Dmitry Lipyavko, director-general of BerezkaGas Company, and Andrei Nepomniashchii, the company’s executive director, talk to TOGY about the benefits of reducing associated gas flaring in Russia and the company’s activities in this area. BerezkaGas Company is a production and engineering company that monetises associated petroleum gas (APG) produced in small and medium-sized fields.
Andrei NEPOMNIASHCHII: Russia is the leader in gas flaring, but also the leader in the reduction of flaring. The 2012 law encouraged oil companies to invest in APG processing and proved to be very cost-effective. We discussed this at the Global Gas Flaring Reduction Partnership (GGFR) in Paris, where the Russian practice was identified as the most successful.
The principle is as follows: The government does not subsidise these projects but levies fines for gas flaring. However, if a company invests in future APG flaring reduction, the fine can be slashed by 25 times [reduced to one 25th of its amount]. The reduction was so enormous that it made oil companies invest huge sums in APG processing. The decree had an effect in the rising use of gas that had been flared before.
What is the business model of BerezkaGas and how innovative is it?
DL: Our business model is unique. It is based on buying and monetising APG that is subject to flaring. The APG liberated during oil production is processed and utilised all over the world. The Soviet Union started doing the same, though with some delay. It developed an APG complex back then, on which almost the whole Soviet oil and gas industry was built, including Sibur; its work is still based on these principles.
However, small and medium-sized fields were considered unprofitable due to their size and remoteness. When you fly over West Siberia, you can see a great number of flares. They pollute the air and the environment. This is money flaring.
Our concept of gas processing is aimed at APG utilisation in small and medium-sized fields. There are plenty of those. When it is not profitable to run pipelines, we build plants in the field, right in the taiga. Afterwards, we export manufactured products directly from there. The products are stored in containers and transported by road to the nearest railway station whence they can be brought to Moscow and other regions. We have started test-shipping to Germany and Latvia.
We also use dry gas to generate electricity that we sell to oil companies at the same field. In 2012, we received an award from the World Bank for the most unique emissions reduction project [the company’s project in Prirazlomnoye field was awarded at the 10th GGFR forum held under the auspices of World Bank].
We were awarded by the World Bank for a reason. We utilise gas which is deemed unprocessable. We find new ways to process gas that according to the old Soviet schemes was not good for processing, and we extract LPG from it.
What is the scope of APG processed and oil products manufactured by BerezkaGas?
DL: Our capacity is above 600 MMCM [600 mcm, or 21.2 bcf] of APG per year. We’ve produced approximately 200,000 tonnes of propane and butane and almost 100,000 tonnes of naphtha [in 2018].
We produce on average about 60 MW of electric power, which we supply to oil companies. Apart from that, we own 1,200 tank containers for storing propane and butane products before having them shipped, for instance, to Poland, Latvia and within Russia.
Our central focus in the nearest three years is to scale up our APG processing capacities to 2.5 bcm [88.3 bcf] per year.
How do you finance such complex and expensive projects?
AN: Our major partner is Gazprombank, but all leading banks express interest in our projects. They realise that our business model is successful and long-term. And, of course, we will be raising funds from private companies, our existing and future partners. International organisations are willing to invest in those projects, because they deal with environmental protection and emissions reduction. International institutions including the World Bank support us taking into account the limitations imposed by sanctions.
Do you need any form of public support to develop your activities?
AN: Since our projects are located in remote areas and implemented in medium-sized fields, they are very challenging. Despite the fact that they are designed to be cost-effective, these projects often need additional support, such as tax benefits or tax holidays at the early stages of production.
At the same time, the government benefits too. As per our estimates, taxes from our projects per 1,000 cubic metres of associated gas are twice the cost of associated gas we buy. That’s because we generate added value from gas processing. Our projects also contribute to regional development: we create highly skilled jobs and make extra profits for the state with APG processing having positive effects on the environment.
You already have two processing complexes. What will be your steps to build up your production capacities?
DL: We plan on investing in more projects. We are negotiating with almost all the major oil companies in Russia, and these negotiations are at different stages of advancement now. We also intend to open six more gas processing plants.
Will these projects be located in Western Siberia or other parts of Russia ?
DL: We can process APG and implement our projects anywhere where oil is produced. We are considering some oilfields in Siberia and in the south of Russia, as well as in the north of the country, in places like Komi, Pechora and Yamal.
What are the competitive advantages of BerezkaGas in the market?
DL: We have our followers. But our competitive advantages are our flexibility and our speed in decision making: we promptly evaluate projects and put them into numbers, we promptly make management decisions, any bureaucratic issues are reduced to zero in our company. As we are a private and mobile company, we also can make fast decisions on project investing.
What was the main challenge that you encountered in launching such an innovative project?
AN: Oil companies are quite conservative. We build our plants on their fields, close to their facilities, and work through outsourcing. Oil companies were not used to it before. One of our key challenges was to earn their credibility. Thanks to our professional approach, they started to trust and give those projects away to outsourcing.
DL: One of the key aspects was to sign long-term agreements with them. It was a win-win situation. Our projects require big investments and we had to provide substantial guarantees to banks and private investors. Our best guarantee is our long-term access to raw materials. We have signed 20-year agreements with oil companies. This long-term approach provided reliable guarantees for them and they are increasingly less afraid to work with a third party.
We’ve learned to build trust between different companies. This was not a common thing before. We even succeeded in bringing Salym Petroleum Development [a joint venture of Gazprom Neft and Shell] and RussNeft together to work. These are two different companies with completely different management models, corporate cultures and approaches. Nevertheless, we managed to forge a joint profitable project.
At present, we are negotiating a quadripartite project with companies from quite similar spheres of activity. It’s not cost-effective to establish gas processing units in each field, but it will be if we bring them together in one processing facility.
What other projects and forms of technological innovations are you working on?
DL: We are developing “horizontally,” through the expansion of our raw material base and the number of gas processing plants. We are doing research on designing small mobile APG processing stations to process not only hundreds of millions, but also dozens of millions of cubic metres of gas per year in a cost-effective way. We are actively working in the sphere of compressed and liquefied gas as a substitute for diesel fuel. We intend to see further sales growth of our refinery products.
Are you interested in partnerships with foreign companies to increase your sales abroad?
DL: Yes, we are. That depends on the outlook. We sell our products where the price is higher. For the moment, our domestic prices are higher than the export ones. But our infrastructure model is so flexible that we can promptly redirect our containers to the most profitable spots as soon as the market allows us to do it.
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