Rosneft Planning Gas-Fired Plants

ReutersBogdanchikov speaking during a news conference on Friday in Krasnoyarsk.
Rosneft, the country's largest oil producer, announced plans Friday to build several gas-fired power plants across the country before 2020 as part of an effort to recycle the country's wasteful associated gas and protect the environment.

Chief executive Sergei Bogdanchikov said power plants would be built at the company's huge Vankor field in eastern Siberia and in the Krasnodar region, in addition to one already under construction at its Priobskoye field in western Siberia.

"The new power plants will supply electricity to remote regions that currently lack electricity and improve environmental safety by utilizing associated gas, which is abundant in the country," Bogdanchikov told the Krasnoyarsk Economic Forum on Friday.

Rosneft's plans come after President Vladimir Putin last year called in his state-of-the-nation address for the government to arrange for the use of associated gas flared off by oil companies, which he said totaled 20 billion cubic meters per year.

The company's proposals have been submitted for consideration to the Industry and Energy Ministry, the Economic Development and Trade Ministry and the Russian Academy of Sciences, Bogdanchikov said.

He said the company had already received approval from some ministries, and that it expected a green light from others shortly.

Construction of a modern, 315-megawatt gas turbine at the Priobskoye field began in November. The fields currently spew out 2 bcm per year of associated gas into the atmosphere.

Rosneft acquired its Priobskoye field, in the Khanty-Mansiisk autonomous district, via a state auction in December 2004. The field is one of the key assets of Yuganskneftegaz, the former main production unit of now-bankrupted oil firm Yukos.

Rosneft announced plans in October to spend a total of 67 billion rubles ($2.72 billion) over the next five years to reduce wasteful flaring of gas during oil production.

Mikhail Stavsky, the company's vice president for production, who unveiled the plans, said investments would peak in 2008 and 2009, "when the program foresees an increase in the utilization of associated gas to 95 percent from the current 59 percent."

The Priobskoye power plant is expected to increase the reliability of the field's power supply, develop Yuganskneftegaz's production capacity, and also ensure environmental protection for the area, burning off a projected 533.4 million cubic meters yearly, Bogdanchikov said at the plant's foundation-laying ceremony in November.

In a country where many billions of cubic meters of associated gas are flared off every year, it is a standard practice for oil companies to utilize some of the gas to generate power for their own use, analysts said.

Alexander Kornilov, a utilities analyst at Alfa Bank, said oil companies such as Rosneft had little choice but to utilize associated gas close to the source of extraction.

"Associated gas cannot be transported without some refining, and no one is eager to buy it," Kornilov said. "The only plausible thing is to try to save the environment by using some gas to power electricity plants."

But Matvei Taits, a utilities analyst with UralSib, said power stations built to utilize associated gas could turn out to be white elephant projects.

"The price of electricity is still very low and that means it is cheaper to buy electricity from nearby suppliers than to invest in gas turbine power stations," Taits said. "The price of alternative electricity must be high enough to make such projects viable."

n Rosneft plans to spend as much as 600 billion rubles ($24.4 billion) through 2020 to boost oil production in eastern Siberia, Bogdanchikov said Saturday.

The company will spend 50 billion rubles this year and 600 billion rubles over the 12-year period as it seeks to raise annual oil output to 170 million tons by 2020, Bogdanchikov said Saturday at a conference in Krasnoyarsk.

The company produced 102 million tons of oil last year.