Summary of KonKraft report 5. The petroleum industry and climate issues

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1 Summary of KonKraft report 5 The petroleum industry and climate issues

2 The petroleum industry and climate issues Broad scientific agreement prevails that human-produced (anthropogenic) greenhouse gas emissions affect the climate. The UN Intergovernmental Panel on Climate Change (IPCC) has established that such emissions must be significantly reduced to avoid serious consequences for the environment and society. Norway s petroleum industry recognises the climate challenge and has long worked to cut its emissions. These efforts avoided 40 million tonnes of carbon emissions in The figure for 2006 alone was 4.5 million tonnes of carbon dioxide. Carbon capture and storage (CCS) has furthermore been initiated for natural gas production on the Snøhvit field in the Barents Sea, while the Gjøa and Valhall fields in the North Sea are to be powered from shore. These moves represent an annual cut of 1.3 million tonnes in carbon emissions by Further reduction measures totalling tonnes per annum by 2013 have also been identified, and will help confirm Norway s position as the world s cleanest oil and gas producer. Norwegian greenhouse gas emissions, measured in carbon equivalent, totalled 55 million tonnes in Carbon dioxide accounted for 44.9 million tonnes. The total for the Norwegian continental shelf (NCS) was 13.8 million tonnes, including 13.2 million tonnes of carbon dioxide. KonKraft report 5 includes an account of action taken to reduce emissions from the NCS and measures planned for the future. The most power-intensive processes on an offshore installation are compression related to gas transport, injection of gas and water for pressure support, and pumping of oil and condensate. Power for these processes is largely generated by gas turbines, which provide the bulk of carbon emissions from the NCS. Flaring has accounted for about 10 per cent in recent years, but this share rose in 2007 because of start-up problems with the Snøhvit plant at Melkøya.

3 Historical development of direct carbon emissions, million tonnes Source: OLF environmental report, 2007 Maturation of the NCS and the shift from oil to gas production will boost carbon emissions per unit produced up to Without new measures, greenhouse gas emissions from the petroleum industry in 2020 are expected to remain at today s level. Up to 2030, they should be halved as a result of declining production. However, the petroleum industry will work actively to achieve further cuts in greenhouse gas emissions through more efficient use of energy, assessing power from shore for new fields, development of renewable energy and CCS. The industry will annually review and specify possible future measures for the next three-five years. The bulk of remaining measures available to the petroleum sector are relatively expensive. Which of these should be implemented in the future must be assessed from an overall national perspective, with the emphasis on cost efficiency. In this context, dedication of the Norwegian carbon tax paid by the petroleum industry currently some NOK 2 billion per year could also be a way to realise socio-economically beneficial measures in other sectors. The success of the nitrogen oxide fund shows that a cross-industry solution can function well. Nitrogen oxide fund Fourteen Norwegian industrial associations joined forces in 2008 to establish a fund to reduce emissions of nitrogen oxides. Companies who sign up to the agreement pay a reduced nitrogen oxide tax to the fund for three years, but must undertake to cut emissions. The fund has some NOK 1.8 billion available, with two-thirds provided by the oil companies. A total of tonnes are due to be trimmed from annual emissions by the end of 2011, and that goal was within reach by February The fund then held financing applications for measures designed to cut the release of nitrogen oxides by almost tonnes per year.

4 Norway in a global perspective The Norwegian petroleum industry has long worked to reduce its carbon emissions, and a number of measures have been implemented. Motivated in part by the carbon tax introduced in 1991, emissions per unit produced on the NCS have been cut by nine per cent from Norway s petroleum sector is the most carbon-efficient in the world. Greenhouse gas emissions vary widely around the globe. The average for various regions ranges from eight to 39 kilograms per barrel of oil equivalent (boe). Norway emerges very well from such a comparison, with an average of about eight kilograms. 45 Kg CO 2 equivalent per boe Norway Rest of Europe Middle East Russia South America North America Asia/ Australia Africa Carbon equivalent (covers carbon dioxide and methane) released per unit produced in Sources: OGP, OLF and KonKraft project group 1. The high levels in other parts of the world largely reflect a lack of gas infrastructure and an absence of incentive schemes to reduce greenhouse gas emissions. These factors result in extensive flaring of associated gas from oil production. Europe, on the other hand, has a well-developed infrastructure for transporting gas from fields to market. Emissions are accordingly lower. Norway also has a well-functioning gas transport network which operates continuously without leaks. By comparison, some per cent of Russian gas production is thought to escape in the transport stage.

5 5 Effective reduction measures implemented The overall effect of measures taken by the Norwegian petroleum sector to cut greehouse gas emissions in was to avoid the release of more than 40 million tonnes. Fifty per cent of this figure derived from energy savings and reduced flaring Thirty per cent came from CCS in the Sleipner area Twenty per cent resulted from supplying power from shore to Kollsnes including the Troll A platform and the start-up phase for Ormen Lange The annual impact of these measures in 2006 was a cut of 4.5 million tonnes in greenhouse gas emissions. Over their full lifetime, they are expected to avoid the release of more than 130 million tonnes. Examples of efficiency improvements implemented Ekofisk II Balder Åsgard B Valhall 1998: 2000: : Changes made in the Improved compressor Improved compressor New turbines for Ekofisk II development regularity and flaring efficiency power generation include turbine procedures upgrades Annual carbon cut: Annual carbon cut: Annual carbon cut: Annual carbon cut: tonnes tonnes tonnes tonnes Sources: DNV, StatoilHydro, ConocoPhillips and ExxonMobil.

6 Measures recently completed and under implementation According to the reference bank for the NCS, production is expected to decline by eight per cent in However, energy consumption per unit produced rises on more mature fields. The share of gas in Norway s total petroleum output is also expected to increase from roughly 40 per cent today to about 60 per cent in Producing gas is more energy-intensive than oil because of the need for compression prior to transport. These trends mean that the industry s total greenhouse gas emissions are expected to remain relatively stable up to 2020 if no new reduction measures are implemented. By around 2030, lower production is expected to lead to a halving of total greenhouse gas emissions from today s level. However, CCS has been implemented for gas production from Snøhvit, and Gjøa and Valhall are to be powered from shore. These measures will cut 1.3 million tonnes from annual carbon emissions by Current and recently completed measures Valhall Full power supply from shore for Valhall through rebuild and renewal. Emissions avoided: annual tonnes of carbon dioxide from Gjøa Partial power supply from shore for a floating installation. Emissions avoided: annual tonnes of carbon dioxide from Snøhvit World s first gas liquefaction plant with CCS. Emissions avoided: more than annual tonnes of carbon dioxide stored, with full effect from Sources: StatoilHydro, BP and KonKraft project group 5.

7 7 Prospects New measures related to energy efficiency and reduced flaring The petroleum industry has identified roughly 40 new measures, which could facilitate a total reduction of tonnes in carbon emissions by This can be achieved through cost-effective energy savings and less flaring. It is also expected to be possible to realise a further potential towards 2020 and No specific measures have been identified at present, but the industry will continue to study opportunities available. It will also work closely with suppliers to develop technologies which could yield more energy-efficient solutions. Full or partial power supply from shore for new stand-alone developments Supplying power from shore generally represents a high-cost option, but experience from such projects as Gjøa shows that this could be a solution for new stand-alone field developments. That also applies to major rebuilds such as Valhall. A thorough assessment of opportunities for supplying power from shore will accordingly be conducted by the industry for all new stand-alone development projects and major rebuilds or expansions. That accords with the requirements for a plan for development and operation (PDO). Power supply from shore otherwise depends on the availability of electricity in reasonable geographical proximity and adequate grid capacity. Further development of CCS The petroleum industry will participate actively in Norway s CCS development process. In the longer term, this process could play a significant role in reducing emissions both nationally and internationally. However, the technology needs to be further matured in order to reduce costs and thereby achieve global implementation. The Norwegian petroleum industry wants to play a key role in a unified, integrated technological development process together with government authorities and key players in the supply industry. This involves continuing work on evaluating, testing, developing and quality assuring carbon capture technology, followed by a full-scale project at the Mongstad refinery in western Norway. Reduction costs 2020 NOK/tCO 2 e Partial power from shore for existing fields Full/partial power from shore for new stand-alone fields or conversions CCS at Kårstø gas plant CCS at Mongstad Petroleum industry Other industries Measures to save energy and cut flaring 400 Current CO 2 costs for the petroleum industry 200 Reduction potential 0 MtCO 2 e/y Investment Investment Investment Investment -400 needed: needed: needed: needed: > NOK 2 bn NOK bn NOK 25 bn NOK bn Cost curve for climate measures in Norway in See the main report (in Norwegian only) for details.

8 Norway s contribution to reducing global emissions FINNESTAD AS Gas for Europe From an environmental perspective, exports of Norwegian gas are a key contributor to reducing the use of coal-fired power in Europe. Burning coal rather than gas yields at least twice the emissions per energy unit produced. Assuming that 75 per cent of the gas exported from Norway replaces coal in electricity generation, today s deliveries of 100 billion standard cubic metres per year could avoid some 230 million tonnes of carbon emissions from coal-fired power stations. Commitment to renewables The petroleum sector will collaborate with other players in the Norwegian energy cluster to support the development of technology and build capacity for renewable energy. In particular, the industry will apply its expertise in constructing and operating installations to help the development of offshore wind power. Such new forms of renewable energy could be a possible source of power for petroleum operations on the NCS or for the further development of mainland Norwegian industry. Export of expertise and technology In the short term, applying knowledge and technology already developed by Norway in such areas as energy saving and lower flaring could cut emissions in the companies own operations and through partnerships abroad. Looking further ahead, research into and fullscale projects on CCS and offshore wind power could help reduce costs and boost the application of these technologies both nationally and globally. Choice of measures A potential exists to avoid 5.5 million tonnes in annual carbon emissions through the partial supply of electricity from shore to existing fields and through implementing carbon capture at the Mongstad combined heat and power station, the Mongstad cracker and the gas-fired power station at Kårstø. This corresponds to about 10 per cent of Norway s greenhouse gas emissions. However, the cost will be high and calls for an investment in the order of NOK billion. The government is expected to cover more than 80 per cent of this sum through direct participation and through the petroleum tax system. The cost of carbon transport and storage comes in addition to this. The question of which measures are to be implemented in the future must be assessed from a unified national perspective, with the emphasis on cost efficiency. The petroleum industry has had the highest carbon taxes in Norway since 1991, which means that most of the measures with a relatively low execution cost either have been or are being implemented on the NCS. Identified measures such as energy savings and lower flaring will be put into effect, while the industry will continuously seek further cost-effective ways of reducing its future emissions. The cost of reduction measures is lower in a number of other sectors. Dedicating carbon taxes from the petroleum industry could help to realise these solutions. KonKraft is a collaboration arena for: