instruments onflare systems as of 01.01.08 .

As of 01.01.12 .(preliminary)

Equipped Not equipped % equipped % equipped

Siberian Federal districtKrasnoyarsk Territory 3 3 0 100.0 100Novosibirsk Region 5 4 1 80.0 100Omsk Region 2 2 0 100.0 100Tomsk Region 68 40 28 58.8 91Total for Siberian Federal District 78 0 49 29 62.8 92Far Eastern Federal DistrictYakutia (Sakha) Republic 5 5 0.0 100Sakhalin Region 7 6 1 85.7 100Total for Far Eastern Federal District

12 0 6 6 50.0 100

Total, Russian Federation: 1833 9 901 923 48.9 84

Bottlenecks in the production chainfrom well to the output of liquefied hydrocarbon gases

Production chain elements Bottlenecks :production

Bottlenecks :government role and its incentives

Wells(oil deposits)

APG production and use accounting Technical regulation measures; APG utilization programs in the development projects (licenses)

Gas-gathering infrastructures High capital expenditures and their questionable profitability for oil companies; APG price level

Technical regulation measures; government participation in the investments; prices for APG liberalized

Gas Processing Plants and GFUs (Gas Fractionation

Units)Shortage of capacities

Exemptions from VAT and customs duties on the equipment imported; government participation in the investments; prices for LHCG liberalized

Transport of broad fractions of light hydrocarbons,

liquefied hydrocarbon gases

Shortage of capacities (loading racks, stations)

Encouragement of investments; government participation in the investments

Gas transmission network, main gas pipeline

Limited capacity of areas critical for dry gas sale

Ensuring priority access of dry gas to the gas transmission network; encouraging investments to the gas transmission network capacity expansions

Share of flare systems in their total number in terms of APG quantity burned

Following approach can be utilized to attract funds for comprehensive programs of APG use and processing :

Oil companies and Russian Federation territorial subdivisions jointly invest into APG pipelines;

Gas and chemical companies and federal center (e.g., within Federal Target Program) invest to create infrastructure for the sales of Gas processing plant products (filling racks, pipelines for dry gas and broad fractions);

All parties have a share of profits (from the sales under the entire program) proportional to contributed investments.

THANK YOU!