How can more oil and gas investments

Transcription

1 How can more oil and gas investments benefit from the CDM? Presentation to CCOP and PETRAD Workshop 29 th June 2010, Phuket, Thailand

2 The Climate Convention and the Kyoto Protocol UNFCCC into force in 1994, ultimate objective: Stabilise GHG emission at a level that would prevent dangerous human inference with the climate system Ratified by Qatar in April 1996 Interpretation: EU and others: avoid global average temperature rise exceeding 2 O C Kyoto Protocol signed in 1997, in force from 2005, cap: Industrialized countries commit to a 5% reduction in GHG emissions by , 1990 base year Established rules and procedures for the CDM and other emissions trading mechanisms Equality and burden sharing a main issue in KP negotiations: Developed countries responsible for accumulated emissions Should take on commitments to reduce emissions

3 What is the Clean Development Mechanism (CDM)? Business asusual Industrialised Countries Greenhouse Gas Emissions CERs Own ERs Kyoto commitment Developing Countries Emissions CERs Business asusual

4 CDM: shared benefits US$/ton CO 2e Benefits for Importer (in Europe) Benefits for developing countries Price of carbon credits Abatement Costs developing countries Abatement Costs - Europe

5 Baseline scenario and the CDM project HG emissi ion Baseline emissions Emission reductions what would have happened to greenhouse gas emissions in absence of the proposed (CDM) project equals Carbon Credits G Emissions from CDM project Project start Crediting period Additionality test: Step 1: Baseline not prohibited by law Step 2: Investment analysis, and/or Step 3: Barrier analysis Step 4: Common practice

6 The economics of a CDM project C A P E X Salesof carbon credits Regular income (gas sales) opex Net present value (profit) Without CDM With CDM

7 The CDM project cycle PROJECT IDEA NOTE (PIN), National (Russian) process NOTIFICATION OF DNA AND UNFCCC PROJECT DESIGN DOCUMENT (PDD) LOA (DNA) VALIDATION (DOE) CDM REGISTRATION PROCESS REGISTRATION (CDM EB) MONITORING AND REPORTING CER ISSUANCE PROCESS VERIFICATION (DOE) ISSUANCE OF CERs (CDM EB)

8 The Carbon Market $ 100 billion annual turnover Allowance markets IET AAUs $ 211 million EU ETS $ 92 billion New South Wales $ 183 million RGGI (US) $ 246 million Chicago Climate Exchange $ 309 million Governmental purchase of credits and allowances Project based transactions CDM $ 6.5 billon JI $ 294 million VERs $ 397 million

9 Overview of O&G GHG emission sources 1,500+ MMtCO 2e ~ 8% of global GHG emissions 1,000 Wasted energy ~550 ~500 Venting (CH 4 ) Fugitives (CH 4 ) Flaring (CO 2 +CH 4 ) Gas treatment (CO 2 ) Useful energy (CO 2 ) * Estimates calculated by Carbon Limits, based on data from DMSP/GGFR (2006), EPA (1992/1994/2004) / ), M2M (2008) and IEA (2008). Very low level of accuracy due to absence of aggregated, monitored operational data. Carbon Limits AS 9

10 CDM projects in flare reduction and gas leak avoidance Gas flare reduction AM0009 Total Annual CERs Rejected or withdrawn Total active projects Registered with the UNFCCC Of which with issued CERs Under review Under validation Leaks in gas distribution AM0023 Total Annual CERs Registered with the UNFCCC Under validation

11 Scaling up in the O&G sector Gas flaring: (400 million tco2e) SCALING UP AMs rams NMs PoAs Sectoral approaches Methane emissions: (1,200 million tco2e) AMs rams NMs PoAs Sectoral approaches Process venting of CO 2 : (~500 million tco2e?) NMs PoAs Sectoral approaches

12 Barriers to CDM development Poor coverage of CDM methodologies CDM revenues perceived as uncertain Lack of competence and awareness in O&G industry Prejudice against O&G CDM projects among some stakeholders Inadequate communication with UNFCCC institutions GGFR CDM methodology Workgroup established to address this

13 Coverage, uncertainties and gaps in CDM methodologies These uses of recovered gas are covered by one or more of the approved methodologies It is uncertain whether these uses of recovered gas are covered in approved methodologies These uses of recovered gas are not covered by the set of approved flaring methodologies LPG NGL New LNG New CNG New GPP New pipeline Intl gas market(s) Geological formation Gas injection for storage New pipeline New facilities GTL (e.g. LNG) Gas re injection for EOR and storage Grid power Feedstock CPF Recovered gas Local gas market Industrial fuel Oil well On site use Oil reservoir Gas lift gas Existing end user(s) New end user(s) Grid power GTL (e.g. LNG) GPP Grid power Feedstock GPP Industrial fuel Feedstock GTL (e.g. LNG) Industrial fuel

14 CCS and the CDM Need to distinguish between: CCS from petroleum upstream CO2 for storage only may become CDM eligible, abatement costs make them good candidate projects CO2 for EOR more difficult to obtain approval for methodology CCS in the power sector High abatement cost means they will be insignificant in the CDM (short and medium term) Why are they not CDM eligible? 2005: CDM EB referred dthe case to COP 11, has stayed at the political l level lever since Two issues: Technical: permanence : liability and monitoring will flood the carbon market with CERs (When) will it be resolved? When will they be resolved?

15 Global GHG Emission Abatement Cost Curve

16 Do gas flare reduction projects represent low hanging fruits? No! IRRs are highly project specific any many projects are challenging to implement.. Carbon Limits AS has studied 27 gas flare investment cases covering more than 5% of global gas flaring General observations from study: Flare projects: limited homogeneity as a project category No direct relationship between project returns (IRR) and project size No direct relationship between project returns and geographical location Many projects have very modest other revenues than CERs and CAPEX are often high 16 May 26, 2010 Carbon Limits AS

17 Gas flare projects Impact of CDM revenues (Project IRR calculated with and without CER revenues) CER potential/yr (net GHG reduction) Typical O&G IRR benchmark level Project IRR

18 Hydro projects Impact of CDM revenues (Project IRR calculated with and without CER revenues) CER potential/yr (net GHG reduction) Typical IRR benchmark level Project IRR

19 Gas flare projects Impact of CDM revenues (Project IRR calculated with and without CER revenues) CER potential/yr (net GHG reduction) Typical O&G IRR benchmark level Project IRR

20 Wind projects Impact of CDM revenues (Project IRR calculated with and without CER revenues) CER potential/yr (net GHG reduction) Typical IRR benchmark level Project IRR

21 How do flare projects compare to other project categories? Flare reduction projects are excellent CDM candidates as CDM can make a difference.. Average increase in IRR when including CDM revenues: % + 3.3% + 2.3% (from 3.7% to 31.8%) (Assessment of 27 investment cases) (from 8.0% to 11.3%) (Assessment of 21 registered PDDs) (from 8.4% to 10.7%) (Assessment of 11 registered PDDs) 21 May 26, 2010 Carbon Limits AS

22 BACK UP

23 .. issuance of CERs is based on actual project performance measured, reported and verified after implementation.. Periodic CDM Reporting Installation, calibration, monitoring, storage and reporting requirements specified in the monitoring plan (MP) of the registered PDD must be closely followed Installation and calibration CDM monitoring training Design reporting template based on operational practices on site Monitoring and reporting Periodic reporting from operator Establish procedures for frequent quality assurance and control of reported monitoring data Quality Control and Assurance Quickly resolve operational problems and deviations with respect to the MP, and submit a request for deviation to the EB if alternative practices are used Data Storage 23 March 02, 2010 Carbon Limits AS

24 General management structure for the CDM monitoring Gas Flow Measurements (x 6): Analysis of Gas Samples (x 4): Monitoring of project performance, instrument QA/QC Gas flows per day (m 3 /day) Operational Disturbances (daily variations) Carbon Content (kgc/m 3 and tc/kg) Gas density (kg/m 3 ) Operational Disturbances (weekly variations) Check of data completeness Technical Director IOOC Submission of all primary data collected for the CDM project Completion of Excel template QA and development of monthy CDM report IOOC Project Management Department Reporting by the 15th of each subsequent month QC, calculations, drafting of Monitoring Reports, interaction with the UN Carbon Limits AS 24 March 02, 2010 Carbon Limits AS

25 Carbon prices, Source: ECX, BlueNext, IDEAcarbon, and World Bank