Unlocking the Value of Wasted Natural Gas

Transcription

1 Unlocking the Value of Wasted Natural Gas By Bent Svensson and Mauricio O. Ríos* Global Gas Flaring Reduction partnership (GGFR) The World Bank Group Background As the international community is examining ways for reducing greenhouse gas emissions and moving toward low-carbon economies to mitigate the impact of climate change, natural gas is increasingly becoming an attractive and important component of the energy mix in countries around the world. One of the attractiveness of natural gas is that it is the less polluting amongst the fossil fuels. Yet, in several oil and gas producing countries, vast amounts of natural gas are still being flared or wasted. In order to address this wastage, which should be a serious concern for the participants at the World Gas Conference in Buenos Aires, the World Bank Group is supporting important initiatives that contribute toward reducing carbon dioxide emissions and improving energy efficiency. One of these initiatives is the World Bank-led Global Gas Flaring Reduction partnership (GGFR). Launched at the World Summit on Sustainable Development in August 2002 in Johannesburg, the GGFR public-private partnership brings around the table representatives of governments of oil-producing countries, state-owned companies and major international oil companies so that together they can overcome the barriers to reducing gas flaring by sharing global best practices and implementing country-specific programs. GGFR partners have established a collaborative Global Standard for gas flaring reduction. This Global Standard provides a framework for governments, companies, and other key stakeholders to consult with each other, take collaborative actions, expand project boundaries, and reduce barriers to associated gas utilization. GGFR partners that have endorsed the Global Standard are committed to no flaring in new projects, and to eliminate continuous production flaring in 5-6 years, unless there are no feasible alternatives. In brief, the goal of the GGFR partnership is to unlock the value of currently wasted natural gas by improving energy efficiency, expanding access to energy, and contributing to climate change mitigation hence promoting sustainable development. It is estimated that about 150 billion cubic meters of natural gas that are being flared and vented annually. This amount is equivalent to 25 per cent of the United States gas consumption or 30 per cent of the European Union s gas consumption per year. Gas flaring wastes resources and harms the environment, and that s why it is important to step up the efforts in reducing flaring and increasing gas utilization. Gas flaring also deprives developing countries of an energy source that is cleaner and often cheaper than others available, and reduces potential tax revenue and trade opportunities. Gas flaring also has a global impact on climate change by adding the equivalent of some 400 million tons of CO2 in annual emissions. Furthermore, the Methane to Markets partnership estimates that some 100 bcm of methane is vented or lost through fugitive emissions in the oil and gas sector each year. As methane is a more potent greenhouse gas than CO2, this adds the equivalent of over 1 billion tons of carbon dioxide annually. 1

2 Altogether, annual emissions from flaring and venting (1.4 billion tones) are equivalent to more than twice the potential yearly emission reductions from projects currently submitted under the Kyoto Protocol s clean development mechanisms. According to satellite data, the major flaring region in the world is Russia and the Caspian Sea (about 60 bcm); followed by the Middle East and North Africa (about 45 bcm). Sub- Saharan Africa (about 35 bcm) is the third-biggest flaring region, followed by Latin America with some 12 bcm of gas flared annually. And the ranking of flaring countries shows Russia leading the list, followed by Nigeria, Iran and Iraq. The other six countries that make up the top 10 flaring countries for 2008 include: Algeria, Kazakhstan, Libya, Saudi Arabia, Angola, and Qatar. (See table on page 11 for more country data) Objectives of the paper The main objective of this paper is to share lessons learned over the past seven years on critical conditions or success factors that are needed for countries and companies to overcome these barriers and achieve faster gas flaring reduction, including relevant fiscal and regulatory policies. Another objective is to demonstrate that it is important to foster a collaborative effort between public and private sector stakeholders in order to achieve the desired goals: lowering CO2 emissions and methane leakages while opening new economic opportunities through gas utilization and enhancing energy security by improving energy efficiency and increasing available supplies. Although all stakeholders tend to agree that routine flaring and venting is not desirable, countries and companies often face significant barriers to reduce gas flaring and venting, including: limited access to international gas markets as well as incipient local markets to commercialize the gas; lack of funding to put in place the necessary infrastructure to use the associated gas that comes with oil production; and ineffective regulatory and fiscal frameworks for using the associated gas. Over the past seven years GGFR partners have accumulated a wealth of experience, lessons and best practices about gas flaring reduction, so they now better understand what the critical success factors are, including: More accurate data to gauge the magnitude of the practice at the country and company levels. Governments need to have not only effective regulations but also clear policies with the right incentives for operating companies, so that the necessary infrastructure is put in place and markets for gas utilization are developed. Country buy-in, high-level support and an effective local partnership between government and industry are key ingredients to ensure success in gas flaring reduction. There should not longer be any doubt that government and private sector need to work as real partners if tangible results are to be achieved. Leadership and commitment play a critical role in both the public and private sectors in order to sustain progress over the long term. And new and small-scale gas utilization technologies need to be nurtured to commercialization, to provide additional economic options to flaring. Thus, unlocking the value of wasted gas requires a concerted effort by governments and industry, as well as other stakeholders including multilateral financial institutions and technology developers. 2

3 GGFR s main role is that of a catalyst that brings key stakeholders around the table, facilitates the establishment of a common ground with clear targets, and does not allow them to give up or get distracted from the ultimate objective. The following sections look into some of the crucial aspects that governments and companies in oil producing countries need to consider in order to unlock the value of wasted natural gas. Box1- Why is gas flared? Hard Causes Distance from significant gas markets Reliability of supply from associated gas Gas infrastructure constraints (lack of, or access to it) Gas composition Risks of gas re-injection in oil reservoir Soft Causes Limited institutional, legal and regulatory framework for gas, including associated gas Un-effective fiscal terms (gas price, equity share, tax structure, etc) Underdeveloped domestic market for gas/products (LPG, CNG, methanol, power, etc) Funding constraints and need for coordinated actions by multiple stakeholders Effective Policies Private oil companies are unlikely to commit their resources to associated gas utilization projects unless the host government creates an environment that supports their economic viability, and where the rights and obligations of the oil companies to utilize the gas are clear. Thus it is crucial that the host government establishes this enabling environment through effective legislation, regulation and market/economic measures. Specific policy measures will depend on each country s circumstances and are likely to include both upstream and downstream sectors. However, some generic lessons can be drawn from successes in associated gas utilization already achieved by a number of oil producing countries, such as Algeria, Canada, Norway, Saudi Arabia, the United Kingdom, and the United States. Some of these lessons include: Oil & gas legislation, and oil & gas concessions/licenses should be clear, comprehensive and unambiguous on the treatment of associated gas. Fiscal terms should encourage gas utilization investments. Special fiscal treatment of associated gas investments may be needed to overcome high up-front capital cost of associated gas infrastructure. Gas market should encourage and enable associated gas utilization with: a) Oil & gas companies given the right to monetize gas, generally including gas export; b) Open and non-discriminatory access to infrastructure, including gas processing and transmission facilities, access to electricity grids (to sell electricity produced on-site from associated gas); and c) Market-based energy pricing. 3

4 Flare and venting regulation should be clear, with effective monitoring and enforcement: Right market conditions and investment incentive schemes should be complemented by flare and vent regulation in order to challenge operators to exhaust gas utilization options. Reduction in legacy flaring requires a comprehensive and methodical approach: A generally accepted approach in addressing legacy flares and vents is (i) to establish a realistic flare/vent-out deadline; (ii) create the environment enabling gas utilization investments; (iii) coordinate operators investment programs, and (iv) closely monitor them to ensure that they are implemented on time. Developing these flare reduction programs should be done as a cooperative approach with consultation with key stakeholders, particularly with operators. Although stakeholder consultations will take time and effort, they typically add value by: a) Establishing a challenging but realistic flare-out deadline; b) Identifying key issues and risks in implementation of operators associated gas utilization programs, which in turn allow these to be addressed in a timely fashion; c) Developing a fiscal framework consistent with the country s flare and vent reduction policy; d) Transforming the potential of the policy into results on the ground through greater trust, ownership, and commitment by stakeholders. New oil developments should include provision for associated gas utilization: In new oil developments, associated gas utilization should be an integral part of the field development planning process. Addressing flaring and venting retroactively is more costly and often more technically challenging. An integrated plan should be developed for both associated and non-associated gas: Flaring and venting reduction and non-associated gas development should be integrated into the country s integrated gas master plan and/or energy sector strategy Finally, a combination of the above measures is essential to achieve significant reduction in flaring and venting. Fiscal and Regulatory Frameworks This section builds on lessons learned in flaring and venting reduction by champion countries and provides guidance on flaring and venting policy in the upstream hydrocarbon sector in the following two areas: Fiscal framework Regulatory framework Fiscal Framework There are two groups of fiscal instruments that could be used by host countries to promote investments in flare and vent reduction projects, namely incentives and penalties. Incentives, or preferential fiscal regimes, can be applied to both upstream operations and downstream investments, while penalties are imposed on upstream activities, namely flaring and venting of associated gas. In general, incentives prove to be more effective than penalties. What s more important, if a penalty-based approach is used to address flaring and venting, a number of 4

5 conditions should be met, including the right level of penalties and the presence of a strong and empowered regulatory body. Incentives Associated Gas is produced as a byproduct of crude oil production, and incentives to utilize gas can be provided through a preferential fiscal regime that could enable investments in gas utilization. In the case of an underdeveloped domestic gas market and/or the absence of gas export outlets, significant upfront investment costs to bring natural gas to markets and the related low net back value of gas (as compared to crude on the oil equivalent basis) would plague investments in gas infrastructure unless a preferential fiscal regime makes investments attractive. A range of fiscal instruments could be used for this purpose, including reduced royalty, accelerated depreciation, investment credits and uplifts, tax holiday, etc. Incentives should be preferably provided in combination with regulatory requirements to eliminate or reduce flaring and venting, including specific flare-out dates. Otherwise, operators may not still be sufficiently motivated to dedicate resources to associated gas utilization projects. However, incentives should not substitute for policy measures to address market impediments to gas utilization, such as access to processing and transmission capacities, or no rights to export gas and depressed domestic energy prices. Otherwise, incentives may have little impact on gas utilization or cause inefficient allocation of resources or, in other words, cross-subsidization. In view of this, the choice and size of incentives should be preceded by consultations with operators and other energy sector stakeholders in order to identify barriers to associated gas utilization. Market barriers should be addressed through policy measures, while obstacles of physical nature (e.g. long distance to markets, lack of processing and/or transmission infrastructure) and those related to poor economics of gas utilization investments through fiscal incentives. To address legacy flaring and venting, fiscal terms should ensure that flare and vent reduction investments are sufficiently attractive to the operator that is, return on them is comparable with the one on oil business under the contract/agreement in place. Given the high upfront investment cost nature of gas infrastructure, it often translates into the need for preferential fiscal terms for gas as compared to oil. New fields should be preferably developed in the spirit of maximizing recovery and utilization of both crude and associated gas. Penalties The other fiscal tool to promote gas utilization is to penalize flaring and venting of gas. This usually takes the form of a fine imposed on a unit of gas flared or vented. For instance, a so called CO2 tax of about US$120/1000m³ has been in place in Norway since It has contributed to reductions in flare and vent volumes, in particular by encouraging the development of new technologies and operational procedures to minimize non-routing flaring and venting. Another penalty option, employed for instance in the U.S. Outer Continental Shelf, is to impose royalty payments on the flared or vented associated gas that according to the regulator could have been utilized, if or was flared/vented without a prior regulator s approval. Overall, if a penalty approach is to effectively address flaring and venting, the following three conditions should be met: Penalty should be established at a sufficiently high level to increase the attractiveness of flare and vent reduction investments. Otherwise, it may just enlarge the operator s tax payment obligations, while flaring and venting continue. 5

6 A flaring penalty-based approach will provide sub-optimal results unless it builds upon a well-established and effective flaring regulatory framework. In particular, it requires the presence of a strong regulatory body, independent from operators, which establishes flare measurement and reporting requirements for operators and has the resources and authority to monitor flare measurement equipment and flare and vent volumes. More than that, the regulator should be fully empowered to pursue infringements and enforce all regulatory requirements. A penalty approach is likely to work better if accompanied by fiscal incentives for associated gas utilization investments. Regulatory Framework A regulatory framework is the backbone of flaring policy. Experience from petroleumproducing countries proves that in the absence of an effective upstream regulatory framework, operators may not exploit all associated gas utilization options, or in other words, reduce flare and vent volumes to minimum levels. Flaring and venting regulation If regulatory requirements are not in place or ineffective from an operator s standpoint, investments in flare and vent reductions will mostly be subject to the following factors: Operator s required rate of return on investments Operator s knowledge of and availability of resources to produce and market commodities that could be derived from associated gas (electricity, NGL, etc) Operator s corporate policy in regards to flare and vent reduction In practice, one or more of the above factors may discourage flare and vent reduction investments. For instance, an operator may screen all potential investment options by applying the same hurdle rate. As a result, investments in flare and vent reduction are likely to lose competition to oil projects for the company s capital and human resources. To correct the market failure to properly take into account resource conservation, environmental and wildlife protection, and human health aspects related to flaring and venting, the government of an oil-producing country needs to establish flaring and venting regulation. Two essential elements of flaring and venting regulation are agencies and a regime. Regulatory regimes A regulatory regime establishes what is regulated and how it is regulated. Key features of a good flaring and venting regulatory regime include: Definitions and boundaries Regulatory approval Economic evaluation Measurement and reporting Monitoring and enforcement Public dissemination A regulatory regime should be set forth in secondary legislation, for instance in respective sections of existing regulatory rules and procedures in the upstream oil and gas sector, or alternatively, as a stand-alone document. The latter option may require more effort, but is likely to provide a greater clarity and coherence, as well as facilitate compliance by operators. 6

7 Directive 60 1, developed in Alberta (Canada), is an excellent example of a dedicated piece of secondary legislation that covers most of the elements of the province s flare and vent regulatory regime. Finally, the operator should be required to have a focal point to be responsible for compliance with flaring and venting regulation and interactions with the regulator on all flaring and venting issues. Regulatory agencies General requirements for flare and vent regulatory bodies are in many respects similar to the ones applied to downstream energy and infrastructure regulators. In particular, the regulator should have administrative independence that would guard it against political interference; financial autonomy to have sufficient resources -such as skills, staff, and technical tools- to carry out its duties; and legal power to enforce regulation. The following excerpt from the World Bank Policy Research Working Paper on regulatory effectiveness 2 provides a useful checklist of regulatory criteria, including the following six elements: Clarity of roles and objectives Autonomy Participation Accountability Transparency Predictability While the checklist was originally developed for the electricity industry, it is largely applicable in assessing the effectiveness of the regulatory agency in the oil and gas sector, and in particular with respect to flaring and venting. To avoid conflict of interest, flaring regulatory functions instead should be performed both in law and practice by a dedicated and empowered institution in the form of an independent regulatory body (such as the Energy Resource Conservation Board in Alberta, Canada), or a department in relevant ministries (such as the Licensing and Consents Unit of the Department of Trade and Industry in the United Kingdom, the Norwegian Petroleum Directorate, or the Interior Department s Minerals Management Service in the United States). Enforcement Enforcement is perhaps the most important element of a flaring regulatory framework since, regardless of the design of the framework, it is unlikely to bring expected results unless regulatory infringements are spotted and effectively pursued by the regulator. Therefore, a flaring regulatory regime should be designed in a way that makes enforcement feasible given the regulator s financial and staffing constraints, as well as the country s institutional development and regulatory traditions. It is a good practice to describe the consequences of noncompliance in detail in regulatory documents, so that operators are all aware of regulator s expectations and enforcement actions. An option would be to list typical noncompliance events under broader categories (such as approval, economic evaluation, measurement, reporting) and establish an enforcement level for each event. The level could range from a notification to license suspension or even revocation. 1 Directive 60 Upstream Petroleum Industry Flaring, Incineration, and Venting 2 WPS 3536,

8 Box 2- Economic evaluation Most of the regulatory regimes include in one way or another the requirement for economic evaluation of gas utilization options, in particular regarding continuous flares and vents. The main thrust here is to challenge the operator to consider all gas utilization options and proceed with flare reduction investment if it is economic. If none of the options within the license boundaries is economic, it is a good practice to request the operator to exploit opportunities of joint gas utilization projects with neighboring operators, and/or provide gas free of charge at the license boundary to an interested party. Also, it is advisable to request the operator to update utilization economics for ongoing flares and vents every 12 months. In addition, fiscal instruments, such as incentives and penalties (see the section on fiscal framework above) are commonly used to improve the attractiveness of flaring and venting reduction projects that are uneconomic and, otherwise, unlikely to be implemented. To streamline discussions between the regulator and operator regarding whether a particular investment is economic or not, a special attention should be given to the establishment of clear economic evaluation criteria. The evaluation criteria could be linked to the rate of return or net present value of the investment. For instance, the regulatory regime in Alberta (Canada) obliges the operator to invest in a flare and vent gas reduction project if its NPV is above minus 50,000 Canadian dollars. Furthermore, regulations should specify key parameters to be used by the operator in economic modeling, or indicate the sources where they can be found. The key parameters to specify are: Rules for NPV calculation (pre-tax or after-tax cash flows) Discount rate Operating costs (as a percentage of capital expenditures) Price forecast for gas, electricity, and other commodities that can be produced from associated gas Inflation forecast The Alberta ERCB, for instance, developed a simple rule of thumb spreadsheet model that is occasionally used by the regulator for cross-checking economics of gas utilization for a particular well or field against the operator s economic evaluation. Although the model is designed for the Alberta s regulatory regime, with minor modifications, it could easily be applied in other jurisdictions. Data, Measurement and Monitoring In remote and underdeveloped areas, associated gas has been often considered a byproduct to be disposed of for safety considerations. As a result, neither industry nor supervising or regulatory bodies elevated the issue of flare/vent measurement to the level comparable to the industry practice in measurement of non-associated gas and oil. The measurement of associated gas is technically challenging. The key issues include significant variations in gas volumes over a period of time, low gas pressure, and gas composition. Although metering equipment that addresses many of these challenges do exist (for instance ultrasonic meters), its use is not always justified because of its cost in relation to the value of the gas, or because this measurement is simply not required as part of the regulatory framework. 8

9 Reporting and Monitoring Flare and vent reporting is an integral part of a regulatory set up. It pursues the following objectives: Monitoring operators compliance with approved flare and vent levels. Identifying assets requiring on-site inspection. Monitoring progress in flaring and venting reduction achieved by the jurisdiction and taking regulatory and, if necessary, policy measures to get it back on track. Monitoring of flaring and venting volumes is a necessary precondition for enforcement. There are three complementary options to monitor flare and vent volumes: Operators reports and logs On-site ad-hoc inspections Satellite observations The first two options should generally follow the same rules and practices that have been applied by oil and gas regulatory authorities with respect to oil and non associated gas. Onsite monitoring of venting is generally more challenging than flaring. This challenge has been addressed by a number of regulators (U.S. Mineral Management Service (MMS) and Alberta Energy Resources Conservation Board (ERCB)) by employing infra-red video cameras that allow to see otherwise invisible vent streams. The use of satellite imagery for determining flaring volumes is a novelty, largely promoted by GGFR partnership. While there are still technical issues associated with interpretation of satellite images of flares, it is expected that this tool will increasingly be utilized by flaring regulators to monitor flares in the upcoming years. [see table on page 11 for satellite data] Satellite Imagery: Methodology and Uncertainties In order to shed more light on global gas flaring, the GGFR partnership contracted the US National Oceanic and Atmospheric Agency (NOAA) to produce annual estimates of global and national gas flaring for 60 countries, from 1992 through 2008, using low light imaging data acquired by the Defense Meteorological Satellite Program (DMSP) based on a calibration developed with a pooled set of reported national gas flaring volumes and data from individual flares. To better comprehend which countries were reducing their flaring, and where flaring was increasing, NOAA scientists created color-coded and time-phased composite images. Because most gas flaring occurs outside urban areas, NOAA scientists were able to pinpoint burn-offs and convert their light intensity to measurable quantities of pollution, primarily from carbon dioxide. To ensure precise correlations, only nighttime photos under cloud-free conditions were analyzed. Due to a number of sources of uncertainty and error in the results of this study, however, caution should be used in the treatment of the available data. The main sources of error or uncertainty include: errors in the reported flare volume data; non-continuous sampling; missidentification of flares; variations in flare efficiency; and environmental effects such as snow reflection in some areas like Siberia. Latest satellite data: Gas flaring estimates from the study show that global gas flaring has remained largely stable over the period , in the range of 150 to 170 billion cubic meters (bcm). However, 9

10 latest satellite data for the past three years show that efforts to reduce flaring are starting to pay off. For the third consecutive year, the global estimate for gas flaring has continued to decrease and is now estimated at 138 bcm in Global gas flaring in 2007 was 151 bcm per year, nine bcm lower than the amount flared in 2006 and a decrease of 20 bcm from the 2005 figure, estimated at 171 bcm per year, one of the highest estimates in the last ten years. Overall that s a reduction of 33 bcm since GGFR is verifying these estimates with reported data from partner companies and countries. The study s estimates are a good additional source of information but satellite imagery has its limitations and uncertainties that GGFR is working to reduce in a joint effort with the NOAA scientists. By providing independent estimates of gas flaring volumes, satellite observations could play a key role in managing efforts to reduce gas flaring, particularly since several governments have not known the magnitude of the flaring. Sources: NOAA, GGFR 10

11 The table below shows gas flaring estimates based on satellite observations NOAA Satellite Estimates for top 20 Flaring Countries Volumes in bcm Change from 2007 to 2008 Russia Nigeria Iran Iraq Algeria Kazakhstan Libya Saudi Arabia Angola Qatar Uzbekistan Mexico Venezuela Indonesia USA China Oman Malaysia Canada Kuwait Total top Rest of the world Global flaring level Other Partner countries Gabon Eq. Guinea Cameroon Ecuador Azerbaijan* Initial Results Since its creation and launch in 2002, the GGFR partnership has already achieved some significant results, including. Seventeen major oil companies and 17 countries that contribute a significant share of the world s total flaring (more than 50 percent) have joined GGFR. The majority of partners have endorsed the Global Standard for gas flaring reduction GGFR has implemented demonstration projects for associated gas utilization in eight countries. Iraq, Azerbaijan, Uzbekistan, and Mexico are some of the latest partners who have joined the GGFR partnership over the past year, and more are expected to do so in the near future. GGFR is assisting governments efforts in Indonesia, Kazakhstan, Mexico, Nigeria, Qatar, and other countries to reduce flaring to minimum levels, through increased collaboration between operators, the national oil company and the regulator. 11

12 Concrete examples of the GGFR s partnership efforts can be seen in various countries. Some important examples include Nigeria and Kazakhstan. Nigeria As part of the flaring reduction process in Nigeria, for instance, GGFR is facilitating dialogue between government and industry representatives through the Nigeria Flare Reduction Committee, which has met every three weeks for the past 20 months. The Committee s on-going work includes: reviewing each operator s existing flare reduction program; integrating these individual company plans into a Nigeria Associated Gas Utilization Plan and into Nigeria s Gas Master Plan; and looking for opportunities for cooperation between operators that could accelerate the collection of the gas. In this context, several options to meet the Government s targets have been presented to the respective authorities. These include: -To allow flaring to continue while the operators implement projects to utilize the gas, a program only estimated to be completed by end 2013; -To set annual targets for flare reduction that will reduce flaring more rapidly through the establishment of a Flare Reduction Management System. This Flare Reduction Management System could use OPEC oil production constraints to achieve significant flaring reduction, but only if high Gas-Oil Ratio production in flaring fields is shut -in. This is not currently the practice. Kazakhstan Kazakhstan is within the top six flaring countries worldwide with an annual estimated flare volume of 5.1 billion cubic meters, according to latest satellite data, positioning Kazakhstan as the largest emitter of GHG in Central Asia. Presently 30 out of 46 oil companies in Kazakhstan continuously flare gas. The revised legislation established a flare-out deadline (2010), obliged operators to develop flare reduction programs, and introduced environmental and resource conservation penalties for flared gas. The authorities have approved gas flaring reduction programs prepared by oil companies operating in the country. However, despite the flare out deadline, oil companies operating in Kazakhstan are still facing significant challenges with the implementation of gas flaring reduction projects, including the lack of adequate gas processing, transmission and distribution infrastructure, absence of a functioning gas market, difficulties with financing and gaps in legislation, all of which will prevent some companies from eliminating gas flaring and meeting the deadline. In this context, the Ministry of Energy and Mineral Resources of Kazakhstan (MEMR) has requested the GGFR partnership to assist with the improvement of the gas flaring legislation, and GGFR is providing best practices from other countries as well as evaluating potential opportunities for increasing the utilization of associated gas. In addition, GGFR is ready to assist the MEMR with the preparation of the country s gas strategy and in the establishment of official system/procedures on data collection and respective comparative work with the satellite data obtained by GGFR and NOAA. 12

13 Conclusions and challenges As GGFR has already achieved some great milestones, a significant reduction of global gas flaring still needs to be achieved in order to complete the mission with the desired impact. Initial achievements already demonstrate that gas flaring and venting reduction efforts are not only relevant in today s energy context but also viable as demonstrated by several countries and companies, and desirable for its obvious environmental and economic benefits. Thus a major challenge for the third phase of the GGFR partnership ( ) is to bring other key players on board. Although more than 80 percent of global venting and flaring occurs in fewer than 20 countries (and GGFR has worked with most of them in one way or another) some important flaring countries and oil companies still are to join the GGFR partnership, including Kuwait, Libya, China, Brazil and Russia. Another challenge is the need for faster implementation of gas flaring reduction projects so that countries and companies can deliver concrete results and global gas flaring continues to decline in greater volumes. For this to occur, all relevant stakeholders government, industry, technology developer and financial institution- need to do their part to unlock the value of this wasted gas. This means that government first need to establish clear regulatory and fiscal frameworks as explained in this paper. In today s climate change debate, it is also important to see the gas flaring and venting issue not only in its technical and economic dimensions. But rather, all stakeholders should look at the gas flaring reduction challenge as an opportunity for making a concrete contribution to climate change mitigation, by improving energy efficiency and expanding access to a cleaner source of energy for the people who most need it. Thus, it is necessary that each relevant stakeholder does whatever it takes to unlock the value of wasted gas. The World Bank Group, through the GGFR partnership and other initiatives, will do its part. We trust that all other relevant stakeholders will do theirs so we will see significant reduction in gas flaring and venting around the world. *Bent Svensson is a lead energy economist and GGFR program manager. Mauricio O Ríos is GGFR s communications officer. For more information: GGFR Partnership: Global Forum site: World Bank s Oil, Gas, Mining and Chemicals Department: 13

14 References Directive 60 Upstream Petroleum Industry Flaring, Incineration, and Venting, Alberta, Canada. World Bank Policy Research Working Paper on regulatory effectiveness (WPS 3536, 2005) Gas Flaring Reduction Projects: Framework for Clean Development Mechanism (CDM) Baseline Methodologies, Report No. 6 (Revised), April 2005 Flared Gas Utilization Strategy: Opportunities for Small-Scale Uses of Gas, Report No. 5, May Workbook for Small-Scale Utilization of Associated Gas Gas Flaring and Venting: A Regulatory Framework and Incentives for Gas Utilization, Public Policy Journal Note No World Bank, Washington, D.C. October 2004 A Voluntary Standard for Global Gas Flaring and Venting Reduction, Report No. 4, May 2004 Regulation of Associated Gas Flaring and Venting: A Global Overview and Lessons from International Experience, Report No. 3, April 2004 Kyoto Mechanisms for Flaring Reduction, Report No. 2, January 2003 Report on Consultations with Stakeholders; Report No. 1, October

15 Annex 1 GGFR Partners around the World Countries Donors Oil companies Organizations Algeria Angola Azerbaijan Cameroon Chad Ecuador Equatorial Guinea Gabon Indonesia Iraq Kazakhstan Khanty-Mansijsysk (Russian Federation) Mexico Nigeria Qatar United Arab Emirates (UAE) Uzbekistan Canada European Union France Norway United States World Bank Group BP Chevron ConocoPhillips Eni ExxonMobil Marathon Oil Maersk Oil & Gas NNPC Pemex PetroEcuador Pertamina Shell Sonatrach Sonangol SOCAR SNH StatoilHydro TOTAL Qatar Petroleum European Union IFC Masdar Initiative OPEC Secretariat World Bank 15