Yury Vazhenin: Building up capacities

October 12, 2011, the interview was taken by Sergey Pravosudov
Published in corporate Gazprom Magazine Issue 9

Yury Vazhenin, Director General of Gazprom pererabotka answers questions posed by the Gazprom Magazine.

Mr. Vazhenin, please tell us about the operating and financial highlights of Gazprom pererabotka in the last year.

Over 200 thousand tons of liquid hydrocarbons and about 2.5 billion cubic meters of gas were produced from the Komi Republic fields and subsequently processed at the Sosnogorsk Gas Processing Plant (GPP) last year. In Western Siberia the total amount of hydrocarbon feedstock processed at the Condensate Treatment Plant (CTP) and the Surgut Condensate Stabilization Plant (CSP) exceeded 14 million tons in 2010. Speaking about the financial highlights, sales proceeds surpassed RUB 29 billion in 2010, while net profit was at some RUB 3 billion.

What are the operating highlights for the first six months of 2011?

Almost 7 million tons of hydrocarbon feedstock was processed at the CTP and the Surgut CSP. As a result, production of stable condensate exceeded the production plan by 15 per cent; that of diesel fuel – by 22 per cent; and that of liquefied gases – by 3 per cent.

Transmission of condensate from the Zapolyarnoye oil, gas and condensate field (OGCF) via the interfield condensate pipeline connecting the Zapolyarnoye OGCF and Urengoy started in April 2011. The advantage of receiving the Zapolyarnoye feedstock lies in the opportunity of diluting it with the heavy Achimov condensate from the Urengoyskoye field, as the content of heavy fractions and paraffins in the plant feedstock is currently limited.

In the long run, the total production of gas condensate from the Zapolyarnoye field may exceed 3 million tons per annum. Production of the Achimov condensate will be increased as well. In order to ensure processing of such volumes, it is necessary to implement prospective programs on upgrading and developing our transmission and processing facilities as well as creating an alternative scheme for treatment and transmission of heavy feedstock as soon as possible. Otherwise, positive prospects will remain just ink on paper.

Tell us about your investment outlook.

This year, Gazprom adopted the 2011–2015 Comprehensive Program for Reconstruction and Re-equipment of Gas and Liquid Hydrocarbons Processing Facilities, which envisages about RUB 80 billion of investments.

Surgut CSP

Five facilities are planned to be commissioned at the Surgut CSP in the nearest future. The most important of them are, of course, the heavy petroleum products (stable condensate) loading rack with 2 million tons of capacity, TS-1 jet fuel loading rack and methyl-tert-butyl ether (MTBE) unloading rack as well as the low-pressure waste gas utilization unit. Intense work is underway to complete these important facilities.

As I have mentioned earlier, production of condensate will significantly grow in Western Siberia soon. The pilot runs at the Surgut CSP revealed that the existing process lines ensured the plant's design throughput capacity at 8 million tons per annum. Thereby, it is expected that the volume of feedstock supply to the Surgut CSP (including external suppliers) will exceed 9.5 million tons per annum by 2014. Consequently, we need to upgrade the available production facilities and commission new processing facilities.

This year, contact devices in stabilizers were replaced by valve-type KOCH-GLITSCH devices at three process lines of condensate stabilization units. This will boost the processing by 15 per cent on average. We are planning to replace contact devices at the remaining process lines next year. Besides, we are going to build two additional condensate stabilization lines each with 2 million tons of feedstock in capacity by 2013, which will enable us to process up to 12 million tons of oil and gas condensate mixture annually.

To attain the compliance of diesel fuel with Class 5 of the Technical Regulations approved by the Russian Government, a catalyst was loaded in the reaction section of the kerosene hydrotreater of the motor gasoline upgrading complex in April 2011 that will cut the sulfur content in diesel fuel produced by the Surgut CSP to standard values. It is planned to launch production and Class 5 certification of diesel fuel in September 2011.

In the coming years, Gazprom pererabotka is also planning to commission a light naphtha isomerization unit to produce motor gasolines corresponding to Class 5 of the Technical Regulations.

Does Gazprom pererabotka have any plans for cooperation with SIBUR Holding?

Yes, our plans include such cooperation. We may have problems with natural gas liquids (NGL) marketing soon. In 2010 production of NGL (owned by Gazprom) made up about 375 thousand tons at the Surgut CSP. Subsequently, this amount can grow up to 1.5 million tons per annum (with the plant loading rate at 12 million tons of feedstock).

Currently, we supply NGL to the Tobolsk facilities of SIBUR Holding to receive MTBE utilized at the Surgut CSP as a high-octane component for motor gasolines. In the mid term SIBUR is expecting shortages of light hydrocarbons due to the plans on brining onstream new capacities, that is why it is already searching for potential NGL suppliers for its gas chemical projects.

The SIBUR management says that their company is capable of processing all the NGL produced by the Surgut CSP and wants to sign a corresponding long-term agreement. As usual, everything depends on the product selling price. We are not against cooperation. SIBUR has a great working experience and good employees, but cooperation must be mutually advantageous.

Komi Republic

Will Gazprom pererabotka develop new fields in the Komi Republic and what does the outlook for developing production capacities in this region look like?

Nowadays, we are exploring both our conventional areas of gas production and the new ones adjacent to the future Bovanenkovo – Ukhta gas pipeline currently under construction. Gazprom pererabotka owns 11 licenses for the right to use subsurface resources in the Komi Republic. Two of them are for the fields being explored – Severo-Yugidskoye and Zapadno-Pechorokozhvinskoye – and five of them are for geological survey of promising oil- and gas-bearing subsurface areas. Only four fields are being commercially developed: Vuktylskoye, Zapadno-Soplesskoye, Pechorokozhvinskoye and Yugidskoye.

Producing fields are specific with declining formation pressure and, consequently, with production decrease as well as by a fall in the gas condensate content in the produced feedstock. This is not surprising, though. For instance, the Vuktylskoye oil, gas and condensate field has been developed since 1968. One of the options to extend the life of Vuktyl is to drill the super-deep well No.402 to be completely engineered by this autumn.

There is another possibility to expand the feedstock base of the Sosnogorsk GPP. LUKOIL has a project to use the associated petroleum gas of LUKOIL-Komi for power generation at the Pechora State District Power Station. We propose to replace these volumes with the Cenomanian gas from the Bovanenkovo – Ukhta gas pipeline in order to deliver the associated petroleum gas to processing facilities of the Sosnogorsk GPP. The issue hasn't been settled yet.

Novy Urengoy GCC

At what stage is the Novy Urengoy Gas Chemical Complex (GCC) construction now?

The facility commissioning was scheduled for 2012; but we do not expect it before 2013. There are some challenges that need much time. For instance, it is necessary to upgrade the CTP booster compressor station according to schedule; otherwise the complex will be left without feedstock. After all, it was originally planned that the Condensate Treatment Plant would supply the bulk of feedstock to the Novy Urengoy GCC.

Will the Novy Urengoy GCC further increase its capacity from 400 thousand tons to 1.2 million tons of polyolefins and will it find a market for these amounts?

Indeed, the Novy Urengoy GCC construction project provides for such expansion and the Gazprom Development Strategy for gas chemical and gas processing facilities endorses the increased recovery of valuable components from gas and higher output of products with a more advanced level of processing. Furthermore, marketing studies have revealed a rapid development and high demand in the Russian and global polyolefin markets. Therefore, I believe that there will be no problems with the demand for the Novy Urengoy GCC products.

What do you think about the prospects for creating a high-capacity gas chemical complex on the basis of Gazprom neftekhim Salavat and is Gazprom pererabotka planning to increase its stake in this company?

The gas industry strategy is aimed at business diversification and mastering the turnout of new products with a high added value. Gazprom's objective is to develop gas chemistry and increase the recovery of valuable components from feedstock. It can be achieved through advancement of the Company's own processing facilities and, therefore, by loading other industries. Modernization will increase the output of high-quality final products and accelerate development of the national economy.

As for the purchase of shares, Gazprom's decision to increase its stake in Gazprom neftekhim Salavat is a matter of the long-term strategy and will depend on the financial and economic viability of such investments.

Eastern projects

What are the plans of Gazprom pererabotka for the Irkutsk Oblast?

Our company has been appointed coordinator for implementation of projects and management of assets owned by gas processing and gas chemical companies created on the basis of fields being developed by Gazprom in Eastern Siberia and the Far East. Gazprom pererabotka actively participates in provisional studies on creating a gas processing plant and a gas chemical complex in Sayansk.

According to estimates, construction of a GPP/GCC in southern Irkutsk Oblast is economically efficient, if processing is at least 4.5 billion cubic meters of gas. Steady production from the Chikanskoye field doesn't exceed 2.5 billion cubic meters. Therefore, in 2010 Gazprom pererabotka, Sayanskkhimplast and SIBUR Vostok signed a trilateral Memorandum of Intent, according to which SIBUR assumed a number of obligations to expand the project's feedstock base, while Sayanskkhimplast undertook to provide its sites for building GPP/GCC facilities.

But things changed dramatically in March 2011 when Gazprom purchased the assets of RUSIA Petroleum, which held the subsurface license for the Kovyktinskoye field. The problem with feedstock supply to the Sayansk project was resolved. At present, it is necessary to adjust the GPP/GCC designs to the new resource base, re-estimate the amounts of processing and output, and re-define the joint venture participants for this project.

What about Yakutia?

Natural gas found in Yakutia's fields, just like in other fields of Eastern Siberia and the Far East, contains commercial volumes of methane homologues, which are valuable for petrochemistry, and helium, which is strategically important for pioneering high technologies. To improve the economic efficiency of the projects aimed at developing such fields, it is necessary to build petrochemical and helium facilities in addition to the gas processing ones.

However, the analysis of data on possible development options for Eastern Siberia and the Far East showed that arranging of processing facilities based on each field (e.g. Chayandinskoye in Yakutia) was economically inefficient. First of all, it is explained by a low level of internal consumption of the potential output due to the poorly developed transport infrastructure near the fields. Export of the final products would be even less efficient.

In this regard, Gazprom is now considering a comprehensive approach to development of all fields through establishing processing facilities on the basis of integrated feedstock.

Tell us about the outlook for construction of a gas processing complex in Vladivostok.

Gazprom is going to build a liquefied natural gas (LNG) plant with the annual capacity of up to 10 million tons on the coast of the Sea of Japan. The Company will combine LNG production with the commercial helium production that will reduce its prime cost. Other options include the construction of a gas chemical complex for production of methanol, ammonia, carbamide, and petrochemicals, particularly, polyolefins for export supplies.

The key advantage of Primorye is the possibility to use the marine transport to establish an export corridor for marketing of LNG and the whole range of chemical and petrochemical products. The Company is also considering the feasibility of producing industrial and household wares from petrochemicals.

This will create additional jobs in this region and require building up housing construction. There's an acute shortage of highly skilled workers in Primorye; therefore, personnel training should be arranged at enterprises and at educational institutions.


What are your plans for helium produced in the fields of Yakutia, the Irkutsk Oblast, and the Krasnoyarsk Krai?

Commissioning of the fields of Eastern Siberia and the Far East will be accompanied by a fifty-fold increase in domestic production of helium. Clearly, such volumes cannot be consumed either by the domestic or by international markets.

An opinion that all helium shall be recovered using extremely expensive cryogenic techniques is now prevalent. I believe this point of view should be reconsidered. Experts at Gazprom pererabotka participate in forming the concept of helium production, storage and transportation. Nowadays, energy-saving helium recovery techniques, particularly those involving the use of membranes, are being intensely developed. The work is also underway to reduce energy consumption in cryogenic processes. Besides, consideration is being given to various options of helium storage – from re-injection into the reservoir to construction of artificial storages. Heavy-tonnage tank cars for liquid helium transportation are being also designed.