TNK-BP plans huge investment in bid to double gas production

Russia's third largest oil firm, TNK-BP, said it would invest $3.8bn (£2.4bn) in its gas business over the next three years as it aims to more than double production to 30 billion cubic meters (bcm) by 2020.

"The most significant element is associated gas. It will give over half of that production level, or 15 bcm," the head of TNK-BP's gas business, Alastair Ferguson, said.

TNK-BP, half-owned by BP, will invest $1.8bn between now and 2013 on developing the associated gas from its oil deposits to meet a government target of increasing associated gas utilisation to 95 per cent by 2012.

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"Critical to achieving this (95 per cent utilisation rate) is getting associated gas priority access to the gas pipeline. But you also need to have customers for it, so access to the power market is another important element," said Mr Ferguson.

The firm will also invest $2bn on regular natural gas extraction projects over the next three years, putting the total natural gas investment plan at $3.8bn. TNK-BP, which is set to produce 13 bcm of gas this year from 143 fields, already processes 85 per cent of the associated gas that it extracts from the ground together with oil. The rest is flared into the atmosphere.

Part of TNK-BP's $1.8bn associated gas utilisation project is a $700m investment in its own energy projects, such as gas processing facilities and power plants, which will supply electricity for the firm's own oil field operations.

"We can save big on the cost of power. Power is a significant portion of our production or lifting costs, and this continues to grow," said Mr Ferguson.

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The goal of extracting 30 bcm of gas by 2020 will mean gas represents 20 per cent of the company's eax rnings before interest, tax, depreciation and amortisation (EBITDA) by then, Mr Ferguson said. He added the output target does not factor in the gas assets it is in negotiations to buy from BP in Venezuela and Vietnam.

It does, however, include potential unconventional gas production in Ukraine, where TNK-BP has submitted applications for six licences to invest $50m to explore for tight gas.

TNK-BP's main gas-producing assets in Russia are its Rospan fields in Arctic Yamal-Nenets region in the Arctic. Production at Rospan grew by 12 per cent year-on-year for January-September 2010 to 1.9 bcm and is poised for higher growth in 2011.

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