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Climate change issues in Oil & Gas Sector. A sectoral discussion on Environmental issues, GHG emissions, GHG abatement opportunities, Role of CDM. Contents. Environmental issues for the Indian Oil & Gas Sector GHG Emissions from various industries & sectors

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climate change issues in oil gas sector

Climate change issues inOil & Gas Sector

A sectoral discussion on Environmental issues, GHG emissions, GHG abatement opportunities, Role of CDM

contents
Contents
  • Environmental issues for the Indian Oil & Gas Sector
  • GHG Emissions from various industries & sectors
  • Climate Change – Enhanced Greenhouse Effect
  • Flexibility Mechanisms under The Kyoto Protocol & CDM
  • Potential GHG abatement projects, CDM methodologies and UNFCCC registrations
  • Carbon transactions
  • Way forward - Carbon footprint
environmental issues for the indian oil gas sector
Environmental issues for the Indian Oil & Gas Sector
  • The Oil & Gas Sector has a variety of impacts on the environment. These impacts depends upon the stage of the process, the size and complexity of the project, the nature and sensitivity of the surrounding environment and the effectiveness of planning, pollution prevention, mitigation and control techniques.
  • The major areas of environmental concern includes :
    • Atmospheric Impacts
    • Aquatic Impacts
    • Terrestrial Impacts
    • Ecosystem Impacts
    • Potential Emergencies
slide4

Potential Environmental Impacts

Atmospheric Impacts

Aquatic Impacts

slide5

Potential Environmental Impacts

Terrestrial Impacts

Ecosystem Impacts

Potential Emergency

initiatives towards reducing atmospheric impacts
Initiatives towards reducing atmospheric impacts
  • Among all the different environmental impacts, the major focus lies on Atmospheric Impact caused by Oil & Gas Industry.
  • One of the major sources of Atmospheric Impact caused by Oil and Gas Industry is the flaring and venting of gases. So the principle target for emission reduction is in this domain.
  • Various technological initiative have been introduced to reduce emissions as a result of combustion process related to power production. More efficient gas turbines have been developed together with improved turbine maintenance regimes. Efficiency improvements may also result from gas turbine optimization considerations. Other technologies to improve fuel efficiency include: steam injection, combined cycle power generation, pump and compressor optimization, waste heat recovery and the application of energy conservation principles.
  • Improvements in the technologies have resulted in reduced emission from the different sources. The reduction of GHG emissions directly leads to reduction of global warming. These process improvement/energy efficiency measures causing emission reduction can be directly accounted for and thus can be considered as CDM projects.
ghg emissions from various industries sectors
GHG Emissions from various industries & sectors

GHG emissions associated with industry (including energy utilization) represent about 21% of world GHG emissions.

The Oil & Gas and Chemical industries are among the major emitters of GHGs.

Source: CAIT, IEA, 2004a, Hendriks

climate change enhanced greenhouse effect
Climate Change – Enhanced Greenhouse Effect
  • Human activities like deforestation or heavy fossil fuel use are increasing the concentration of Greenhouse Gases (‘GHGs’) in the atmosphere.
  • GHGs trap heat energy in the Earth's lower atmosphere, like a thick blanket round the planet.
  • This enhances the green house effect, resulting in commonly known “Climate Change” or “Global Warming”
  • Climate Change leads to:
    • Rise in average global temperature (expected to go up by 1-4 Celsius in next 100 years)
    • Changes in vegetation
    • Increased storm surges
    • Sea level rise (parts of Maldives & Bangladesh might submerge in next 50 yrs)
    • Risks which will affect the profitability of the Oil & Gas industries
glimpse of climate change risks
Glimpse of Climate change Risks

Physical Risks

  • Global warming poses threat of sea level rise, hurricanes/ other natural calamities for especially those situated in the coastal regions.
  • Coastal E&P facilities, Refineries can face huge damage due to cyclones and hurricanes

Climate Change Risks for Oil & Gas Sector

  • Business Risks
  • Extreme weather conditions resulting in increased energy cost, higher contingency requirement resulting in erosion of profit margins
  • Competitiveness Risks
  • Effect on Gross Refining Margin. As energy costs increase, Oil industries using conventional and carbon intensive energy sources will see a reduction in the GRM.

Regulatory risks

  • ‘Carbon ’tax’ implementation on states by Central government can affect profitability of the Oil & Gas sector
kyoto protocol and cdm
Kyoto Protocol and CDM
  • Legally binding emission reduction targets for GHGs only for Annex-1 (i.e., developed ) countries
  • Aim of reducing overall GHG emissions by at least 5.2% below 1990 levels in 2008-2012 commitment period

Developed Country Govt/ Pvt. Sector

Kyoto protocol - Establishes three mechanisms to supplement national actions to achieve real, long term, measurable and cost effective GHG reductions:

Sale proceeds

Carbon Credits

Clean Development Mechanism (‘CDM’)

Developing Country GHG Abatement Project

International Emission Trading (‘IET’)

Joint Implementation (‘JI’)

  • Carbon credits are measured in terms of Certified Emission Reduction(‘CER’)
  • One CER equals 1 MT CO2 equivalent
cdm process availing carbon credits

Project

Implementation

Kyoto Approvals

CER Transaction

2

3

1

CDM Process : Availing Carbon Credits

CDM PROJECT PROMOTER

Project

Identification

CDM Documentation*

CER

ERPA

Project

Construction

Validation by DOE

Endorsement by DNA

BUYER OF CER

Project

operation

Registration

with UNFCCC

Generation of

Carbon credits

*PIN: Project Identification Note

*PDD: Project Design Document

ERPA: Emission Reduction Purchase Agreement

DOE: Designated Operational Entity

DNA: Designated National Authority

Verification/

Certification by DOE

UNFCCC / EB

Issues CERs

potential ghg abatement projects in upstream oil gas sector
Potential GHG abatement projects in Upstream Oil & Gas Sector

1. Installation of Gas Recovery Facilities to prevent emission of methane/CO2 to the atmosphere

  • Installation of compressors to recover low pressure (LP) gas and compress the same for further distribution
  • Installation of ejector systems which uses the motive force to suck LP gases which were previously flared
  • Installation of separators to separate gas at various pressures and recover very low pressure gas that was previously flared
  • Up-gradation of process gas compressors (PGC)
  • Optimal utilization of gas for internal consumption in gas lift wells/ gas re-injection
  • Laying pipelines from gas rich areas to areas where there is scarcity of gas but greater demand (by identifying potential consumers).

2. Common Grid of Power at Offshore

  • A common grid of power is setup by achieving interconnectivity across various process and well platforms.
  • This interconnectivity can be achieved by laying submarine cables and transferring surplus power (NG based) to the shore for sale.
  • The project replaces more carbon intensive power source (DG based) to relatively cleaner (NG based) power.
potential ghg abatement projects in upstream oil gas sector contd
Potential GHG abatement projects in Upstream Oil & Gas Sector...(contd)

3. Recovering Vapors from Storage Tanks

  • Recovery and utilization of vapors, previously being vented out from oil storage tanks, using ejector system.

4. Carbon Capture & Storage (CCS)

  • Capture of CO2 from large stationary sources, transportation of the gas to an appropriate injection site where it is pumped and stored into underground geological formations such as natural gas and oil fields.
  • Storage may also be combined with Enhanced Oil Recovery (EOR) or Enhanced Gas Recovery (EGR)
  • This also results in energy consumption reduction of oil and gas recovery from the wells.
other potential ghg abatement projects in upstream oil gas sector
Other Potential GHG abatement projects in Upstream Oil & Gas Sector
  • Facilities for reduction of gas flaring through ejectors/compressors/separators/pipeline etc.
  • Waste heat recovery at oil production facilities.
  • Energy efficiency improvement in gas processing plant
  • Power factor improvement at oil installations
  • Reduction in gas pipe leaks
  • Fuel switch from fossil fuels to other cleaner fuels like natural gas
  • Captive power generation by utilizing natural gas
  • Oil tank head vapor recovery system
potential ghg abatement projects in downstream oil gas sector
Potential GHG abatement projects in Downstream Oil & Gas Sector

1. Energy efficiency Improvement measures in the existing system

  • Steam generation and distribution system up-gradation

-Enhanced heat utilization through installation of centralized flash steam recovery system to recover steam condensate

-Flash steam utilization in vapour absorption chiller to produce refrigeration effect

-Better steam trap management to reduce heat loss

-Improvement in the cogeneration/ self generation efficiency

  • Steam optimization by installation of Dry-ejector system instead of steam-jet ejector in VDU

In Dry-ejector system vacuum gas oil is used as motive liquid and circulated in the system. This reduces generation of LP steam which is required as motive fluid in conventional steam-jet ejector. An unique technology.

potential ghg abatenment projects in downstream oil gas sector petrochemical units
Potential GHG abatenment projects in Downstream Oil & Gas Sector & Petrochemical Units
  • Energy efficiency Improvement in the existing system…contd
  • Installation of ‘mist cooling tower’ instead of conventional cooling tower

A much lower cooling water temperature can be achieved through ‘mist cooling tower’. This improves heat recovery and reduces cooling water requirement hence lower pumping energy etc. Not a common practice in large-scale hydrocarbon industries.

  • Heat integration through the application of state-of-the-art pinch technology

Energy efficiency improvement through optimization of heat exchanger network in CDU/VDU/pre-heat train of distillation units etc. Optimization of HEN is performed using Pinch Analysis.

  • New generation refractory

Replacement of conventional refractory with ceramic fibre insulation to reduce heat loss in furnace

few more potential areas in refinery units where cdm may be applicable
Few more potential areas in refinery units where CDM may be applicable

2. Flare recovery system

  • utilization to cater to heat demand of refinery
  • utilization in boilers/ Gas Turbine

3. Fuel switch projects

  • Fuel switching in furnace, heater etc
  • Fuel switch in the thermal energy generation system/ cogeneration/ self generation equipments
  • Optimization in H2 recovery from off gases from CRU, VGO hydro-treater etc

4. Application of Advanced Processes

  • Use of new generation catalysts which reduces coke deposition on the catalyst
  • Application of energy-efficient Solvent De-asphalting technology instead of energy-intensive Cracking/Coking technology
few more potential areas in refinery units where cdm may be applicable contd
Few more potential areas in refinery units where CDM may be applicable.... (contd)
  • Novel bio-catalytic processes with very low energy consumption
  • Application of membrane separation technology instead of conventional separation techniques
  • H2 generation in the refinery through natural gas reforming instead of naphtha reforming
  • Gas-to-Liquid (GTL) technology for production of petroleum fuel/Lube oil/Wax from Natural Gas
  • Integrated Gas Combined Cycle (IGCC) based power generation from vacuum residue/ petroleum coke – higher power generation efficiency with generation of H2 as by product
  • Steam-injection in Gas Turbine

5. Alternative Fuels/ Energy

  • Bio-diesel
  • Efficient generation of H2 and utilization
  • Renewable energy – wind power/ hydro power/ solar power etc.

6. Transportation project

  • Changes in the mode of transportation of petroleum products e.g. from road to rail/ pipeline
  • Energy efficiency improvement in the intermediate pumping stations of crude/ product pipelines
cdm methodologies available for the oil gas sector
CDM methodologies available for the Oil & Gas Sector
  • Recovery and utilization of gas from oil wells that would otherwise be flared or vented

AM0009

AM0018

  • Steam optimization systems

AM0037

  • Flare (or vent) reduction and utilization of gas from oil wells as a feedstock

AM0055

  • Baseline and Monitoring Methodology for the recovery and utilization of waste gas in refinery facilities

AM0077

  • Recovery of gas from oil wells that would otherwise be vented or flared and its delivery to specific end-users

AMS-III.P

  • Recovery and utilization of waste gas in refinery facilities
registered cdm projects in the oil gas sector from india
Registered CDM projects in the Oil & Gas Sector from India

Essar Oil Limited

  • GHG emission reduction through the installation of energy efficient vacuum creating system in the vacuum distillation column of petroleum refinery

Methodology used:AM0018

Oil and Natural Gas Corporation (ONGC) Limited

  • Flare gas recovery project at Uran plant, Oil and Natural Gas Corporation (ONGC) Limited

Methodology used: AM0037

  • Flare gas recovery project at Hazira Gas Processing Complex (HGPC), Hazira plant, Oil and Natural Gas Corporation (ONGC) Limited

Methodology used: AM0037

  • Up-gradation of Gas Turbine 1 (GT 1) and Gas Turbine 2 (GT 2) at co-generation plant of Hazira Gas Processing Complex (HGPC) of Oil and Natural Gas Corporation Limited (ONGC)

Methodology used: AMS.II-D

  • Waste heat recovery from Process Gas Compressors (PGCs), Mumbai high south (offshore platform) and using the recovered heat to heat process heating oil
  • Methodology used: AMS-II.D

Numaligarh Refinery Limited

  • NRL -Captive power generation by recovery and utilization of the waste energy (thermal and pressure) of HP steam

Methodology used: ACM0004

registered cdm projects in the oil gas sector from india23
Registered CDM projects in the Oil & Gas Sector from India
  • Bharat Petroleum Corporation Limited (BPCL)’s Wind Power Project, India

Methodology used:AMS.I-D

Bharat Petroleum Corporation Limited

Indian Oil Corporation Limited

  • GHG emission reductions through pre-heat train optimization in the CDU and VDU of Digboi Refinery,, Indian Oil Corporation Limited (Assam Oil Division)

Methodology used: AMS-II.D

  • Flare Gas Recovery and Utilization of Recovered Flare Gas for process heating requirements at IOCL, Haldia Refinery

Methodology used: AMS-III.P

  • Flare Gas Recovery system (FGRS) at Barauni Refinery of Indian Oil Corporation Limited

Methodology used: AMS.III-P

Oil India Limited

  • Oil India Limited (OIL) – Greenhouse Gas Emission Reduction through Recovery and Utilization of Flare Gas

Methodology used: AM0009

slide25

Carbon transactions

  • carbon transactions are purchase contracts whereby one party pays another party in exchange for a given quantity of GHG emission reductions, either in the form of allowances or “credits” that the buyer can use to meet its compliance objectives vis-à-vis greenhouse gas mitigation.
  • Payment for emission reductions can be made using one or more of the following forms: cash, equity, debt, or in-kind contributions such as providing technologies to abate GHG emissions.

Carbon Transactions

Allowance based Transactions (EUA)

Project based

Transactions (CER,ERU)

carbon transaction options
Carbon transaction options…

Forward transaction

  • Ensures guaranteed carbon revenue
  • Advance possible, but modalities still uncertain
  • Could be fixed price or market-linked
  • Possible to put ‘floor’ and ‘ceiling’
  • ‘Guaranteed’ quantity or ‘best effort’ basis

Spot transaction

  • Transaction on issuance of CERs
  • Till today, has resulted in better rate
  • Has been more popular in India so far

Combination of ‘Forward’ and ‘Spot’

  • Usually when large quantum of CERs available

(say >100,000 p.a.)

carbon finance opportunities
Carbon Finance Opportunities…

Project finance

  • Investors from Europe, Japan interested in financing CDM, especially RE projects
  • Right on CERs (full / partial) imperative

Transaction cost finance

  • Buyers ready to pick up full/part of transaction cost
  • CER price usually discounted
slide28

VER market….

Voluntary market

  • Essentially a non-compliance market
  • Driven by social responsibility
  • Market is emerging… not stable yet
  • Transacted comodity: VER = Verified Emission Reduction
    • From registered projects outside crediting period
    • From non-registered projects
  • Prices lower compared to CERs
  • Opportunities are yet to be assessed
cdm value accretion curve
CDM – Value Accretion Curve

PIN = Project Idea Note

PDD = Project Design Document

UNFCCC = United Nations Framework Convention on Climate Change

cdm transaction cost
CDM Transaction Cost
  • Documentation cost

Expenses incurred in documentation, Consultant’s fee

  • Validation cost

Fee payable to DOE for validation

  • Registration fee to UNFCCC

For 15k CER/y : Nil

For > 15k CER/y : @ 0.1 USD for first 15k CERs

@ 0.2 USD for balance CERs

  • CER verification charges

Fee payable to DOE for verification (every time)

  • Share of Proceeds (SoP)

Charged by UNFCCC every time during issuance of CERs, calculated same way as Regn Fee. Regn fee paid, if any is adjusted

  • Adaptation Fund

2% CERs deducted by UNFCCC at issuance

summary
Summary
  • Climate change and global warming: major threat to the Oil & Gas industries.
  • The Oil & Gas sector will be a significant part of an evolving solution to the CO2 challenge and certainly drive the ushering of a cleaner hydro carbon age in future.
  • Companies have already started pursuing strategies to position themselves in the cleaner, more sustainable and low carbon growth trajectory by conscious reorganization of their product portfolio and restructuring of their multi-location operations.
  • Big Oil Companies like British Petroleum is planning to invest USD 8 billion in low carbon power and alternative energy business over the next decade and aims at USD 1 billion of operating profit by 2015 from this business only.
  • Adoption of the right strategy for mitigating long term climate change risks can provide distinct competitive advantage.
  • Companies seeking to develop their strategies should first analyze their ‘value-at-stake’ or ‘value-at-risk’ under a variety of scenarios from current and emerging policies to reduce carbon emissions.
carbon footprint key starting step
Carbon footprint - key starting step

Carbon footprint has the power to influence all decisions on climate change strategy

Establishing carbon footprint

Map carbon

footprint

Determine

boundary

Develop

carbon

inventory

Capacity

building

Determine

carbon

emissions

Enablers

Identify key sources of GHG emissions

Identify and decide Organizational and Operational Boundary

Select the GHG emission calculation approach

Developing customized modules and inventory manuals

Provide Training on the implementation of inventory manuals

Demonstrating the use of customized modules

Collecting activity data and emission data

Applying customized calculation tools for estimating GHG emissions

wbcsd wri protocol the framework for ghg accounting
WBCSD & WRI Protocol…. The framework for GHG Accounting

GHG ACCOUNTING & REPORTING PRINCIPLES

ACCURACY

RELEVANCE

COMPLETNESS

TRANSPARENCY

CONSISTENCY

key performance indicators
Key Performance Indicators
  • PRODUCTIVITY/EFFICIENCY RATIOS:

-Express the value or achievement of a business divided by its GHG impact.

-Increasing efficiency ratios reflect a positive performance improvement.

-Examples of productivity/efficiency ratios include resource productivity (e.g., sales per GHG) and process eco-efficiency (e.g., production volume per amount of GHG).

  • INTENSITY RATIOS (normalized” environmental impact data):

-Express GHG impact per unit of physical activity or unit of economic output.

-A physical intensity ratio is suitable when aggregating or comparing across businesses that have similar products. An economic intensity ratio is suitable when aggregating or comparing across businesses that produce different products. A declining intensity ratio reflects a positive performance improvement.

-Many companies historically tracked environmental performance with intensity ratios.

-Examples of intensity ratios include product emission intensity (e.g., tonnes of CO2emissions per electricity generated); service intensity (e.g., GHG emissions per function or per service); and sales intensity (e.g., emissions per sales).

  • PERCENTAGES (Percentage Indicator):

-Ratio between two similar issues (with the same physical unit in the numerator and the denominator).

-Examples of percentages are current GHG emissions expressed as % of base year GHG emissions.

thank you

Thank you

Indra Guha

Senior Manager

Climate Change and Sustainability Services

Indra.Guha@in.ey.com

Mobile: 9871430769