Access to Energy, Gas Flaring Reduction,  and Domestic Market Development  Presentation by Jacob Broekhuijsen, World Ban

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Access to Energy, Gas Flaring Reduction, and Domestic Market Development Presentation by Jacob Broekhuijsen, World Ban

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1. 1 Access to Energy, Gas Flaring Reduction, and Domestic Market Development Presentation by Jacob Broekhuijsen, World Bank Africa Oil & Gas Forum, Houston, November 29-31, 2004

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4. 4 Key Assumptions, Uncertainties, Reference Scenario vs. Alternative Policy Issues Primary & Final Energy Demand, CO2 Emissions by Fuel/Region Oil, Coal, Gas, Power Gen, etc. Key Assumptions, Uncertainties, Reference Scenario vs. Alternative Policy Issues Primary & Final Energy Demand, CO2 Emissions by Fuel/Region Oil, Coal, Gas, Power Gen, etc.

7. 7 Energy and Poverty - Traditional Biomass Use Today, 2.4 billion people in developing countries rely heavily on traditional biomass for cooking and heating The use of biomass in traditional and inefficient ways have significant implications: Productivity Health Gender Environment By 2030, in the absence of radical new policies, over 2.6 billion people in developing countries will continue to rely on biomass (less and less available)

8. 8 Energy Poverty In the absence of radical new policies, energy poverty will still be a major issue in the next decades Creating conditions to attract investment is the main challenge. Domestic Market reforms are vital Investment requirements for power generation in developing countries amount to US$ 2.1 trillion for the next 30 years

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11. 11 Background of Global Flaring Global venting and flaring level over 100 bcm/year, similar to: Total world gas consumption for half a month >10 percent of committed emission reductions by developed countries under the Kyoto Protocol for the period 2008-2012 Flaring in Africa alone could produce 200 TWh of electricity ~ 50% of current power consumption of the African continent more than twice the level of power consumption in Sub-Saharan Africa (excluding South Africa) Global level has stayed constant for the last 20 years 80% of global venting and flaring occurs in fewer than 15 countries (reliability of available data varies widely) ·       Flaring in Africa (37 bcm in 2000) could, if used for power generation in efficient power plants, produce 200 TWh, which is approximately 50 percent of the current power consumption of the African continent, and more than twice the level of power consumption in sub-Saharan Africa (excluding the Republic of South Africa). ·       Flaring in Africa (37 bcm in 2000) could, if used for power generation in efficient power plants, produce 200 TWh, which is approximately 50 percent of the current power consumption of the African continent, and more than twice the level of power consumption in sub-Saharan Africa (excluding the Republic of South Africa).

12. 12 Why still over 100 BCM / Year ? Individual governments and companies have had successes in reducing flared gas, and significant investments in reduction projects are continuing. However, two key factors limit the global impact of these efforts: Global oil production increase leads to associated gas production increase, offsetting efforts to reduce gas flaring Development of gas markets, gas infrastructure, and flaring reduction projects often requires collaborative rather than individual action

13. 13 Typical barriers to gas sector development Underdeveloped domestic market for gas and gas products (LPG, CNG, fuel methanol, power etc) Absence of / limited gas policies Limited institutional, legal and regulatory framework for gas, including associated gas Gas terms (or absence thereof) in existing oil development agreements Fiscal system Domestic gas and gas product pricing Infrastructure constraints and access Funding constraints And the main barriers for gas development: Until now there has been no formal gas policy, And an industry structure and institutional framework in which the Gov as both gas sector regulator and commercial participant represents a major conflict of interest. No downstream gas legal framework Absence of clear commercial terms for the development of gas discovered within Nigerian PSC concession areas has hindered gas development Unsustainable fiscal framework consolidation of capital expenditure which constitutes a barrier to investment by most non – oil investors Government’s share of available rent is disproportionately low for economically sound projects gas development in Nigeria is currently being funded out of Government’s share of economic rent from oil projects Low domestic gas prices Domestic pipeline systems not integrated and regulation of access unsophisticated Need for private investments And the main barriers for gas development: Until now there has been no formal gas policy, And an industry structure and institutional framework in which the Gov as both gas sector regulator and commercial participant represents a major conflict of interest. No downstream gas legal framework Absence of clear commercial terms for the development of gas discovered within Nigerian PSC concession areas has hindered gas development Unsustainable fiscal framework consolidation of capital expenditure which constitutes a barrier to investment by most non – oil investors Government’s share of available rent is disproportionately low for economically sound projects gas development in Nigeria is currently being funded out of Government’s share of economic rent from oil projects Low domestic gas prices Domestic pipeline systems not integrated and regulation of access unsophisticated Need for private investments

14. 14 Collaborative Action: GGFR Started as an Initiative with Norwegian Government and World Bank in 2001 GGFR Public-Private Partnership was formed at the World Summit on Sustainable Development in Johannesburg in August 2002 GGFR includes governments from oil-producing countries, state-owned and international oil companies, OPEC, and the World Bank Group, together accounting for over 70% of global flaring Objective is to support national governments and the petroleum industry in their efforts to reduce the flaring and venting of gas associated with the extraction of crude oil Still open for new members: governments, national oil companies, international oil companies, industry organizations, etc. Algeria, Angola, Cameroon, Chad, and Nigeria, which represent the core Global Gas Flaring Reduction Partnership work program. These countries cover approx 26 % of the world’s gas flaring. ·        Equatorial Guinea, Indonesia, Russia (Khanty-Mansyisk) that represent recently joined countries and are working with the team to develop and implement a functioning and sustainable flare reduction work program. They cover approximately 18% of the world’s total flaring.  New countries (e.g., Middle East, Venezuela, Mexico, Trinidad and Tobago, Kazakhstan, Azerbaijan etc.) need to be engaged to either join the GGFR or at least to adopt the global standard to deliver additional impact in flare reduction). These would cover approximately an additional 30% of total world flaring. Algeria, Angola, Cameroon, Chad, and Nigeria, which represent the core Global Gas Flaring Reduction Partnership work program. These countries cover approx 26 % of the world’s gas flaring. ·        Equatorial Guinea, Indonesia, Russia (Khanty-Mansyisk) that represent recently joined countries and are working with the team to develop and implement a functioning and sustainable flare reduction work program. They cover approximately 18% of the world’s total flaring.  New countries (e.g., Middle East, Venezuela, Mexico, Trinidad and Tobago, Kazakhstan, Azerbaijan etc.) need to be engaged to either join the GGFR or at least to adopt the global standard to deliver additional impact in flare reduction). These would cover approximately an additional 30% of total world flaring.

15. 15 Current GGFR Public and Private Partners Countries/NOCs IOCs Algeria (Sonatrach) BP Angola ChevronTexaco Cameroon (SNH) ENI Chad ExxonMobil Ecuador Norsk Hydro Equatorial Guinea Shell Indonesia Statoil Khanty Mansiisk (Russia) Total Nigeria Donors Multilateral Organizations Canada The World Bank Norway OPEC UK (Foreign Commonwealth Office) USA NGOs Sahel

16. 16 GGFR Work Program Help each other in associated gas utilization and further reduction of local and global flaring through best practice identification, development & exchange in: Commercialization Consultations to identify and address associated gas utilization barriers Remote fields solutions Small scale gas use Regulations for (associated) gas sector development Identification and dissemination of regulatory best practice Contractual issues surrounding associated gas Global Gas Flaring Standards Common flaring standards and guidelines, including measurement and reporting Carbon Credits Capacity building including methodology for flaring projects Representative projects assistance with crediting process Global deliverables We completed work in the 4 areas: Brought reports: on Regulation, Small scale gas use: (Commercialization) Standard (later) Finalizing a 2nd report on carbon credits (Baseline Meth) Global deliverables We completed work in the 4 areas: Brought reports: on Regulation, Small scale gas use: (Commercialization) Standard (later) Finalizing a 2nd report on carbon credits (Baseline Meth)

17. 17 Global Gas Flaring and Venting Reduction Voluntary Standard GGFR announced the Global Gas Venting and Flaring Reduction Voluntary Standard at the 2nd International Gas Flaring Reduction Conference in Algeria in May 2004, which: Provides framework for governments, companies, and other key stakeholders to consult each other and take complementary and supportive action; Encourages integrated approach including market and infrastructure development, commercialization, legal and fiscal regulations, carbon credits; Aims to achieve global applicability and impact by allowing for flexibility to local conditions and balancing ambitious timescale with realistic constraints. Collaborative action of stakeholders will help reduce barriers to associated gas utilization in a country Implementation of the Standard aims to reduce venting and flaring significantly within 5 to 10 years

18. 18 Key Concepts of the Standard Voluntary and performance based rather than prescriptive Initial Goal with focus on large sources that can make a significant difference early Collaborative action and implementation planning through Identification and consultation of key stakeholders; Potential expansion of “flare reduction project boundaries” to include other fields / operations / infrastructure / customers in region for consultation; Consideration of range of options to enhance the feasibility of associated gas utilization (“tool box”); Producer driven Associated Gas Recovery Plans and Government driven Country Implementation Plan. Ultimate Goal for longer term continuous improvement Measurement of remaining flaring and venting, and public reporting Recommended Timeline for consultation, planning and implementation The standard is framed as: Voluntary Performance based rather than prescriptive Relies on Partner integration into existing policies, processes and systems Aims to achieve global applicability and impact Key Elements Initial Goal with focus on large sources that can make significant difference early Ultimate Goal for longer term continuous improvement, beyond the Initial Goal Planning process introduced through development of: Associated Gas Recovery Plan for producers Country Implementation Plan for governments Recommended Timeline for adoption and implementation Monitoring and Transparency – measurement, reporting, and verification guidelines Implementation and Administration – roles and responsibilities of each key party for the implementation and ongoing administration of the standard The standard is framed as: Voluntary Performance based rather than prescriptive Relies on Partner integration into existing policies, processes and systems Aims to achieve global applicability and impact Key Elements Initial Goal with focus on large sources that can make significant difference early Ultimate Goal for longer term continuous improvement, beyond the Initial Goal Planning process introduced through development of: Associated Gas Recovery Plan for producers Country Implementation Plan for governments Recommended Timeline for adoption and implementation Monitoring and Transparency – measurement, reporting, and verification guidelines Implementation and Administration – roles and responsibilities of each key party for the implementation and ongoing administration of the standard

19. 19 International Best Practice: A collaborative approach to gas flaring reduction - Alberta

20. 20 Alberta - Results Evaluation of each flaring site Decision tree works well Economic flare gas utilization identified Industry reduction targets 38% reduction - year-end 2000 (Target 15%) 53% reduction - year-end 2001 (Target 25%) 62% reduction - year-end 2002 (Target 50%) 70% reduction - year-end 2003 (No target est.) Clear objective for flare reduction actions Improved public confidence in process Requiring operators to evaluate the economic feasibility of conserving gas (not flaring) can identify situations where it is possible to conserve The economic evaluation should be based on a standard calculation to avoid inappropriate inputs In Alberta, this has been a major factor in improving conservation of associated gas that was being flared See Guide 60, Section 2 Requiring operators to evaluate the economic feasibility of conserving gas (not flaring) can identify situations where it is possible to conserve The economic evaluation should be based on a standard calculation to avoid inappropriate inputs In Alberta, this has been a major factor in improving conservation of associated gas that was being flared See Guide 60, Section 2

21. 21 Associated gas utilization and domestic market development: Recommendations (1) Establish “local public-private partnership(s)” between relevant government parties and other key stakeholders including local communities, and take the lead in collaborative action (with World Bank / GGFR facilitation if and when required), on some or all of: Formulation, implementation and transparency of (associated) gas, gas pricing and flaring reduction policies, incl. implementation of GGFR Standard Domestic market development, especially Gas-to-Power reform, consistent with gas sector reform, including pilot projects LPG production, storage, transportation and distribution, including pilot projects

22. 22 Associated gas utilization and domestic market development: Recommendations (2) Establishing project synergies especially between those gas utilization projects that are more difficult / less attractive on individual basis Financing solutions for infrastructure projects to expand domestic market (for example, gas trunk-lines and main electricity transmission infrastructure), including Government facilitation of financing (for example, through public-private financing initiatives) Small scale gas utilization and power supply, including regional pilot projects (this would require a local collaboration task force), and technical assistance/facilitation/capacity building Carbon credits for emission reduction projects, including institutional requirements and pilot projects

23. 23 Conclusions Radical new policies are required to reduce energy poverty in sub-Saharan Africa, and domestic market reforms to create conditions that attract investment is vital Flaring in Africa alone could produce more than twice the level of current power consumption in Sub-Saharan Africa (excluding South Africa) Local public-private partnerships that collaborate on a combination of policy and projects can be very effective in achieving major change in the medium term

24. 24 Thank you for your attention

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