Interview with the head of Gazprom Neft Strategic Planning Department Sergei Vakulenko
— Sergei Vladimirovich, the Gazprom Neft innovative development program 2020 has recently been approved. How did this document come about?
— The document is, in a certain sense, a continuation of the chapters on innovation in the oil business which are part of Gazprom’s innovative development program. Traditionally, we at Gazprom Neft pay a great deal of attention to technologies, and the company always had a technology program, although up to a certain point that program had not been formalized as a strategy. For example, one of the company’s priority directions for innovative development in upstream is the efficient development of tight reserves. This is a widely discussed issue across the industry, but we began working on it two-three years ago, and now we are in a position to speak about some results. Our downstream colleagues are faced with a similar situation.
— What kind of measures does the program specify for modernizing refineries?
— As for the oil refineries, the entire modernization program includes two major waves of renovation. The first is implementing a quality program which has already led to the building of fuel refinement units. This will allow us to switch over to the production of grade 5 fuel by the middle of this year. The second stage in modernization which found its reflection in the innovative development strategy was increasing the conversion rate. The advanced oil processing unit in Omsk and the catalytic cracking unit in Moscow are slated for renovation by 2020. Furthermore, coking units are to be constructed at both of those refineries, while hydrocracking units are to be built at the oil refineries in Omsk, Moscow, and Yaroslavl. As a result, the oil conversion rate at our refineries will exceed 94 percent, and the light petroleum products yield will exceed 77 percent.
— Is the program going to use Russian technologies?
— Yes, we are developing technologies jointly with the Institute of Petrochemical Synthesis of the Russian Academy of Sciences and the Institute of the Problems of Processing Hydrocarbons of the Russian Academy of Sciences. Working jointly with the Institute of Petrochemical Synthesis, we have come up with a technology for the environmentally safe production of the high-octane component of automotive gasoline. This allows us to safely operate next to urban territory, which is especially important for the Moscow Refinery. That same institute is also working with us to develop unique technologies for the processing of heavy oil residue and hydroconversion of tar. Although we do not plan to make a final assessment of the feasibility of the industrial application of those products until 2016, we are already quite confident that this technology will be successful. Besides, the only production facility in Russia that makes catalysts is located in Omsk, and developing production of Russian catalysts with properties superior to those of comparable foreign products is one of the key challenges we are focused on. For this purpose, we have joint ranks with the Institute of Catalysis and the Institute of the Problems of Processing Hydrocarbons of the Siberian Branch of the Russian Academy of Sciences. Our division of labor and cooperation are based on the fact that research institutes excel in developing the principles of new technologies and processes, while we bring those new technologies and processes to real life, scaling up from the test tube to the factory process unit.
The soap effect
— How are things in the production shop?
— Raising the oil recovery factor and recovering tight reserves are two main challenges. In order to meet these objectives, the company is actively drilling horizontal wells and doing multistage hydraulic fracturing. Furthermore, we only began using multistage hydraulic fracturing technology, which works well for developing tight reserves, in late 2011. In 2013, we plan to conduct over 120 multistage hydraulic fracturing operations. This is a good example of how the company implements efficient technologies. Looking at the technologies available on the market, to a large extent we have to interact with global contractors, whose branches in Russia, however, employ Russian specialists. At the same time, we are using the Electronic Oil Field technology that we developed jointly with the Ufa Research Center.
— Is it a Russian product, or an adaptation of a Western software product?
— It does involve elements of adaptation, but it’s not just a software product. Here, it’s a matter of approaches, an accurate understanding of what is going on out in the field, and the ability to control injection rate and put wells into unsteady waterflooding mode. This uses algorithms some of which have been developed by Russian IT contractors too, viz. the Ufa R & D Center and ITSK. By now, the world has accumulated a number of excellent technologies that are waiting to be implemented. And there is the concept of the “curse of the pioneer.” A pioneer generally makes every possible mistake and thereby expends a great deal of resources while creating and commercializing technologies. Those who follow can repeat the pioneer’s success in a shorter time and with less effort and costs. We can now see many technologies that have already been put on the market, and we do not have to waste our time and money and bruise our shins while introducing them. We only need to pick the best of them and make them work for us. So, our main task at present is to preserve and develop the ability to quickly assess what is happening on the market and implement the best of what’s being offered at our production facilities.
— What are you planning to do to enhance oil recovery?
— I would refer to the method of polymer alkaline waterflooding, which is what Shell is proposing , as an example of technology for boosting production. The technology is already widely used in Canada, China, and a pilot project is underway in Oman. To put it simply, a low oil recovery factor, among other things, is associated with oil sticking to the rock and remaining within the formation. The basic idea of this new technology is to inject a specific mixture of chemicals, instead of water, into the well in order to raise the oil recovery factor. The alkali contained in the mixture conditions the rock, and, in interacting with the oil, intensifies the effect of an additionally injected surfactant that tears away the oil.
— In other words, there’s a soaping effect?
— Yes, exactly. First soda, then soap. This causes an emulsion to form, a suspension of oil droplets in water, like oil in a frying pan filled with soapy water. If you then displace the emulsion with water, then it will flow around the droplets of oil, and if you add some kind of thickening agent, then it will push out the drops like a piston. Then ordinary water is pumped in, pushing the clot of oil up. It’s called chemical waterflooding.
— What chemicals do you use?
— Rather simple ones. In general, all of the chemicals we use could even be found in a restaurant kitchen: soda, dishwashing liquid, and guar gum, although at the production site we don’t use exactly the same substances.
— This may raise questions about polluting groundwater.
— It doesn’t affect the quality of groundwater at all. The chemicals are injected directly into the formation which already has oil in it. And by definition, that formation is separate from groundwater. Otherwise, oil would also get into the groundwater, and oil is a much more hazardous pollutant. Furthermore, the waterflooding takes place at depths of two to three kilometers.
— In which regions do you plan to use this technology?
— We are currently looking at Khanty-Mansi Autonomous Okrug-Yugra and Yamalo-Nenets Autonomous Okrug. Shell is also proposing it. The project at Salymskoye field, a joint venture between Shell and Gazprom Neft called Salym Petroleum Development, is a test case. The additional volume of oil that we will acquire by using this technology will be able—over a
— Will you have to modernize your production capacity in order to apply this new technology?
— We may decide to drill a few additional wells in order to inject the chemical mixture into the formation more efficiently. We will also have to install process blocks at the field to mix and inject the mixture. But there won’t be any need for large-scale, special preparations.
— What oil recovery factor are you targeting?
— Ten to fifteen percent. Any less than that could mean that applying the new technology will not justify its cost.
— There is one more project in Salym you are doing jointly with Shell, the shale oil project.
— Yes. Besides, in April we made a deal with them to do new similar projects. There are a large number of areas where light oil contained in low-permeability formations, frequently referred to as shale oil, could potentially be developed. Involving a reliable partner will enable us to expand our work program to twice its current size. Everybody understands that the greater the territory you study, the greater the likelihood that you may form a portfolio of good assets. It has been known for a long time that the enormous Bazheno-Abalakovskaya suite lies within the Russian subsoil, and its hydrocarbon reserves amount to billions of tons. But it is still not quite clear how much of that oil is recoverable. We have yet to achieve an understanding of that, and technologies will play a decisive role here. For example, by drilling wells with various controllable hydrocracking geometry, we are beginning to hit reserves that were previously regarded as completely inaccessible. The Bazhenovskaya suite and the tight reserves in conventional formations have different hydrocracking geometry but those two related technologies really increase the Russian production base by a whole lot. I don’t know if I can say this for the country as a whole, but for ourselves we estimate that such reserves will contribute approximately 10 to 15 percent of our production by 2020, meaning
— Does the program mention the subject of utilizing associated petroleum gas?
— Of course it does. We are focusing on two key areas. The first is utilizing associated petroleum gas in order to provide electric power for our production sites. Gas will make it possible to replace diesel fuel and residual fuel oil, which is what we currently use to generate power for ourselves. The second is developing a gas-to-liquid (GTL) conversion technology. Basically, GTL technology has been used for 85 years already, but the problem is that associated petroleum gas is inconsistent in its content, and furthermore, a traditional GTL unit produces rather high-molecular-weight compounds which need to go through cracking before they can be made into saleable products. Unfortunately, cracking units will work effectively only when much larger volumes of raw gas are available than what we have at our production sites now. One way to solve the problem would be to create a process chain that would make it possible to obtain, through the use of GTL technology, a product that would be appropriate for mixture with oil in a pipeline. That’s a big challenge facing the catalytic chemistry, and we are discussing the possibility of working on that problem at the Omsk Oil Refinery site in order to develop processes and units that could be implemented at the remote production sites. Furthermore, we are considering the possibility of building petrochemical production facilities in Omsk for which the natural gas liquids obtained from associated petroleum gas and condensate would serve as feedstock. But that is a strategy for developing the petrochemical side of our business, and it is currently still being developed.
— Are you looking at the possible introduction of alternative engine fuels?
— We are working on the gas engine fuel issue jointly with Gazprom. We are currently discussing the possibility of putting in compressed gas fueling equipment at some of our gas stations. We are also researching the issue of marine bunkering with liquefied natural gas. We understand that after 2020, liquefied natural gas will take up a significant share of the marine shipment fuel market. And we aspire to have our specialized subsidiary Gazpromneft Marine Bunker take a worthy place in that segment. We are confident that the expertise we have got in bunkerage in various countries and the experience of our parent company on the liquefied natural gas market will help us reach a good synergetic effect for growing this line of business.
— I suppose that the innovative development program also involves cooperation with universities.
— We are working actively with universities, and are trying to create a sort of technological cluster in Saint Petersburg. We are holding workshops in the city focused both on production technologies and applying fuel and lubricants, as well as on the various aspects of raising the oil recovery rate and developing tight reserves. In Saint Petersburg last year, the Northwestern Branch of the Society of Petroleum Engineers was founded. We are getting the Mining Institute involved in our projects. We are continuing work with other leading universities, and specifically with the Gubkin Institute. We understand that in order to give our future projects high quality research support, we need to create an assembly line of specialists today.
Interviewer: Alexander Frolov