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Environmental protection

Introduction

Oil & gas operations are subject to extensive national, regional and local environmental laws and regulations. These laws and regulations set standards for health and environmental quality, provide for penalties and other liabilities for violations of these standards, and establish, in certain circumstances, obligations to rehabilitate current and former facilities and off-site locations.

The Ministry of Natural Resources (MoNR) was formerly responsible for the administration of and compliance with environmental regulations affecting the Russian oil and gas industry, but on 22 May 2004, these responsibilities were transferred to the Federal Service for Surveillance in the Sphere of Environmental Use and to the Federal Service for Ecological, Technological and Nuclear Surveillance. The latter is responsible for administering the pay-to-pollute regime established in the Environmental Protection Law of December 1991.

A typical licence review includes checks on environmental compliance and, if necessary, the administration of any penalties, fines or remediation work. Charges are assessed annually for violations of limits on emissions and effluents. These charges are currently low in relation to the cost of environmental protection equipment. The Ministry of Finance has proposed to introduce an environmental tax from 2020 that will formalise the charges for negative environmental impact, including flaring of associated petroleum gases.

Natural resource development matters are subject to periodic environmental evaluation. While in the past these evaluations have not generally resulted in substantial limitations on natural resource exploration and development activities, they are expected to become increasingly strict in the future.

The Subsoil Law and Subsoil Regulations state that subsoil licences must include provisions establishing a procedure for the restoration of the site and re-cultivation of the land upon termination, relinquishment or expiration of the licence. This procedure generally requires that the licensee submit to the regional authorities, for their approval, a plan detailing the time frame and actions that the licensee will undertake to restore the site.

The challenges

Hydrocarbon production is associated with a heavy impact on the environment. Established environmental practices face growing scrutiny from environmental groups, non-governmental organisations and (mainly local) politicians. This means that the federal government is under increasing pressure both to apply existing environmental laws more stringently, and to develop new legislation to strengthen these laws.

Exploration licences and production licences usually require certain environmental commitments, and all major Russian oil producers typically have a strong record of compliance with environmental regulation. A key area of current focus is the reduction in flaring associated gas production. The environmental rules introduced from 2012 – requiring a 95% utilisation rate of associated gas – have helped to promote investments in technologies that reduce flaring (typically, associated gas is being used to generate electricity, pumped into the Gazprom system or injected into the reservoir to help maintain pressure), although the problem has not been eradicated (official data suggest 11.5% of associated gas was flared in 2018, with the full 95% compliance expected by 2020).

Renaissance Capital

20 June 2019

Russian oil & gas

Extensive national, regional, and local environmental laws and regulations

Pay-to-pollute regime essentially in place

Gas flaring is the big challenge, but compliance is increasing

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