Hydrocarbon World - Volume 6 Issue 2

Realising the Value of Wasted Natural Gas Figure 1: Global Gas Flaring from Satellite Data 1996–2008

120 140 160 180

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: US National Oceanic and Atmospheric Administration and Global Gas Flaring Reduction Partnership.

Table 1: Satellite Estimates for Top 20 Flaring Countries Volume in Billions

of Cubic Metres 2005 2006 Russia Nigeria Iran

Algeria

Kazakhstan Libya

Saudi Arabia Angola Qatar

Uzbekistan Mexico

Venezuela Indonesia US

China Oman

Malaysia Canada Kuwait

Total top 20

55.2 21.3 11.3 5.2 5.8 4.4 3.0 4.6 2.7 2.5 0.9 2.1 2.7 2.0 2.8 2.5 1.7 1.2 2.5

142

Rest of the world 20 Global flaring level 162

48.8 19.3 12.1 6.2 6.0 4.3 3.3 4.0 2.8 2.8 1.2 2.0 3.0 1.9 2.8 2.2 1.8 1.6 2.5

136 21

157

2007 50.0 16.8 10.6 5.2 5.3 3.7 3.4 3.5 2.0 2.0 1.7 2.1 2.4 1.9 2.5 1.9 1.7 1.8 2.1

129 19

148

2008 40.2 14.9 10.3 5.5 5.2 3.7 3.5 3.1 2.7 2.7 2.6 2.6 2.3 2.3 2.3 1.9 1.9 1.8 1.8

119 22

140

that the host government establishes this enabling environment through effective legislation, regulation and market/economic measures.

Specific policy measures will depend on each country’s circumstances and are likely to include both upstream and downstream sectors. Some generic lessons can, however, be drawn from successes in associated gas utilisation already achieved by a number of oil-producing countries, such as Algeria, Canada, Norway, Saudi Arabia, the UK and the US.

Some of these lessons include:

• Oil and gas legislation. Oil and gas concessions/licences should be clear, comprehensive and unambiguous regarding the treatment of associated gas.

Change from 2007 to 2008 -9.8 -1.9 -0.3 0.3

-0.1 0.0 0.1

-0.4 0.7 0.7 0.9 0.5

-0.1 -0.1 -0.2 0.2 0.2 0.0

-0.3 -10 3

-7

From a study commissioned by the World Bank-led Global Gas Flaring Reduction Partnership and carried out by the US National Oceanic and Atmospheric Administration.

Table 2: Reasons that Gas Is Flared ‘Hard’ causes

Distance from significant gas markets Reliability of supply from associated gas Gas infrastructure constraints (lack of, or access to it) Gas composition

Risks of gas re-injection in oil reservoir ‘Soft’ causes

Limited institutional, legal and regulatory framework for gas, including associated gas

Ineffective fiscal terms (gas price, equity share, tax structure, etc) Underdeveloped domestic market for gas/products (liquefied petroleum gas, compressed natural gas, methanol, power, etc) Funding constraints and need for co-ordinated actions by multiple stakeholders

governments and companies in oil-producing countries need to consider in order to realise the value of wasted natural gas.

Effective Policies

Private oil companies are unlikely to commit their resources to associated gas utilisation projects unless the host government creates an environment that supports their economic viability. The rights and obligations of the oil companies to utilise the gas also need to be clear. Thus, it is crucial

10

• Fiscal terms should encourage gas utilisation investments. Special fiscal treatment of associated gas investments may be needed to overcome the high up-front capital cost of associated gas infrastructure.

• The gas market should encourage and enable associated gas utilisation with: • oil and gas companies given the right to monetise gas, generally including gas export;

• open and non-discriminatory access to infrastructure, including gas processing and transmission facilities, access to electricity grids (to sell electricity produced on-site from associated gas); and • market-based energy pricing.

• Flare and venting regulations should be clear, with effective monitoring and enforcement. The right market conditions and investment incentive schemes should be complemented by flare and vent regulation in order to challenge operators to use all of the gas utilisation options available.

• Reduction in legacy flaring requires a comprehensive and methodical approach. A generally accepted approach in addressing legacy flares and vents is:

• to establish a realistic flare/vent-out deadline; • to create an environment enabling gas utilisation investments; • to co-ordinate operators’ investment programmes; and • to closely monitor them to ensure that they are implemented on time.

Developing these flare reduction programmes should involve a co-operative approach in consultation with key stakeholders, particularly operators.

• Although stakeholder consultations will take time and effort, they typically add value by:

• establishing a challenging but realistic flare-out deadline; • identifying key issues and risks in the implementation of operators’ associated gas utilisation programmes, which in turn allow these to be addressed in a timely fashion;

• developing a fiscal framework consistent with the country’s flare and vent reduction policy; and

• transforming the potential of the policy into results on the ground through greater trust, ownership and commitment by stakeholders.

• New oil developments should include provision for associated gas utilisation. In new oil developments, associated gas utilisation should be an integral part of the field development planning process. Addressing flaring and venting retroactively is more costly and often more technically challenging.

• An integrated plan should be developed for both associated and HYDROCARBON WORLD – VOLUME 6 ISSUE 2

Gas Flared (bcm)

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