Billion Cubic Meters Uitlization Rate UK Flaring Policy The UK s policy in the upstream oil and gas sectors is to maximize economic benefit to the UK, while taking into account the environmental impact of hydrocarbon development and the need to ensure secure, diverse and sustainable supplies of energy for the UK market. The objectives of the policy are to ensure: Recovery of all economic hydrocarbon reserves; Adequate and competitive provision of pipelines and facilities; Proper account is taken of environmental impacts. In addition, the Department of Trade and Energy (DTI), which is responsible for both policy and regulation of the upstream oil and gas sectors, seeks wherever possible to facilitate communication between operators. This over-arching policy as accompanied by other factors, such as effective flaring regulatory regime, non-discriminatory and transparent access to upstream infrastructure, and liberalized energy markets, enabled the UK to achieve outstanding results in flaring and venting reduction. As illustrated in the figure below, the flaring volumes in the UK Continental Shelf (UKCS), where most of the UK s oil and gas is produced, has been reduced from over 4 bln m 3 in 1980 to about 1.6 bln m 3 in 2005, while the production of associated gas increased almost tenfold. UKCS Associated Gas Production, Flaring, and Utilization Rate 80 Production 98% Flaring 95% 70 Utilization Rate 87% 88% 60 97% 100% 90% 80% 50 70% 40 60% 30 50% 20 10 37% 40% 30% 0 1980 1985 1990 1995 2000 2005 20% 1
Flaring Regulation Regulatory Body Since the 1970s, Gas flaring and venting is regulated by the Licensing and Consents Unit of the DTI. The DTI requires that the flaring and venting occurring during appraisal, commissioning, and production phases of a development should be kept to the minimum that is technically and economically justified. This policy is implemented by a consent regime, introduced under the Energy Act of 1976, throughout all stages of field development, as described in the following. Consent Regime Design Phase For new developments, the operator is required to submit a Field Development Program to the DTI, which covers, inter alia, the issue of flaring and venting. A Consent from the DTI must be received by the Operator before development can proceed. The DTI expects that where, over the life of the field, the value of the produced gas is greater that the cost of bringing it to a market, the operator will make provision for its processing and transportation. In deciding whether the gas should be brought to market, the DTI will consider the overall costs and benefits; these may not reflect the commercial position of individual operators. If it is not economic to bring the gas to market, or use it on-site as a fuel or for re-injection, the operator must explore other utilization options such as conversion to other fuels, or sale to a neighboring development. Only if none of these options is available, will the DTI permit flaring. In this case, the Operator is challenged to minimize it by implementing best practice at an early stage of the design of the facility, and to continue to improve on this during the subsequent operational phase. In addition to Field Development Program, the operator is required to prepare an Environmental Statement for developments where either the level of oil production is expected to exceed 500 tons/day (~3,750 barrels/day), or the level of gas production to exceed 500,000 m 3 /day. All Environmental Statements are subject to stakeholder consultation and must be made available to environmental authorities and to the public at large. In making its decision the DTI will take into account the Environmental Statement itself and any comments from stakeholders. If the DTI considers that a project would have a significant negative environmental impact, Consent might be refused or conditions to mitigate the adverse effect imposed in the field development Consent. Commissioning Phase An application for Commissioning Consent must be made to the DTI at least two months before start of production, This must address a number of aspects of the project, including the main flaring and venting assumptions and the method of calculation of flaring and venting volumes. 2
During the commissioning, the Consent will usually restrict the duration of any flaring and venting to between one and three months, and specify a maximum quantity of gas to be flared and vented based on an auditable program prepared by the operator. During the period of the consent, the operator must submit to the DTI on weekly basis a set of data, including daily rates and cumulative volumes of flaring and venting. Production Phase During production, the DTI controls flaring and venting through annual Consents to flare and Consents to vent. An operator must apply for the flaring and/or venting Consent in Q4 of the preceding year. The Consent includes a forecast of volumes for the following flare and vent categories: Base load flare Flaring from operational or mode changes Emergency shutdown/process trip flare Un-ignited vents (including an estimated annual average composition of vented streams) This forecast is based upon the performance for the current year from January to September. Measuring and Reporting Measuring As of 2005, operators must measure and report flaring and venting volumes on a mass basis. This is a more representative measure of calorific value (and hence energy loss), and is also consistent with other emission reporting such as IPPC 1 and potentially EU ETS 2. Flare reporting guidelines, developed jointly by UKOOA 2 and the DTI, provide a structured approach to flare quantification. It specifies the methodology to be employed for given levels of flaring and venting. For flaring volumes > 15 tons (~17,000 m³) per day, volumes may be estimated through a material balance calculation; for flares > 40 tonnes (~45,000 m³) per day, ultrasonic flow measurement is required. Reporting The operators report the flaring and venting volumes to the DTI in Annual Field Reports. The Reports ensure that operators are carrying out the work as agreed in the Field Development Plan, and highlight any new plans for the coming year. Operators flaring < 40 tons per day only need prepare an abridged data sheet, otherwise a complete pro-forma must be submitted. To measure performance on a consistent basis, the DTI has introduced performance indicators. For flaring and venting, operators must report: Gas Use Efficiency = 1- (vol. of gas flared in 12 months/vol. of gas produced in 12 months) Flare Ratio = volume of gas flared per day/volume of gas produced per day 1 IPPC stands for the Integrated Pollution Prevention and Control Directive issued by the UK Environment Protection Agency 2 UKOOA stands for United Kingdome Offshore Operator Association. 3 EU ETS stands for European Union Emission Trading System 3
Monitoring and Enforcement The DTI monitors compliance of operators with the rules and guidelines governing the oil and gas industry, as well as with individual Field Development Plans, by scrutinizing the Annual Field Reports and conducting on-site inspections. In case of non-compliance or breach of flaring or venting Consents, the DTI does not issue fines but does impose increasingly severe penalties depending on the magnitude of the infringement, up to revoking an operator s license. Third party access (TPA) to upstream oil and gas infrastructure and downstream gas network Availability of, and access to, upstream processing and transport infrastructure is crucial to maximizing economic recovery of hydrocarbon on the UKCS, and in particular for reducing flaring of associated gas. Upstream pipeline and offshore processing facilities are typically built and owned by individual operators, and used initially to process and transport output from their respective fields. As these fields are depleted, spare capacity progressively becomes available for use by third parties on payment of a negotiated tariff. Furthermore, while reviewing a Field Development Plan, the DTI may request the operator to oversize pipelines beyond the immediate needs of the field in order to create the capacity for to tie-in future developments. This policy has contributed to both flaring reduction and the development of marginal fields that do not contain sufficient reserves to justify their own infrastructure. A voluntary industry Offshore Infrastructure Code of Practice, introduced in 1996, established a framework for TPA to ensure that access is easy and fair, with terms offered on a negotiated, non-discriminatory basis. The Code has been reviewed in consultation with industry and a revised version, published by UKOOA 3 in 2004, has been widely sign up to by UKCS operators. Nevertheless, if requested by a potential user of the infrastructure, the DTI has the power to impose specific pipeline sizes, provision of tie-in connections or tariffs. These powers have, however, not so far been exercised. Transparent and non-discriminatory access to the onshore gas transmission and distribution network, which is owned and operated by a number of private companies, is ensured by the UK regulator of electricity and gas markets - OFGEM. Flare Transfer Pilot Trading Scheme (FTPTS) In an attempt to reduce flaring and venting volumes below the levels approved by the DTI, a voluntary FTPTS was introduced in 2000. This joint Industry-Government initiative was instigated by the PILOT taskforce 4 ; it provides a framework for participating operators to 4 PILOT is a joint program involving the Government and the UK oil & gas Industry s operators, contractors, suppliers, and trade unions. The programs is aimed at securing the long-term future of the Industry in the UK and to keep the UK contracting and supplies industry at the leading edge in terms of overall competitiveness. 4
trade flaring volumes mainly any unused volume flaring built into the flaring Consent as a contingency. The scheme has proved to be attractive to operators and effective in terms of flaring reduction. Specifically, in 2005 there were 77 participating sites, an increase from 62 in 2000; operators carried-out 10 intra-company and 5 inter-company trades; sites within the scheme flared 270 tons/day (about 112 million m³/year) less than their collective consent of 2,482 tons/day (about 1,029 million m³/year), a saving of almost 11%. FTPTS Summary WHY: To achieve further reductions in gas flaring and venting; To assist the participating operators in gaining experience in target setting prior to possible, future mandatory legislation; To prepare the industry for possible integration into wider emission trading schemes. WHO: The FTPTS is voluntary, with no financial transactions taking place. It is administered by the DTI and is open to all holders of Consent of greater than 6 months. HOW: Participants are not under any obligation to transfer any flare volumes. They set their own voluntary targets, which are lower than the DTI flaring consent, for each asset entered into the scheme. These targets should be realistic but achievable, but also need to be sufficiently stretching to be credible to stakeholders; Companies may only sell unused flare volumes below their voluntary target level. Where flare transfers take place, voluntary asset target of the participating parties are adjusted, namely it would be increased for the Seller and decreased for the Buyer by the transferred amount; Companies may buy unused flare volumes when they expect to exceed their Consent level, but this must be agreed by the DTI. In this case the Seller s Consent is decreased, and the Buyer s Consent increased, by the transferred amount; The Consents issued by the DTI essentially cap the voluntary transfer scheme. The DTI will not increase the total level of flaring covered by Consents issued to operators. 5