Developing CDM Flaring Reduction Projects The case of Tres Hermanos

Transcription

1 Developing CDM Flaring Reduction Projects The case of Tres Hermanos Raul Hurtado 11-12th February 2010

2 Agenda Introduction to Statoil and our collaboration with PEMEX Definitions: Kyoto Protocol and flexible mechanisms (CDM/MDL, Carbon credits..) How MDL works?: project cycle, additionality principles, benefits MDL Case Study: Tres Hermanos gas flaring reduction in Región Norte (PEP)

3 This is Statoil An international integrated energy company based in Norway. Norwegian government is the biggest shareholder (67%). The world s #1 Deepwater Operator (Aguas Profundas) and the world s #3 largest net seller of crude oil Equity production of 1.9 million barrels of oil equivalent per day and more than 6 billion boe in proven reserves About 29,500 employees in 40 countries

4 Why is Statoil engaged in the Kyoto mechanisms? Statoil operates ensuring sustainable development and reducing environmental impact Statoil supports the Kyoto protocol and its flexible mechanisms Introduction of CO2 tax in 1991 gave incentives for remedial actions and technology development The company is the best of the sector in CO2 4 reduction and energy efficiency in our own 2 operations. Developed a Patented Zero-flaring technology. Market leader on CCS (carbon Capture and a lot has been achieved kgco2/boe kg CO2/BOE 2,4 Kvitebjørn (Statoil 2004) 5,9 5,9 NCS average (OLF 2003) NCS= Norwegian Continental shelf 17,0 World (OGP 2003)

5 The UNFCCC and Kyoto Protocol UN Framework Convention on Climate Change (UNFCCC). Earth Submit in 1992 framework for intergovernmental efforts to tackle climate change problems. Universal membership: 192 countries having ratified. Entered into force on 21 March Kyoto Protocol Annex I countries (37 industrialized + EU) commit with obligations to reduce GHG (GEI) emissions by an average of 5,2 % below 1990 level, by 2012 Non-Annex I (Mexico) without commitments Kyoto period

6 Kyoto flexible mechanisms Via the Clean Development Mechanism (CDM) / Mecanismo de Desarrollo Limpio (MDL), Annex I countries can meet their commitments by buying CO 2 credits from projects in developing countries, for example Mexico To assist developing countries to support sustainable development To assist industrialized countries to fulfill their emissions limitation and reduction commitments cost efficiently

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8 How does CDM work? A project that is registered as a CDM will be issued transferable and certified emission reductions (CERs) by the United Nations JI CDM Real emission reductions (additional) CERs $ Cap Real GHG emissions CER Real GHG emissions Norway Mexico

9 Baseline scenario and Additionality emission tco2 Baseline emissions CDM Project implementation Emission reduction CDM project emission Emission reductions have to be ADDITIONAL to any that would occur without the CDM project CDM must be the reason to implement the project. Carbon credits are not an extra income for free. CDM must overcome barriers (financial, budget, technology, Year etc)

10 Projects that are viable and profitable on their own are business as usual, and they are not CDM Additional projects are made viable and profitable thanks to CDM Viable & Profitable projects Projects with barriers Additionality Assumes CDM process or the value of CERs will make a project viable and profitable Barrier or Decision threshold (IRR=x%) CDM process & CER revenues and will turn unfeasible cleaner projects into feasible ones

11 Collaboration PEMEX-STATOIL Case Study: TRES HERMANOS

12 CDM Cooperation PEMEX- STATOIL Established long term cooperation. MoU in 2002 (E&P, Refining and Gas&Petrochemicals). LoI signed with PEP in Screening, identification, Project development (PDD), Validation, Registration (UN approval) and implementation 2 signed Commercial agreement to purchase CER s (ERPA) 4 projects in the pipeline, at different stages: 1 flaring reduction (Tres Hermanos, PEP) 1 energy efficiency (Ciudad Pemex, PGPB) 2 flaring reduction (Caldereyta and Salina Cruz, Refining) Further projects candidates under consideration in PEP and Pemex Petrochemicals Statoil is the only O&G collaborating with Pemex in CDM Statoil New Energy has relationships with the 4 divisions in Pemex

13 TRES HERMANOS Gas Flaring Reduction (PEP) First CDM project in PEMEX First Commercial Agreement for selling CO2 in PEMEX ERPA (Emission Reduction Purchase Agreement) between PEMEX and STATOIL signed in Feb Emissions reductions expected= 826,450 ton/co2 (10 year period)

14 TRES HERMANOS Time line First PDD development finished on mid 2007 (MGM international) First Validation process mid Aug (DNV) New version of methodology in Aug (UN), excluding gas-lift system. Validation process stopped September April 2009: preparation of a Request for Revision of the methodology AM0009 (February 2009) Second Validation process started in June 2009 Final Validation approval received on Monday 7th December First validated CDM project in PEMEX Expected final registration in UN by July First CDM project registered in PEMEX? Expected Construction time: 1-1,5 years. Expected start-up end 2011 Tres Hermanos is very visible inside PEMEX, and at the agenda of top management in PEMEX, STATOIL and Mexican government

15 Additionality of MDL Tres Hermanos Financial (budget) barriers will be broken thanks to the MDL: - Tres Hermanos was first included in the Portafolio de Inversión in Because Budget restrictions ( presupuesto limitado ) from Hacienda, and internal prioritization (ranking) in PEP, the project never received internal support and economical funding. The project is not a priority for the normal business operations - Since 2007, Tres Hermanos is included in the Portafolio as a MDL, as a result of the agreement and commitment with Statoil. - Pemex is compromised to allocate funding, if the project is finally registered as a MDL in UN The budget barrier will be broken thanks to the MDL - The income from the carbon credits goes to the region/facility (AIPRA)

16 Why Tres Hermanos is important? Economic Benefits: - The income from selling the carbon credits enters into the project cash-flow, improving its economony (but must be additional!!) - The income from the carbon credits goes to the region/facility (AIPRA) Environmental and social benefit for the communities Health, Safety and Environmental internal policies in PEMEX Public opinion and PEMEX Corporate benefit Mexico Climate Change Policy and Negotiations

17 CHALLENGES: TRES HERMANOS Lessons Learned High bureaucracy bottlenecks and slows the process. Change in UN methodologies Uncertainties Demonstrate the additionality: before starting the MDL project, not after!! POSITIVE LEARNINGS: Importance of screening phase: quantity and quality of information Internal planning system in PEMEX to understand the budget barriers. Demonstrate ADDITIONALITY Internal documents, Minutes of Minutes, etc. Good collaboration and transparency between PEMEX-STATOIL (sharing of information) Common industry peers Technical understanding of the problem Transfer of know-how and technology

18 Project types - Energy Energy efficiency in Industry, Refineries, Gas processing complex, petrochemicals Gas flaring reduction Gas leakage reduction Fuel switching Many other projects Renewable energy (wind, geothermal, solar ) Industrial gases, Agriculture, Land Use, Land Use Change and Forestry

19 New MDL Projects in PEMEX? Projects that reduce CO2 emissions and are ADDITIONAL The project would only happen if it is considered as a MDL (breaking a financial barrier, a budget barrier or a technological barrier, etc ). If the project is planned to be implemented anyway, it is not a MDL!!! ( no carbon credits for free ) The project has been included in the Portfolio (Cartera de Inversión), but never received budget. The reason is that the limited budget is used in more profitable projects (unidad de inversión), that don t reduce CO2 emissions (oil & gas production, drilling, refinery processes, etc..) The project has never been included in the portfolio (Cartera Inversión) because it doesn t have the minimum IRR=12%

20 Questions? Thank you for your attention!! Status of CDM collaboration with Pemex Raul Hurtado Project Manager TNE NE CO2 KYO tel:

21 Back- up slides

22 How does Statoil operate under the Kyoto scheme Early involvement is key for value creation: joint screening with partner to identify CDM project opportunities Joint concept development and technology selection Statoil provides resources, and carry all costs, related to the UNFCCC approval of the CDM project including development of the Project Design Document ( PDD ) Project-owner develops, implements and operates the facility CER purchase agreement between Statoil and partner which reflects both parties value adding contribution

23 Our Value Model We add value by bringing technological expertise and experience We add value by being financially secure organization with a strong credit rating.

24 CDM technology toolkit Flare gas recovery and utilisation / zero flare technology Energy efficiency combined heat and power (CHP) and combined cycle Renewable Energy (Offshore wind, geothermal) Gas leakage mitigation vapour gas recovery Fuel switch (coal or oil to gas) Many other projects Industrial gases, Agriculture, Land Use, Land Use Change and Forestry

25 Statoil s CCS projects An industrial approach to climate change 2,5 2,5 Mongstad (CO 2 injection capacity MT/yr) Halten CO 2 0,7 1,2 In Salah Snøhvit LNG 1 Sleipner /

26 Sleipner CO 2 capture and storage since 1996 Platform Aquifer Gas reservoir 4-9 mol% CO 2 in natural gas Sales specification: 2.5 mol% 1 million tons CO 2 annually

27 The Buyers and Sellers Private companies Funds CDM Aggregators/Traders Industry for compliance Private investment funds Prototype Carbon Fund (WB) Several other Multi Donor Bank managed funds Governmental programs Netherlands, Japan, Denmark, Sweden, Norway, Companies and operations Companies that develop the projects themselves Companies that work together with a partner/consultant to develop the project We are a partner for INT s partners

28 Emissions trading historic prices EUR t/co2e 35,00 33,00 31,00 29,00 27,00 25,00 23,00 21,00 19,00 17,00 15,00 13,00 11,00 9,00 7,00 5,00 EUA10 and scer10 historic prices EUA10 scer10 EPA - EUA

29 Greenhouse gases and their warming potential Carbon dioxide, CO 2 : GWP 1 Methane, CH 4 : GWP 23 Nitrous oxide, N 2 O: GWP 296 Perfluorocarbons, PFCs - CF 4 : GWP Hydrofluorocarbons, HFCs - HFC: GWP Sulphur hexafluoride, SF 6 : GWP Even though we talk about CO2 projects targeting other GHG may be more efficient and more rewarding