Irkutsk unleashes Siberia’s oil potential
November 25, 2014
In the past, eastern Siberia had to rely mostly on coal for its energy supply. Now, Irkutsk Oil has begun plans to utilise the region’s gas reserves. Oil production has recently changed in the eastern Siberia region. A massive natural gas project is being implemented by the Irkutsk Oil Company – the largest Russian independent non-publicly traded company and the third-largest hydrocarbon producer in eastern Siberia.
Exhibiting high key operational and production results (reporting a 4.8 fold increase in oil and condensate production within the last four years), Irkutsk Oil invests hundreds of millions of dollars in production facilities, infrastructure development, and innovation projects, including a gas business development strategy. The company’s fields and license blocks contain vast volumes of gas resources. The best call to migrate these resources into a successful monetary amount, a few years ago Irkutsk Oil decided to implement the large-scale gas project. Unfortunately, there is no gas transmission or gas-consuming infrastructure in eastern Siberia. Gazprom’s “Powers of Russia” gas transportation system – which is aimed to deliver East Siberian gas to the energy hungry China – was just started recently, and exact dates when it will be put into operation are still unclear. Unchartered exploration Extensive research and various marketing studies helped Irkutsk Oil to create an optimal project of developing business in the gas industry, which is brand new for eastern Siberia. The feasibility studies for the project have been conducted with help and technical expertise of the Japanese company TOYO Engineering, a global expert with huge practical experience in industrial engineering in both Russia and worldwide. The company plans to produce up to seven billion cubic meters of natural gas per year from the Yaraktinsky, Markovsky and West-Ayansky fields, all located in the Irkutsk region. Natural gas from these fields is rich with valuable feedstock components such as gas condensate, propane, butane, and ethane. On a top of that, the company plans to achieve more than 90 percent associated petroleum gas (APG) utilisation rate. Due to the ecological safety of natural gas, burning it sends far fewer emissions of harmful substances into the atmosphere than burning other energy sources Rational use of natural and associated gas resources is complicated, capital-intensive, and challenging task for the company. Irkutsk Oil’s gas project is expected to be a unique venture for all of Russia, and a number of technological solutions applied in it will most likely be used for the first time in the country. It is expected that the total investments in the gas project could reach $3.4bn, some $0.2bn is being invested in 2014. During the next five years, Irkutsk Oil plans to build two gas processing plants with a total processing capacity of seven billion cubic meters per year, a transportation system for natural gas liquids and methane, gas fractioning facility, and polyethylene plants with a capacity of 500,000 tons of low and high density polyethylene per year with a possible expansion of up to one million tons per year. Moreover, the gas project includes a railroad uploading terminal in Ust’-Kut that will allow shipping a liquefied petroleum gas (LPG) and gas condensate as well as construction of plant to produce liquefied natural gas for the needs of the local market. The implementation of the gas project began in 2010. The company pioneered the operation of gas-cycling process with the separation of condensate in Russia, at the Yaraktinsky field. Based on the successful testing, the re-injection of APG to the formation began. The company’s achievements in APG utilisation were highly recognised at the international level. Since 2010 the gas project continued to be one of the company’s main focus areas. In 2013 Irkutsk Oil kept expanding the capacities of its APG compressing equipment at the Yaraktinsky field by putting into operation new drive compressors. In addition, the company signed contracts for the delivery of several more compressor units. In 2013, Irkutsk Oil also put into operation a block compressor to utilise associated petroleum gas at the Markovsky field. By the end of 2013, the company has deployed 13 compressors (with a total capacity of 34 MW) ensuring the effective utilisation of natural gas and APG at its fields and license blocks and decreasing the rate of greenhouse gas emission. Irkutsk Oil was moving onto the next steps of its gas project during 2013. The company completed construction of injecting wells and gas pipelines, prepared all construction sites, brought some machinery, equipment and materials, invited contractors for competitive bids, placed orders for key equipment, and finished the basic stages of design works. It also continued the feasibility studies of the gas processing plant. At the same time, engineering companies from Russia and North America completed the design of the complex natural gas and APG treatment and processing facility at the Yaraktinsky field, and submitted the documents for approval to GlavGosEkspertiza – the Russian state agency. In addition, the group completed the design of a pipeline system to transport gas components from both the Yaraktinsky and Markovsky fields to railroad uploading facilities in a city of Ust’-Kut. At the beginning of 2014, Irkutsk Oil intensified its gas project implementation, which is essential for the successful local economic development. It will enable the construction of new production facilities, gas transmission and gas-consuming infrastructures, and power generation capacity, attests Nikolay Buynov, Irkutsk Oil’s Chairman of the Board. The gas project also provides a positive contribution to the social development of eastern Siberia. It will improve the regional labour market by creating several thousand jobs during its construction and more than 450 highly skilled jobs during operation. Moreover, Irkutsk Oil’s project allows expansion at the tax base: $3.4bn of various taxes would be paid to the local and federal budgets in the first 15 years of the project. Developing eastern Siberia Establishing the gas industry in eastern Siberia is considered significant on an international level, as the environmental protection of Lake Baikal – declared a UNESCO World Heritage Site – is increased. Due to the ecological safety of natural gas, burning it sends far fewer emissions of harmful substances into the atmosphere than burning other energy sources; especially coal, which is traditionally used in eastern Siberia. At first, Irkutsk Oil plans to produce and transport liquefied natural gas (LNG) to the local markets. The company plans to produce LNG at the plant, which will be the part of gas chemical facility, located in Ust’-Kut, the north of Irkutsk region. Completion is due in the fourth quarter of 2017. The total processing capacity of this plant will be 84,000 tons of LNG per year. The company is positive that this volume of production will be sufficient for creating local markets for LNG. Liquefied natural gas will be used in several focus areas and in particular, for domestic needs in communities within the Baikal natural territory. Furthermore, it is economically feasible and ecologically attractive to utilise LNG as fuel for public transportation, commercial vehicles, river ships, and cars. It will allow, for example, to decrease bunker fuel costs by 50 percent and to improve environmental protection of Lake Baikal and its nearest rivers. According to estimates, emissions of carbon monoxide can be decreased by five to 10 times, hydrocarbons pollutes by three times, nitrogen oxides by 1.5 to 2.5 times, polycyclic aromatic hydrocarbons by a few dozen times. Irkutsk Oil has already begun testing local markets for an interest in LNG. In June this year, the company and the Zabaikalsky region’s government signed the five-year agreement on cooperation. Under the agreement, parties aim to work at ways of gasification the Zabaikalsky region by using LNG and LPG. The transportation of LNG is of high priority for the territory. Besides solving some of the local problems – like reliable source of energy of the local industry – it would address the big environmental threat to the fragile ecosystem of Lake Baikal, the world’s largest and deepest lake. Gasification of this territory can be conducted in three to five years. The starting volume of LNG, transported to the Zabaikalsky region, is estimated at 10,000 tons per year. The company plans to supply at least the same volume to Severobaikalsk (Republic of Buryatia) and Ust’-Kut (Irkutsk region). Therefore, if successful, Irkutsk Oil’s project could be considered the beginning of the regional large-scale gasification programme. But most of LNG production – about 60,000 tons per year – is due to be supplied to Baikalsk city, located at the south coast of the lake. For decades the lake’s unique ecosystem was threatened by Baikalsky paper and pulp mill and coal plant. At present, Baikalsk is capable to change this situation and reduce environmental pollution. Irkutsk Oil hopes that using LNG will enable improvements to the town’s heating system, liquidate coal storage facilities, and sharply decrease emissions. A new source of energy could change the business landscape of this city. Needless to say, the federal governments fully support the project. These directions of activity are also strongly backed by the local authorities. The government of the Irkutsk region and VEB Engineering Company (Vnesh Econom Bank Group’s subsidiary) began working on the pre-feed of the region-wide switching of coal-burned boilers to the ones that are operated by gas. The company sees great benefits from the project as it has long-lasting economic, environmental and social effects. Eventually it will create a new gas industry in East Siberia and change it for the best.