THE CHANGING RUSSIAN ASSOCIATED GAS EQUATION: NEW RISK AND REWARD DYNAMICS FOR OIL COMPANIES

As Russia confronts the possibility of a gas supply squeeze, Russian policymakers have a major incentive (in theory) to remove long-standing obstacles to the marketing of growing volumes of associated gas extraction, much of which is currently being flared by the Russian oil companies. But for the moment, the main focus of Russian authorities' gas sector policy is evidently to reinforce or extend state control rather than ensure the efficient supply of growing markets-posing new challenges for both the oil companies and gas consumers:

*Traditional markets for Russian gas and its by-products remain largely out of reach for the oil companies, even as the government intensifies its antiflaring campaign, increasing the urgency of innovative utilization strategies.

*The oil companies have nevertheless scored some important piecemeal victories lately in their struggle to monetize their associated gas, indicating increased flexibility by Russian authorities on issues of access to processing capacity and prices, both at the top of the pipe and in end markets.

*Usage of associated gas at oil fields is also on the rise, in particular for distributed electricity generation, while the potential benefits of reinjecting more gas to enhance oil recovery represent one of the greatest uncertainties regarding the role of associated gas in Russia's overall gas balance.

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