No. 2, 2009

Tatyana Belonogova


The Kyoto Protocol and environmental activities of LUKOIL-PERM

A careful attitude toward nature is one of the main principles of LUKOIL-PERM's activities. A clear example of this is provided by the company's work in the sphere of disposal of associated petroleum gas.

Associated gas for use and business

According to the Ministry for Natural Resources of the Russian Federation, of the 55 billion m3 of associated petroleum gas produced annually in Russia, only 26% is refined. In the order of 27% of the gas is burned in flares and 47% is used by subsoil user companies for their own needs or just written off as technological losses. Expert estimates put the losses to the Russian economy from irrational use of associated gas at over $13 billion.

At LUKOIL Group enterprises, the average utilization indicator for associated gas exceeds 80% and, in the near future, the Company will strive to bring this figure up to 95%. LUKOIL has developed a program for disposing of associated petroleum gas for 2007-2016, requiring investment to the tune of $2 billion. One of the most interesting projects in this sphere is being implemented in the Perm Territory.

At the end of February 2009, verifiers of Bureau Veritas Rus recognised the project "Collection and transportation of associated petroleum gas from the Verkhnekamskiye oil fields, with subsequent refining at Permneftegazpererabotka" as complying with international standards and Russian law, and close to realization.

"We plan to realize this project within the framework of implementation of the United Nations Kyoto Protocol. This will make it possible not only to reduce emission of pollutants into the atmosphere, but will also help in raising additional funds for implementing the project," noted Oleg Tretyakov, First Deputy General Director and Chief Engineer of LUKOIL-PERM.

LUKOIL-PERM's gas project will allow a more than 284,000 tons per annum reduction in the emission of greenhouse gases. Everything is ready in the company for full implementation of the project. A gas compressor station and gas pipelines have been constructed on the fields. Back in 2006, state environmental examination was carried out, resulting in the project being recognized as in full compliance with the requirements of Russia's legislative acts. Moreover, the design document was drawn up in accordance with international standards.

Implementation of the project for utilization of associated gas on the Verkhnekamsk oil fields will largely become possible thanks to introduction of so-called hydroblast units developed in conjunction with the scientific and production association Iskra.

When hydroblast units are used, there is no longer any need to use booster pump stations. This greatly reduces the service area and the metal intensity of the process: the number of valves, pumps, and pressurized vessels. The use of hydroblast units thus cuts operating costs.

A hydroblast unit means there is no need to burn associated gas in flares, as has long been the practice. Two such installations have been built so far. One of these is in operation at the Chernushinskoye field. The work of the pilot unit has resulted in a 100 percent utilization of the associated petroleum gas in this region, in the amount of 2.5 million m3 a year.

The benefits of vertical integration

LUKOIL-PERM is the biggest oil and gas production enterprise in the Perm Territory. The Company engages in exploration, surveying and production of oil and gas over the territory of 23 administrative districts of the Perm Territory. Oil is produced from 133 fields. In terms of the main production indicator - the annual oil production level - the Company is one of the leading enterprises of the LUKOIL Group.

Remaining recoverable reserves, as of January 1, 2009, amounted to 466.5 million tons of oil. In recent years, oil production by the LUKOIL-PERM Group of enterprises has been steadily rising. During the period from 2002 to 2008, for instance, there was an 18% increase, bringing the total to over 11 million tons. The annual volume of oil produced by the LUKOIL-PERM Group of enterprises in 2008 topped 11.7 million tons. Moreover, a 2.5-3% annual increase in oil production is predicted for the Group over the next five years.

Launch of the project to collect and transport associated petroleum gas from the Verkhnekamskiye oil fields will provide for utilization at Permneftegazpererabotka (a subsidiary of LUKOIL-PERM) of over 800,000 m3 of gas during the period from 2010 to 2012. The refinery will produce three types of output from this: a propane-butane mixture, natural gas gasoline and stripped gas.

Permneftegazpererabotka already supplies refined products to 54 regions of Russia and 5 other countries. At the same time, one of the most promising spheres for sale of the refinery's output is that of engine gas at LUKOIL filling stations in the Perm Territory itself.

At the end of 2007, the management of LUKOIL-Permnefteprodukt, the biggest supplier of petroleum products in the Prikamye area, took the decision to open a network of engine gas filling stations in Perm. The company already owns about 39% of the filling station network in the Perm Territory. The company also occupies over a third of the retail market for petroleum products. Installation of gas modules at existing LUKOIL filling stations in Perm began in 2008. In 2009, there will be 11 of them, but the company does not intend to stop there.

LUKOIL-Permnefteprodukt is also counting on this sphere because it is predicting a rise in the consumption of liquefied gas as motor fuel. In 2009, the company intends to bring the volume of gas retail sales up to 4,400 tons per annum. The main retail supplier of liquefied gas to the Prikamye area today is Uralgazservis (controlled by Gazprom). It has 15 gas filling stations in the Perm Territory (plus three for the company's own needs), selling about 25,000 tons a year (i. e., almost half the entire Perm market).

Thanks to implementation of the associated gas utilization program on the Perm fields, in the future, LUKOIL will be able to compete successfully with Gazprom on the Perm Territory gas motor fuel market.

Following the principles of sustainable development

A characteristic feature of the activities of LUKOIL-PERM consists in open dialogue with all parties interested in protecting the environment. "Rational use of natural resources and maintenance of favorable ecological conditions are the fundamental principles behind the work of the oil and gas production enterprise. For this reason, the company annually raising the level of investment in the environment. In 2008 alone, we allocated 1.3 billion rubles for these purposes," stresses Alexander Leyfrid, General Director of LUKOIL-PERM.

During the period of 2006-2008, the Company's expenditures on nature-protection measures rose by 53% to reach 1,296,009,000 rubles in 2008 (the plan for 2009 is 1,569,345,000 rubles). As a result of the nature-protection measures, in 2008, compared with 2006, there was a 10% reduction in pollutant emissions into the atmosphere, a 13.8% fall in the waste discharged into the environment and a 63% decrease in the discharge of pollutants into water bodies.

In October 2007, for example, within the scope of planned activities in the environmental safety sphere, a filtration station was started up in the Perm Territory. On the basis of an order from LUKOIL-PERM, scientists of the Urals Branch of the Russian Academy of

Sciences developed a unique system consisting of a furnace for incineration of gases released from rocks and filters made of metal foam for removing petroleum products contained in the water. In this way, today the negative consequences of natural oil seep observed in the area over several years have been minimized by 99%.

The associated gas disposal program is an important part of the comprehensive environmental program of LUKOIL-PERM. Its implementation in practice shows that LUKOIL enterprises strive to turn the energy of natural resources into a boon not only for mankind, but also for nature.

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Oil of Russia, No. 2, 2009
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