Developing the complete PDD: Using Ob/Ob project as a case study

Transcription

1 Developing the complete PDD: Using Ob/Ob project as a case study Craig Ebert Executive Vice President ICF Consulting 3rd Stakeholders Workshop Lagos, Nigeria 4 May 2006

2 Contents Project description Assessment of additionality Baseline methodology Defining Project Boundaries Calculation of emission reductions Addressing Nigerian policies/regulations

3 Do Not Hesitate To Raise Your Questions/Issues Ob/Ob being used only to illustrate issues important to flareout projects in Nigeria If you have any questions or issues that are not being raised, share them with the rest of us! Ultimate objective is to improve prospects for all projects that reduce gas flaring

4 Project description: Ob/Ob project in Nigeria Purpose of the project: gas flare reduction and use of associated gas (AG) for: Re-injection into oil reservoir for enhanced oil recovery (EOR), replacing use of water for EOR Some AG used for internal consumption Location: Obiafu/Obrikom (OB/OB) oil field North West of Port Harcourt, in Rivers State in Nigeria. Project proponents: NAOC (ENI) 20%, NNPC/NAPIMS 60%, PONL 20%

5 Ob/Ob project in Nigeria Project involves: installation of new turbo compressor, increasing capacity of reinjection facility to 350 MMscfd from previous 270 MMscfd. Re-injection began in 1984 Emission reductions are achieved by gas flare reduction and utilization Estimated CERs: 2.46 million tonnes CO2e/year Project start date: 2003 Status: PDD under development

6 Assessment of Additionality Additionality. Emission reductions have to be additional to what would have happened in the absence of the project. For example, in a flare reduction project, without the existence of the project, the business as usual situation would be continuation of flaring. Ob/Ob: additionality approach based on Rang Dong in Vietnam methodology (AM0009) was applied

7 Additionality Ob/Ob Additionality is addressed by determining the most likely course of action, taking into account economic attractiveness and barriers. Gas at oil fields could be treated in following ways: Option 1: Release to the atmosphere at the oil production site (venting) Option 2: Flaring at the oil production site Option 3: On-site consumption Option 4: Injection into the oil reservoir Option 5: Recovery, transportation, processing and distribution to end-users (domestic or export) Project participants should assess and compare the economic attractiveness and legal/market aspects of these options. CE1

8 Slide 7 CE1 What was used at Rang Dong to demonstrate additionality? This looks like a good list but generic. Craig Ebert, 19/01/2006

9 Additionality - Alternatives Option 1: Release to the atmosphere at the oil production site (venting) - Prohibited by law; not possible and not safe Option 2: Flaring at the oil production site Common practice; most economically attractive course of action; it presents lower capital risk than other options; penalties are unsubstantial Option 3: On-site consumption No additional power requirement needs at site system is optimized for current power demand. Option 4: Injection into the oil reservoir Desirable option; it makes rational use of the recovered gas and enhances oil production. In the absence of the CER credits, this option would be unattractive. There is currently no law that requires recovery and re-injection of AG. Therefore, the project is beyond policy requirements Option 5: Recovery, transportation, processing and distribution to endusers (domestic or export) Little demand near the project, commercially unfeasible to collect/ sell amount of AG involved in project

10 Additionality: Enforcement of applicable laws and regulations Laws to regulate volumes of associated gas sent for flaring in Nigeria have largely been unsuccessful because of the inherently financially riskier alternatives associated with utilisation of associated gas, relative to flaring and the payment of penalties. The recent Nigerian Federal High Court that ruled against the burning of natural gas by oil firms in the Niger Delta cannot be considered to be effectively binding. Oil companies in Nigeria flare 40% of total associated gas they produce (World Bank, GGFR, 2005). There is currently no law that requires recovery and re-injection of AG. Therefore, the Ob/Ob project is beyond policy requirements

11 Project start date Ob/Ob started operations in 2003; re-injection began 1984: challenge to demonstrate additionality Early started projects: it is crucial to provide sound evidence that CDM has played a role in the decision to actually start the project (e.g. business plan, CERs in cash flow analysis) Additionality Ob/Ob: the project was part of Zero gas flaring program of ENI CDM projects could claim credits retroactively for emission reductions that were generated before registration of the project under the CDM. Applies to Projects that started between 1 January 2000 and 18 November 2004 (the date of the first registration of a CDM project) Projects need to be submitted for validation by 31/12/05 and registered with CDM EB by 31/12/06 to claim credits retroactively Otherwise, they can just claim credits from the moment they are registered (and lose chance for any previous credits)

12 Baseline approach Baseline methodology identify alternatives; baseline is most conservative of remaining alternatives (after project has been successfully excluded) From Article 48b of the Marrakech agreement Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment. It applies to the Ob/Ob project as significant investments are involved that would only generate unacceptable financial returns without CER revenue.

13 Baseline Methodology Ob/Ob Baseline: the scenario that reasonably represents greenhouse gases (GHG) emission sources that would occur in the absence of the proposed project activity. Ob/Ob in Nigeria - baseline: continuation of flaring of associated gas. But you need to demonstrate why the baseline option has been selected, not assert it Baseline requires selection of approach and methodology Options are: Use an approved baseline methodology (AM) if there is one fully applicable to project Develop a new methodology (NMB)

14 Baseline Methodology Ob/Ob NM for Ob-Ob: Re-injection of associated gas (AG) from oil wells that would otherwise be flared Based on Rang Dong Vietnam approved methodology (AM0009). Also incorporates aspects of NMB0167 and NMB0168 (White Tiger Oil Field Carbon Capture and Storage (CCS) project in Vietnam and Capture of CO2 from Liquefied Natural Gas (LNG) complex and its geological storage in aquifer in Malaysia) How applicable is it to project activities involving the re-injection of associated gas at oil wells that would otherwise be flared? The methodology can only be used if the business as usual scenario (total/partial flaring of associated gas) is the only plausible baseline scenario, e.g., >50% of the AG Demonstrating Additionality. Because without carbon credits re-injection of the gas into oil reservoir is not economically attractive, the baseline scenario is flaring the gas The methodology provides the formulae to calculate the baseline and project emission reductions

15 Applicability conditions The Ob/Ob methodology is applicable under the following conditions: Energy required for transport and processing of the recovered gas is generated by using the recovered AG; In the absence of the project activity, the AG is mainly flared; Current/historical data (quantity/fraction of carbon) is accessible for AG, regarding release to atmosphere at site (venting); flaring at the oil production site; on-site consumption; and recovery, transportation, processing and distribution to end-users; The AG is transported to the injection site via pipeline systems; The project meets the conditions in regards to the integrity of the storage (geological) formation: The reservoir must be geologically sound maintain injected AG; geological site report has been prepared and sufficient data has been collected, etc

16 Project Boundaries Project boundary: encompass all GHG emissions at the Eni site: under the control of the project participants; that are significant, and reasonably attributable to the CDM project activity The project boundary reflects: The physical/geographical location of the project activities, and The sources and gases included in the project calculations. Ob/Ob project boundary: physical, geographical site where the associated gas is generated and reinjected

17 Ob/Ob Project Boundaries CO 2 CO 2 CH 4 CO 2 On-site consumption Flaring Venting Off-site consumption B A C Project oil wells Reinjection

18 Baseline: Project boundaries - Emission from Gas flaring Baseline Most of the flared gas will be combusted into CO 2. Potential CH 4 emissions not considered Assume combustion flare is 100% efficient. Conservative assumption, since usually not all gas is combusted efficiently and there is some CH 4 involved, which is not accounted for as CH 4 but as CO 2

19 Project Project boundaries - Project Energy use for AG capture and re-injection CO 2 - Fuel used for transporting and processing the associated gas CH 4 Minor leakage amounts From the reservoir CO 2 is stored along with AG and may consequently escape from the reservoir (is CO 2 present in AG?) CH 4 escape from the reservoir Leaks from Compression, transportation and injection CH 4 - It should be small but to be conservative it will be accounted for

20 Calculation of Emission Reductions Emissions GHG Emission level without project -Baseline Emission level with project Project commencement Emission Reductions = Carbon Credits Time

21 Calculation - Emission Reductions Emission Reductions = ΣBaselineEmissions ΣProjectEmissions ΣLeakages Baseline Emissions: flaring at oil production site Project Emissions: include emissions from: venting, flaring, on-site consumption, recovery, transportation, processing and distribution to end-users, in project scenario; the energy consumption due to the reinjection process; transportation and re-injection of AG, and any escape from the pipeline, the injection well and the reservoir Leakages: all possible leaks from the process due to downstream use of the AG as LNG, power production, and/or domestic use.

22 Baseline Emissions Baseline emissions are calculated as follows: BE y = V AG,y * ρ c,y * W carbon y * 44/12 Where: BE y Baseline emissions during year y in tonnes of CO 2 equivalent V AG,y Volume of associated gas from oil field during year y in m 3 ρ c,y Associated gas combusted ratio in baseline W carbon y Average carbon content of AG from oil field during year y in tonnes C/m 3

23 Project Emissions The project emissions in year y are expressed as: PE y = PE CO2,other fuels,y +PE CO2,elec,y + PE CH4,fugitive,y + PE CH4,pipeline, accident + PE reservoir For Ob/Ob project, emission reductions estimated to be 2.46 million tons annually

24 Addressing Nigerian policies/regulations Important to assess the host country s policies and regulations to: Assess that the project is beyond regulatory requirement (additionality) Assess if the project complies with the sustainability criteria of the country Nigeria is one of the top countries in volume of gas flared worldwide (oil companies in Nigeria flare almost 40% of the total associated gas they produce) Government of Nigeria - making efforts to discourage gas flaring - Call to phase out gas flaring by the end of 2008 Government promotes CDM as an incentive to achieve Flare-Out goals

25 Nigerian policies/regulations Nigeria has introduced various laws designed to regulate the volumes of associated gas sent for flaring; Petroleum Amendment Decree: Associated Gas Re-injection Decree Associated Gas Re-injection Amendment Decree Associated Gas Framework Agreement (AGFA) However these have been unsuccessful and laws not fully enforced Penalties for flaring are insignificant (oil companies continue to flare less financial risk than other options) Recent Nigerian Federal High Court that ruled on the flaring of gas by oil firms in the Niger Delta cannot be considered to be effectively binding There is currently no regulation in Nigeria that obliges companies to re-inject the AG into oil reservoir - Ob/Ob project is beyond regulatory requirements (additionality)

26 Nigerian policies/regulations Sustainable Development in Nigeria CDM projects must comply with sustainable development objectives of Nigeria Criteria and indicators for sustainable development - articulated in the National Economic Empowerment and Development Strategy (NEEDS) document Presidential Implementation Committee on Clean Development Mechanism (PIC CDM) national structure in place (Designated National Authority) PIC CDM grants Letter of Approval for CDM process - determines if project complies with sustainable development criteria of Nigeria

27 Sustainable development The Ob/Ob project contributes to sustainable development in Nigeria Gas stored for potential future use The elimination of flaring and the re-injection of the gas result in reduced atmospheric pollution. AG better alternative than water for EOR, increasing overall productivity of Nigerian oil resources, thereby enhancing the economic development of Nigeria. Nigeria: economy heavily dependent on oil sector, which accounts for some 90 percent of export revenues and approx. 40 percent of its gross domestic product (GDP)

28 Methodology -aims The methodology aims to: be transparent and conservative by referring to real, verifiable data to be monitored during the process; use default data from internationally recognized institutions like the Intergovernmental Panel on Climate Change; apply the guidance from the EB and other Approved Methodologies on the issue of Additionality.

29 Strengths Potential strengths of proposed new methodology: The use of monitoring data during the operation of the project will ensure high accuracy of the monitored variables and relating emission calculations; Data needs are reasonably low and manageable; Only a few assumptions are required. These will be approached in a conservative manner; The methodology uses the Tool for the demonstration and assessment of additionality ; It uses a large part of the approach from AM0009.

30 Weaknesses Potential weaknesses of new methodology: The project activities depend on the participants being able to accurately measure gas output and to know the carbon content of that gas through regular monitoring. Uncertainties similar to those in CO 2 CCS (AG storage permanence, leakages, migration, etc) Plus need to address any unique factors stemming from storage of CH 4 rather than CO 2 At active production site compared to perpetual storage

31 Additionality Ob/Ob - Challenges Nigerian regulations Potential enforcement of AG flare reduction laws that could affect additionality High court ruling against flaring Project implemented in 2003 demonstrate that carbon credits were considered in the decision to undertake project Uses of AG: not only re-injection but also other uses (LNG, on site consumption) difficulty of demonstrating project case against other options of AG use. Difficulty to obtain financial data of project activity and alternatives - to demonstrate that other options are more financially attractive CE2

32 Slide 30 CE2 What was used at Rang Dong to demonstrate additionality? This looks like a good list but generic. Craig Ebert, 19/01/2006

33 Key Discussion Questions How do we persuasively define a baseline in Nigeria, specifically the flaring of associated gas? What are the key arguments for proving project additionality, e.g., gas re-injection? What is the best way to define appropriate project boundaries? Other questions? Ob/Ob is used to highlight key issues; do your company s projects highlight other issues?