Gas Flaring and Venting Regulation in Alberta: Shared Experiences and Lessons Learned

1. Gas Flaring and Venting Regulation in Alberta: Shared Experiences and Lessons Learned Taller National: “Impulsando la Alianza para Reducir la Quema de Gas en Ecuador Michael Brown, M.Eng, P.Eng., Senior Production Engineer September 26, 2006Alberta Energy and Utilities Board

2. Topics for Discussion • Background on Alberta • History on Flaring in Alberta • Flaring and Venting Reduction Results • How we got there: • Multistakeholder approach • Guide 60 • Reduction Targets • Decision Tree • Economic Evaluation of Gas Conservation • Public Reporting • Enforcement • Lessons Learned Recap

3. Alberta Oil and Gas Production (2004) • Conventional oil……...……..600 000 B/d (95 000 m3/d) • Bitumen in situ…………………..…...386 000 B/d (61 000 m3/d) surface-mineable………….703 000 B/d (112 000 m3/d) • Natural gas……….....…….….13,3 BCFD (373 106 m3/d) • Oil / Gas producing wells ...133 000 • Pipelines………………………355 000 km • Producing Companies .…… 1 600 • Drilled last 3 yrs ………..….. 50 000 wells (about 75% of production exported to U.S.) Note: million = 106

4. Applications to EUB (2004) • Wells………………………24 379 • Production facilities……... 3 499 • Pipelines…………………. 14 317 • Oil sands • In situ…………………. 205 • Mineable……………… 6 • Coal………………………. 10 • Reservoir development… 4 353 • Environmental review…... 438 • Utilities……………………. 628

5. Who is the EUB? 9 Board Members – Government appointed (4 engineers, 2 lawyers, 1 accountant, 2 public) 850 Staff (engineers, geologists, technicians, accountants, lawyers, 120 field staff) To ensure that the discovery, development and delivery of Alberta’s resources take place in a manner that is fair, responsible and in the public interest

6. Who is the EUB? • Agency form- independent and quasi-judicial • Legislated mandate- consider the broad public interest • social and economic effects • environmental impacts Key to effective independence “Nobody controls the Regulatory Authority but the Regulatory Authority remains under control”

7. History on Flaring and Venting in Alberta • EUB (previously ERCB) – established in 1938 due to flaring • Stop wasteful flaring in Turner Valley, Alberta • “Hell’s Half Acre” • 5,63 x 106 m3 /d for a decade • Conserve and prevent waste of reserves • In 1996, flaring and venting about 1800 106m3 per year • A little better, but public still concerned • By 2005….

8. 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 The Results flaring reduced 72%, venting reduced 58% 1996 @ 1,8 bcm Issue 98 96% 97 96 Flared and vented (bcm*) 95 Percentage Utilized 94 93 92 91 Percentage Utilized 90 Volume Flared and vented 89 0,73 BCM 2001 2002 2003 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2004 *bcm = billion cubic metres Year 1996 - baseline for flaring Year 2000 – baseline for venting

9. Looking back… • What were the drivers? • How did we get there? • What worked? • What lessons did we learn? • (and what can we share through GGFR?)

10. What were the drivers? • Public concerns regarding human and animal health • poor combustion efficiency • harmful pollutants • Waste of a valuable and non-renewable resource • Unpleasant aesthetics of flaring

11. How our latest process began • In Alberta, the producers group (CAPP - Canadian Association of Petroleum Producers) identified a need to address concerns about associated gas flaring • CAPP requested that the Clean Air Strategic Alliance (CASA – www.casahome.org) form a multistakeholder team to address • But any stakeholder could initiate process

12. What is the Clean Air Strategic Alliance (CASA)? • Partnership • Non-government organization (NGOs) • Industry • Government • Accountable to the Alberta ministers of: • Resource Development • Environment • Health • Vision The air will be odourless, tasteless, look clear and have no measurable short or long term adverse effects on people, animals or the environment.

13. How does CASA work? • CASA operates on a multistakeholder,consensus basis • “A process in which participants work togetheras equals to realize acceptable actions or outcomes without imposing the views or authority of one group over another” National Round Table on Environment & Economy Building Consensus for a Sustainable Future, 1998 • “A process in which all those who have a stake in the outcome aim to reach agreement on actions and outcomes that resolve or advance issues related to environmental, social, and economic sustainability” National Round Table on Environment & Economy Building Consensus for a Sustainable Future, 1993

14. When to use a consensus-based approach? • Not all issues are appropriate for consensus • Issues that benefit from broad stakeholder participation • Need to access stakeholder expertise • Issues where difference of opinions exists and parties have strong positions (e.g. flaring) • Issues needing solutions that are credible to all stakeholders • Transparent and open process needed

15. What is required? • Commitment and goodwill • Common understanding of what consensus means • Not comprimise: no one gives up what is important, just to reach agreement • Must result in an outcome that is better than next-best for each member • Shared goals and objectives • For example: environmental protection, resource conservation / less waste of gas • Transparent process • Fair and open • Fallback option (if consensus not achieved, then…)

16. Who do you include? • Identify key stakeholders • Who could be affected? • Who has expertise? • Alberta flaring stakeholders: • Oil producers, producers groups (CAPP, Small Producers) • Relevant government sectors • (oil + gas regulator (EUB), environment regulator, royalties regulator) • Public representatives • (NGOs = Non-Government Organizations, people’s groups, environmental groups, land owners, land users (farmers, forestry, etc))

17. Benefits of NGO involvement • New era of citizens becoming more involved, active participation is more common • Citizens well informed and aware of rights • Access to information is increasing • Citizens seeking accountability, fairness and input into decision-making • Leads to better solutions than confrontational tools like media, protests, etc.

18. Benefits of NGO involvement • Public opinion on values and choices is an “expert opinion” • Technical expertise that resides within NGOs • Often have creative new ideas, new approaches • Different style of thinking • Bring legitimacy to the process and results

19. What will it look like?

20. Learnings from Multistakeholder Consensus • Multistakeholder consensus-based decision making can work • Takes more time • To build trust • To develop understanding of issues • To develop workable solutions • All members must be prepared to participate! Silence means consensus. • Can lead to better approaches and solutions

21. Outcomes: Guide 60 • Combines all of Alberta’s flaring requirements into one document • Makes compliance easier • Improves consistency • Makes enforcement easier

22. Voluntary Reduction Targets • Industry reduction targets year-end 2000: Target 15% >> 38% reduction year-end 2001: Target 25% >> 53% reduction year-end 2002: Target 50% >> 62% reduction year-end 2003: No further target est.) >>70% reduction • clear objective for flare reduction actions • Provided industry with the flexibility to determine how • Initially, there may be lots of “low hanging fruit” that can be captured • improved public confidence in process • Learning: Voluntary targets can work! (but regulatory backstop was key)

23. Flaring/venting management decision tree Eliminate solution gas flaring and venting YES • Tests • Public concern? • Health impacts? • Economic alternatives? • Environmental impacts/benefits? Implement NO Reduce solution gas flaring and venting YES NO Meet flaring and venting performance requirements Performance requirements EUB Guide 60 Gas Combustion & Venting and Fugitive Emission Management Requirements

24. Defined Economic Evaluation Process • Feasibility of associated gas utilization is determined by an economic test • Economic test compares financial benefits vs. costs of gas utilization • Standard calculation methodology provided by EUB (found in EUB Guide 60) • Must utilize if economic (i.e. net present value greater than $0 (soon changing to -$50,000 CDN)) • If not economic, can flare but evaluation must be kept for audit

25. Economic Evaluation Assumptions • Before-tax analysis • Only includes revenue from gas and byproducts that would otherwise be flared • Must include savings resulting from flare elimination such as: reduced maintenance, fuel and operating costs • Must consider options such as tie-in to gathering system (i.e. gas to market), use of gas for electrical power generation, re-injection, or other technical options

26. Economic Evaluation - Requirements • Gas price forecast • Electricity price forecast • Reserves estimate and production forecast (decline analysis) • Capital and labour cost estimates for conservation project • Operating cost (estimated as a percentage of capital cost)

27. Economic Evaluation – Requirements • Current and predicted inflation rate • Discount rate (cost of borrowing money) • Prime lending rate at a recognized financial institution plus a “cost of borrowing” percentage (3%) • A simple spreadsheet for standardizing and automating the calculation • Barrier removed: royalty on otherwise-flared associated gas • Can apply for royalty waiver if it would make utilization feasible

28. Measurement and Reporting • Why measure? • Monitor emissions • Understand impact of flaring on reservoir • Conduct proper economic evaluations • Information and statistics • Calculate production and balance facilities “What gets measured gets managed”

29. Reporting Requirements • Production reporting is done monthly • Includes production volumes of gas, condensate, oil and water, and production hours for each well • All gas flared and vented must be reported, including: • Routine operations • Emergency conditions • Depressuring of pipeline, compression and processing systems • All gas flaring, incinerating and venting are reported at the location where it occurred

30. Publication of Flaring and Venting Data • EUB publishes an annual report of flaring and venting – Report ST60B (available on EUB website at eub.gov.ab.ca) • Report shows annual volume of gas flared and vented for every company • Report shows annual oil production and associated gas production for every company • Report ranks companies, from worst to best based on gas utilization percentage • Learning: Making data available to public provides positive pressure for improvement by companies

31. Enforcement Principles • Goal is to have lasting compliance without continuous regulator involvement • Level of enforcement actions should match the severity of the situation • Enforcement actions should be consistent • Expectations and enforcement actions should be clearly communicated (defined in EUB requirements) • Operator can appeal

32. Enforcement Process • Any repeat or similar noncompliance results in escalating enforcement actions (“ladder”) • The EUB will deal firmly with companies where there is obvious disregard for requirements • The EUB will consider companies’ response to warnings and obligations when deciding to approve or deny applications (REFER status) • The EUB may shut down facilities until root cause is determined and permanent improvements have been implemented • Removal from the “ladder” occurs when compliance is achieved

33. Conclusions – Lessons learned in Alberta • Multistakeholder consensus worked • NGO involvement increases credibility of results • Clear, compiled regulations increase compliance (and look for barriers!) • Enforcement must be applied, consistently • Voluntary targets can work – but need backstop • The Decision Tree works (eliminate, reduce, …) • Economic feasibility evaluations can work • Calculation parameters need to be clearly defined • Measurement and public reporting are key

34. 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 The Results flaring reduced 72%, venting reduced 58% 1996 @ 1.8 bcm Issue 98 96% 97 96 Flared and vented (bcm*) 95 Percentage Utilized 94 93 92 91 Percentage Utilized 90 Volume Flared and vented 89 .73 BCM 2001 2002 2003 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2004 *bcm = billion cubic metres Year 1996 - baseline for flaring Year 2000 – baseline for venting

35. Gracias! Thank you!

36. Extra slide….

37. Performance Requirements • Detailed in Sections 7 and 8 of EUB Guide 60 • Contains requirements for: • Ignition • Flame stability and heating value (based on latest research at University of Alberta) • Stack height • Liquid separation • Spacing from other equipment • Noise • Smoke / visible emissions • Must meet air quality standards