Gas Flaring Reduction: OPEC Views
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Gas Flaring Reduction: OPEC Views

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Outline of presentation. Energy demand growth forecasts and impact on associated gas volumes and flaringOPEC gas flaring history and progress and specific examples of gas flaring reduction in OPEC Member CountriesGas flaring reduction challengesJoint OPEC/ World Bank workshop on gas flaring and p
Gas Flaring Reduction: OPEC Views

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1. Gas Flaring Reduction: OPEC Views

2. Outline of presentation Energy demand growth forecasts and impact on associated gas volumes and flaring OPEC gas flaring history and progress and specific examples of gas flaring reduction in OPEC Member Countries Gas flaring reduction challenges Joint OPEC/ World Bank workshop on gas flaring and potential role of GGFR in facilitating financing and carbon credits Concluding remarks I will start by setting the stage and giving you a brief reviewing of the OPEC Secretariat?s forecasts for energy and hydrocarbon demand growth. Oil and gas are expected to remain the predominant sources of primary energy to meet the worlds growing demand for the next 2 ? 3 decades. How this demand will be satisfied is, of course, the key question to be answered. We believe that OPEC will play a bigger role in the future because of its large reserves. However, the growth in oil demand will create higher associated gas volumes and make it necessary to intensify efforts to reduce flared gas. Despite higher oil production levels in recent years, OPEC Member Countries have made significant progress in reducing gas flaring and continue to do more. We have heard a number of our member in this Forum. OPEC would like to eliminate flaring in the future, but it is only realistic to say that we faces many challenges in doing so. Partnerships such as the GGFR can help OPEC MCs overcome some problems and can create an enabling environment for the creation of incentives such as carbon credits and facilitating access to finance such schemes. These issues and possibilities were highlighted in a joint workshop held with the World Bank in June of 2005. Today, about 100 billion cubic meters of gas is flared each year around the world. The fraction of flared gas has decreased substantially in recent years. However, in terms of volume, associated gas production has stayed fairly constant because of higher oil production. This has naturally raised concerns over waste of energy resources - especially given the expected increase in global gas demand. Individually, governments and oil companies have successfully reduced gas flaring volumes. OPEC Member Countries have reduced gas flaring substantially in the last two decades, from about 20% to 7% of produced gas. I will start by setting the stage and giving you a brief reviewing of the OPEC Secretariat?s forecasts for energy and hydrocarbon demand growth. Oil and gas are expected to remain the predominant sources of primary energy to meet the worlds growing demand for the next 2 ? 3 decades. How this demand will be satisfied is, of course, the key question to be answered. We believe that OPEC will play a bigger role in the future because of its large reserves. However, the growth in oil demand will create higher associated gas volumes and make it necessary to intensify efforts to reduce flared gas. Despite higher oil production levels in recent years, OPEC Member Countries have made significant progress in reducing gas flaring and continue to do more. We have heard a number of our member in this Forum. OPEC would like to eliminate flaring in the future, but it is only realistic to say that we faces many challenges in doing so. Partnerships such as the GGFR can help OPEC MCs overcome some problems and can create an enabling environment for the creation of incentives such as carbon credits and facilitating access to finance such schemes. These issues and possibilities were highlighted in a joint workshop held with the World Bank in June of 2005. Today, about 100 billion cubic meters of gas is flared each year around the world. The fraction of flared gas has decreased substantially in recent years. However, in terms of volume, associated gas production has stayed fairly constant because of higher oil production. This has naturally raised concerns over waste of energy resources - especially given the expected increase in global gas demand. Individually, governments and oil companies have successfully reduced gas flaring volumes. OPEC Member Countries have reduced gas flaring substantially in the last two decades, from about 20% to 7% of produced gas.

3. World energy demand by fuel type (mtoe) World economic growth is expected to expand by around 3.5 per cent a year over the next 20 years. In keeping with this forecast, OPEC estimates primary energy demand to increase by close to 2% per year through to 2025. Oil will continue to be the dominant primary energy source with demand set to rise by 28 million b/d to reach 113 million b/d by 2025, representing annual average growth of 1.5 million b/d. As shown, gas demand is expected to grow even faster than oil. This huge increase in gas demand could be met in part by associated gas that is produced with the oil ?.. if economic means of capturing and utilizing the gas can be found. Here I would like to highlight the need to find economic and technical means to ensure that at least a portion of such supplies are directed to the energy hungry populations in the developing world. World economic growth is expected to expand by around 3.5 per cent a year over the next 20 years. In keeping with this forecast, OPEC estimates primary energy demand to increase by close to 2% per year through to 2025. Oil will continue to be the dominant primary energy source with demand set to rise by 28 million b/d to reach 113 million b/d by 2025, representing annual average growth of 1.5 million b/d. As shown, gas demand is expected to grow even faster than oil. This huge increase in gas demand could be met in part by associated gas that is produced with the oil ?.. if economic means of capturing and utilizing the gas can be found. Here I would like to highlight the need to find economic and technical means to ensure that at least a portion of such supplies are directed to the energy hungry populations in the developing world.

4. Oil supply outlook, mb/d (reference case) Let?s take a closer look at oil. In the reference case of our economic model, OWEM, show that overall non-OPEC output will continue to increase, but more slowly, reaching a plateau of 57?59 mb/d in the post-2010 period. With non-OPEC oil production in the first two decades of this century forecast to reach its plateau, OPEC Member Countries will be relied upon to supply the biggest share of the new demand. Thus, associated gas production in OPEC Member Countries will grow significantly. Let?s take a closer look at oil. In the reference case of our economic model, OWEM, show that overall non-OPEC output will continue to increase, but more slowly, reaching a plateau of 57?59 mb/d in the post-2010 period. With non-OPEC oil production in the first two decades of this century forecast to reach its plateau, OPEC Member Countries will be relied upon to supply the biggest share of the new demand. Thus, associated gas production in OPEC Member Countries will grow significantly.

5. Evolution of gas flaring Turning now to gas flaring, this graph shows historical evolution of gas flaring in OPEC, non-OPEC, and total flared gas since 1975. Global flared gas volumes declined significantly from 1975 until 1983, after which it has remained fairly constant at around 100 BCM per year. Looking at non-OPEC flared gas, it has been constant over the entire timeframe, although it has declined somewhat in percentage terms. Thus, as can be seen on the graph, reductions in flared gas in OPEC MCs are responsible for most of the decline up to 1983. OPEC flared gas increased again in the early 1990s in response to the increase in oil production that was necessary to make up the production shortfall resulting from the Gulf War. Since that time OPEC flared gas has decreased steadily. Turning now to gas flaring, this graph shows historical evolution of gas flaring in OPEC, non-OPEC, and total flared gas since 1975. Global flared gas volumes declined significantly from 1975 until 1983, after which it has remained fairly constant at around 100 BCM per year. Looking at non-OPEC flared gas, it has been constant over the entire timeframe, although it has declined somewhat in percentage terms. Thus, as can be seen on the graph, reductions in flared gas in OPEC MCs are responsible for most of the decline up to 1983. OPEC flared gas increased again in the early 1990s in response to the increase in oil production that was necessary to make up the production shortfall resulting from the Gulf War. Since that time OPEC flared gas has decreased steadily.

6. OPEC: An impressive reduction in gas flaring Taking a closer look at OPEC gas flaring history. We can see that although volumes of gas produced have increased dramatically since 1975 (including associated gas) flared gas as a percentage of total gas produced (shown in blue) and in terms of volumes (shown in red) have steadily decreased (except around the time of the Gulf war in 1991). I will not dwell on examples from Algeria, Nigeria and Qatar as we have heard from their representatives already Taking a closer look at OPEC gas flaring history. We can see that although volumes of gas produced have increased dramatically since 1975 (including associated gas) flared gas as a percentage of total gas produced (shown in blue) and in terms of volumes (shown in red) have steadily decreased (except around the time of the Gulf war in 1991). I will not dwell on examples from Algeria, Nigeria and Qatar as we have heard from their representatives already

7. A success story in gas flaring reduction in Abu Dhabi Gas flaring reduced from 4000 mmscfd in 1977 to <500 mmcfd in the early 1980s, to <300 mmcfd in the mid-1990s Since 1995 many new projects have been implemented to reduce flaring from 261 mmcfd to 70 mmscfd today - about 1% of the 6000 mmscfd gas production today Reduced the number of flares Re-injecting gas into oil reservoirs Modified plants to recover gas Zero flaring technology installed in some locations Flaring will be reduced to 37 mmscfd by 2007 Goal is zero flaring Another Member country which has substantially reduced gas flaring is Abu Dhabi through the efforts of Abu Dhabi National Oil company and its affiliated companies. From 1977 - 1995 gas flaring was reduced from 4 bcfd to <300 mmcfd. Since 1995, it has been further reduced from 261 mmcfd to 80 mmcfd. Some of the methods being employed by ADNOC are to re-inject gas into oil reservoirs, reduce the number of flares, de-bottlenecking and expanding gas handling facilities, and installing zero flaring technology in some locations. Flaring will be reduced to 37 mmcfd by 2007, and the goal is to eventually eliminate it all together. Another Member country which has substantially reduced gas flaring is Abu Dhabi through the efforts of Abu Dhabi National Oil company and its affiliated companies. From 1977 - 1995 gas flaring was reduced from 4 bcfd to <300 mmcfd. Since 1995, it has been further reduced from 261 mmcfd to 80 mmcfd. Some of the methods being employed by ADNOC are to re-inject gas into oil reservoirs, reduce the number of flares, de-bottlenecking and expanding gas handling facilities, and installing zero flaring technology in some locations. Flaring will be reduced to 37 mmcfd by 2007, and the goal is to eventually eliminate it all together.

8. Abu Dhabi gas flaring trend 1995 - 2007 This graph dramatically illustrates the large reductions in gas flaring that ADNOC has achieved over the last ten years, such that flaring today is only 30% of the 1995 volume. It will decrease even further in the next two years. This graph dramatically illustrates the large reductions in gas flaring that ADNOC has achieved over the last ten years, such that flaring today is only 30% of the 1995 volume. It will decrease even further in the next two years.

9. Gas flaring reduction challenges Associated gas is often produced in remote locations and sometimes in small volumes Two options to reduce gas flaring ? re-injection or market the gas Investment necessary to market the gas may not be economic Lack of infrastructure Low domestic demand for gas and/or electricity Re-injection of associated gas is not always economic due to high cost and low incremental oil reserves A sudden call on spare oil production capacity may exceed capacities of existing gas handling facilities, resulting in gas flaring The World Bank Gas Flaring Reduction Initiative was formed to support national governments? efforts to reduce flaring by providing Facilitation of local public-private partnerships and co-operation on gas infrastructure and markets Links with existing World Bank instruments Assistance on carbon credits OPEC/World Bank joint workshop held in Vienna, 30th June ? 1st July, 2005 I?ve given you a brief overview of the medium term energy outlook. We?ve also seen that OPEC Member Countries have made tremendous progress in reducing gas flaring. Increasing oil production will, as mentioned earlier, increase the volume of associated gas, making it even more challenging to reduce the absolute volume of flared gas. The high and uncertain levels of investments necessary to develop more oil capacity are further complicated by the need to reduce gas flaring. Efforts to reduce flared gas volumes face a number of challenges as outlined here. In some regions, oil is found in remote areas far from gas infrastructure and markets. This is true in many non-OPEC countries, and in some OPEC Member countries. Poverty creates a lack of demand for gas and/or electricity that can be generated using gas in under-developed regions. Oil production capacity is often higher than the capacity to handle associated gas. Thus, if there is a sudden call on spare production capacity, such as in the event of a supply disruption, associated gas production can exceed the capacity of the gas handling facilities, resulting in gas flaring. We saw this in OPEC in the early 1990s during the Gulf war and for a few years after. This is often a temporary situation which can be remedied by reducing oil production or expanding or de-bottlenecking the facilities, as has been done in Abu Dhabi. Decisions over how much gas handling capacity to install in a new oil field is complicated by uncertainties in oil demand. Gas re-injection is sometimes used for pressure maintenance or to increase recovery in an oil field; however the incremental recovery is often low and thus re-injection is not always economical. Another challenge is that collaborative action between governments and between the public and private sectors is often needed. Partnerships such as the GGFR can be particularly helpful in these situations. OPEC is interested in furthering partnership opportunities such as that offered by the World Bank and the GGFR. As a first step in assessing the potential for this partnership, a joint workshop between OPEC and the world bank was held in Vienna to start up a dialog that will help to better understand the role the GGFR could play in OPEC member countries efforts to reduce gas flaring. I?ve given you a brief overview of the medium term energy outlook. We?ve also seen that OPEC Member Countries have made tremendous progress in reducing gas flaring. Increasing oil production will, as mentioned earlier, increase the volume of associated gas, making it even more challenging to reduce the absolute volume of flared gas. The high and uncertain levels of investments necessary to develop more oil capacity are further complicated by the need to reduce gas flaring. Efforts to reduce flared gas volumes face a number of challenges as outlined here. In some regions, oil is found in remote areas far from gas infrastructure and markets. This is true in many non-OPEC countries, and in some OPEC Member countries. Poverty creates a lack of demand for gas and/or electricity that can be generated using gas in under-developed regions. Oil production capacity is often higher than the capacity to handle associated gas. Thus, if there is a sudden call on spare production capacity, such as in the event of a supply disruption, associated gas production can exceed the capacity of the gas handling facilities, resulting in gas flaring. We saw this in OPEC in the early 1990s during the Gulf war and for a few years after. This is often a temporary situation which can be remedied by reducing oil production or expanding or de-bottlenecking the facilities, as has been done in Abu Dhabi. Decisions over how much gas handling capacity to install in a new oil field is complicated by uncertainties in oil demand. Gas re-injection is sometimes used for pressure maintenance or to increase recovery in an oil field; however the incremental recovery is often low and thus re-injection is not always economical. Another challenge is that collaborative action between governments and between the public and private sectors is often needed. Partnerships such as the GGFR can be particularly helpful in these situations. OPEC is interested in furthering partnership opportunities such as that offered by the World Bank and the GGFR. As a first step in assessing the potential for this partnership, a joint workshop between OPEC and the world bank was held in Vienna to start up a dialog that will help to better understand the role the GGFR could play in OPEC member countries efforts to reduce gas flaring.

10. Workshop objectives To present an overview of the Global Gas Flaring Reduction Partnership (GGFR), and its activities, with specific focus on CDM and the Voluntary Standard for Global Gas Flaring and Venting Reduction To discuss the financial resources and mechanisms, including carbon credits, available by or through the World Bank Initiative for gas flaring reduction projects To present success stories from OPEC Member Countries in flaring reduction The OPEC/World Bank Workshop on Global Gas Flaring Reduction was held on 30th June ? 1st July, 2005, which was attended by 23 participants from nine Member Countries, the OPEC Fund, OAPEC, the World Bank and the OPEC Secretariat, with the following objectives: The OPEC/World Bank Workshop on Global Gas Flaring Reduction was held on 30th June ? 1st July, 2005, which was attended by 23 participants from nine Member Countries, the OPEC Fund, OAPEC, the World Bank and the OPEC Secretariat, with the following objectives:

11. Role of GGFR Work with the CDM Executive Committee to remove barriers to receiving carbon credits for gas flaring reduction projects Additionality criteria are stringent and inflexible, and can create perverse incentives at times. Okpai power plant and West Africa Gas Pipeline in Nigeria will be important tests Build CDM capacity in OPEC Member Countries Identify and develop CDM projects Develop institutional capacity to comply with CDM rules Assist with implementation issues such as carbon ownership and downstream integration Facilitate collaboration between public and private sectors, and between governments Help countries obtain World Bank financing and MIGA guarantees Facilitate access to World Bank carbon funds Source of additional cash flow Can make marginal projects economic The workshop was attended by several people from the world bank who gave presentations about the GGFR, the CDM, financing, and carbon credits. It is clear that the CDM continues to be a rather complicated mechanism with many rules and few precedents. Nevertheless, 14 gas flaring reduction project have been submitted to the Executive Board to date ? most of which are still at the validation stage. From our discussions OPEC believes the GGFR could be of assistance in further reducing gas flaring ?.. The two projects in Nigeria and one in Qatar are important test cases for the effectiveness of the partnership and the Kyoto Protocol mechanisms in general. The GGFR can continue to be of assistance to the CDM Executive Board and also help to building the capacity to work with the mechanism. Of course, the first step is helping to identify projects that might qualify for carbon credits. The GGFR might also help resolve implementation issues in particular those related to the ownership of carbon credits in oil fields under Production Sharing Agreements (PSAs). Some countries might need capacity building to enhance regulatory and oversight functions in order to qualify for CDM. World Bank financing can sometimes result in lower interest rates, and MIGA guarantees can make it easier to obtain traditional financing from banks. The World Bank carbon funds can provide marginal carbon emissions reduction projects with additional cash flow that can make the project economic. The workshop was attended by several people from the world bank who gave presentations about the GGFR, the CDM, financing, and carbon credits. It is clear that the CDM continues to be a rather complicated mechanism with many rules and few precedents. Nevertheless, 14 gas flaring reduction project have been submitted to the Executive Board to date ? most of which are still at the validation stage. From our discussions OPEC believes the GGFR could be of assistance in further reducing gas flaring ?.. The two projects in Nigeria and one in Qatar are important test cases for the effectiveness of the partnership and the Kyoto Protocol mechanisms in general. The GGFR can continue to be of assistance to the CDM Executive Board and also help to building the capacity to work with the mechanism. Of course, the first step is helping to identify projects that might qualify for carbon credits. The GGFR might also help resolve implementation issues in particular those related to the ownership of carbon credits in oil fields under Production Sharing Agreements (PSAs). Some countries might need capacity building to enhance regulatory and oversight functions in order to qualify for CDM. World Bank financing can sometimes result in lower interest rates, and MIGA guarantees can make it easier to obtain traditional financing from banks. The World Bank carbon funds can provide marginal carbon emissions reduction projects with additional cash flow that can make the project economic.

12. Conclusions As oil production increases to meet growing demand, gas flaring reduction efforts will have to be intensified if reductions in actual flared volumes are to be realised Gas flaring reduction has not only environmental benefits but also social and economic benefits Financing and carbon credits are often necessary Huge reductions in gas flaring have been achieved in OPEC Member Countries during the last three decades OPEC Member Countries could further reduce gas flaring if CDM methodologies could be established for these projects However, the CDM is a complex mechanism and has been applied to only one gas flaring project to date ? there is a need to test the mechanism and possibly modify the rules The workshop was attended by several people from the world bank who gave presentations about the GGFR, the CDM, financing, and carbon credits. It is clear that the CDM continues to be a rather complicated mechanism with many rules and few precedents. Nevertheless, 14 gas flaring reduction project have been submitted to the Executive Board to date ? most of which are still at the validation stage. From our discussions OPEC believes the GGFR could be of assistance in further reducing gas flaring ?.. The two projects in Nigeria and one in Qatar are important test cases for the effectiveness of the partnership and the Kyoto Protocol mechanisms in general. The GGFR can continue to be of assistance to the CDM Executive Board and also help to building the capacity to work with the mechanism. Of course, the first step is helping to identify projects that might qualify for carbon credits. The GGFR might also help resolve implementation issues in particular those related to the ownership of carbon credits in oil fields under Production Sharing Agreements (PSAs). Some countries might need capacity building to enhance regulatory and oversight functions in order to qualify for CDM. World Bank financing can sometimes result in lower interest rates, and MIGA guarantees can make it easier to obtain traditional financing from banks. The World Bank carbon funds can provide marginal carbon emissions reduction projects with additional cash flow that can make the project economic. The workshop was attended by several people from the world bank who gave presentations about the GGFR, the CDM, financing, and carbon credits. It is clear that the CDM continues to be a rather complicated mechanism with many rules and few precedents. Nevertheless, 14 gas flaring reduction project have been submitted to the Executive Board to date ? most of which are still at the validation stage. From our discussions OPEC believes the GGFR could be of assistance in further reducing gas flaring ?.. The two projects in Nigeria and one in Qatar are important test cases for the effectiveness of the partnership and the Kyoto Protocol mechanisms in general. The GGFR can continue to be of assistance to the CDM Executive Board and also help to building the capacity to work with the mechanism. Of course, the first step is helping to identify projects that might qualify for carbon credits. The GGFR might also help resolve implementation issues in particular those related to the ownership of carbon credits in oil fields under Production Sharing Agreements (PSAs). Some countries might need capacity building to enhance regulatory and oversight functions in order to qualify for CDM. World Bank financing can sometimes result in lower interest rates, and MIGA guarantees can make it easier to obtain traditional financing from banks. The World Bank carbon funds can provide marginal carbon emissions reduction projects with additional cash flow that can make the project economic.

13. Thank You


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