5_june_09

Climate change issues inOil & Gas SectorA sectoral discussion on Environmental issues, GHG emissions, GHG abatement opportunities, Role of CDM

Climate Change issues in Oil & Gas Sector

Contents

► Environmental issues for the Indian Oil & Gas Sector

► GHG Emissions from various industries & sectors

► Climate Change – Enhanced Greenhouse Effect

► Flexibility Mechanisms under The Kyoto Protocol & CDM

► Potential GHG abatement projects, CDM methodologies and

UNFCCC registrations

► Carbon transactions

► Way forward - Carbon footprint


Environmental issues for the Indian Oil & Gas Sector

► The Oil & Gas Sector has a variety of impacts on the

environment. These impacts depends upon the stage of the

process, the size and complexity of the project, the nature and

sensitivity of the surrounding environment and the

effectiveness of planning, pollution prevention, mitigation and

control techniques.

► The major areas of environmental concern includes :

1. Atmospheric Impacts

2. Aquatic Impacts

3. Terrestrial Impacts

4. Ecosystem Impacts

5. Potential Emergencies


Environmental Impact

Atmospheric issues are attracting increasing interest from both industry and government authorities worldwide. The potential impacts mainly arises due to exploration & production, refining operations etc. The primary sources of atmospheric emissions from oil and gas operations arise from:

►Flaring, venting and purging gases

►Combustion processes in diesel engines and gas turbines

►Fugitive gases from loading operations and tank and losses from process equipments

►Airborne particulates from soil disturbance during construction

►Particulates from other burning sources

The main areas of impact are ozone depletion, GHG emissions leading to increased global warming, NOx and SOx emissions, SPM emissions etc.

The principal aqueous waste streams resulting from exploration and production operation are:►Produced water►Drilling fluids, cuttings and well treatment chemicals►Process wash and domestic wastes►Cooling water►Spills and leakage

The major impact of the waste streams arise from the toxicity, high pH and salt content of chemicals

used as drilling fluids which may result in pollution of ground and surface waters. Impacts may result

particularly where ground and surface waters are utilized for household purposes or fisheries and

especially ecologically sensitive areas are affected.

Potential Environmental Impacts A

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Environmental Impact

Potential impacts to soil arise from two basic sources:

►Physical disturbance as a result of construction

►Contamination resulting from spillage and leakage or solid waste disposal

The potential impacts arising from the poor design and construction includes soil erosion due to soil

structure, changes in surface hydrology and drainage patterns, increased salination and habitat

damage, reducing the capacity of the environment to support vegetation and wildlife etc.

Plant and animal communities may be directly affected by changes in their environment through

variations in water, air and soil quality and through disturbance by noise. Such changes may directly

affect the ecology: for example, habitat, food and nutrient supplies, breeding areas, migration routes

etc. The effect is upsetting of the nutrient balances and microbial activity of the soil.

The major environmental impact occurs in this case due to►Spillage of fuels, gases, oil, chemicals and hazardous materials►Oil or gas well blowout►Explosions►Fires►War & Sabotage►Natural disaster and their implication on operation e.g. flood, earthquake, cyclone.The major impact of these emergency events include large GHG emissions, ozone depletion, changes in soil structure and character, habitat and vegetative damage.

Potential Environmental Impacts Terr

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Initiatives towards reducing atmospheric impacts

► Among all the different environmental impacts, the major focus lies on Atmospheric Impact caused by Oil & Gas Industry.

► One of the major sources of Atmospheric Impact caused by Oil and Gas Industry is the flaring and venting of gases. So the principle target for emission reduction is in this domain.

► Various technological initiative have been introduced to reduce emissions as a result of combustion process related to power production. More efficient gas turbines have been developed together with improved turbine maintenance regimes. Efficiency improvements may also result from gas turbine optimization considerations. Other technologies to improve fuel efficiency include: steam injection, combined cycle power generation, pump and compressor optimization, waste heat recovery and the application of energy conservation principles.

► Improvements in the technologies have resulted in reduced emission from the different sources. The reduction of GHG emissions directly leads to reduction of global warming. These process improvement/energy efficiency measures causing emission reduction can be directly accounted for and thus can be considered as CDM projects.


GHG Emissions from various industries & sectors

GHG Emissions from various industries

Iron & Steel

15%

Others

44%

Cement

18%

Petroleum,

Petrochemic

als &

Chemicals

23%

GHG Emissions associated with Industry

Direct Fossil Fuel

Consumption49%

CO2 and non

CO2

Emissions from

industrial processes

16%

Indirect CO2

Emissions from

electricity & heat

consumption 35%

GHG emissions associated with industry (including energy utilization) represent about 21% of world GHG emissions.

The Oil & Gas and Chemical industries are among the major emitters of GHGs.

Source: CAIT, IEA, 2004a, Hendriks


Climate Change – Enhanced Greenhouse Effect

► Human activities like deforestation or heavy fossil fuel use are increasing the concentration of Greenhouse Gases (‘GHGs’) in the atmosphere.

► GHGs trap heat energy in the Earth's lower atmosphere, like a thick blanket round the planet.

► This enhances the green house effect, resulting in commonly known “Climate Change” or “Global Warming”

► Climate Change leads to:► Rise in average global temperature (expected to go up by 1-4 Celsius in

next 100 years)► Changes in vegetation► Increased storm surges► Sea level rise (parts of Maldives & Bangladesh might submerge in next 50

yrs) ► Risks which will affect the profitability of the Oil & Gas industries


Glimpse of Climate change Risks

Climate Change

Risks for Oil & Gas

Sector

Business Risks►Extreme weather conditions resulting in increased energy cost, higher contingency

requirement resulting in erosion of profit margins

Physical Risks►Global warming poses threat of sea level rise, hurricanes/ other natural calamities for

especially those situated in the coastal regions. ►Coastal E&P facilities, Refineries can face huge damage due to cyclones and

hurricanes

Competitiveness Risks►Effect on Gross Refining Margin. As energy costs increase, Oil industries using

conventional and carbon intensive energy sources will see a reduction in the GRM.

Regulatory risks►‘Carbon ’tax’ implementation on states by Central government can affect profitability of

the Oil & Gas sector


Kyoto Protocol and CDM

Kyoto protocol - Establishes three mechanisms to

supplement national actions to achieve real, long term,

measurable and cost effective GHG reductions:

Clean Development Mechanism (‘CDM’)

International Emission Trading (‘IET’)

Joint Implementation (‘JI’)

Legally binding emission reduction targets for GHGs only for Annex-1 (i.e., developed ) countries

Aim of reducing overall GHG emissions by at least 5.2% below 1990 levels in 2008-2012 commitment period

Developed Country

Govt/ Pvt. Sector

Developing Country GHG Abatement

Project

Carbon

Credits

Sale proceed

s

Carbon credits are measured in terms of Certified Emission Reduction (‘CER’) One CER equals 1 MT CO2 equivalent


ProjectIdentification

CDM Documentation*

Validation by DOE

Registrationwith UNFCCC

ERPA

Generation ofCarbon credits

Project operation

ProjectConstruction

Verification/Certification by DOE

UNFCCC / EBIssues CERs

CDM PROJECT PROMOTER

BUYER OF CER

Endorsement by DNA

CER

CDM Process : Availing Carbon Credits

*PIN: Project Identification Note*PDD: Project Design DocumentERPA: Emission Reduction Purchase AgreementDOE: Designated Operational EntityDNA: Designated National Authority

1 ProjectImplementation 2 Kyoto Approvals 3 CER Transaction


Potential GHG abatement Projects in Upstream

Oil & Gas Sector


Potential GHG abatement projects in Upstream Oil & Gas Sector

1. Installation of Gas Recovery Facilities to prevent emission of methane/CO2 to the atmosphere

► Installation of compressors to recover low pressure (LP) gas and compress the same for further distribution

► Installation of ejector systems which uses the motive force to suck LP gases which were previously flared

► Installation of separators to separate gas at various pressures and recover very low pressure gas that was previously flared

► Up-gradation of process gas compressors (PGC)

► Optimal utilization of gas for internal consumption in gas lift wells/ gas re-injection

► Laying pipelines from gas rich areas to areas where there is scarcity of gas but greater demand (by identifying potential consumers).

2. Common Grid of Power at Offshore► A common grid of power is setup by achieving interconnectivity across various process and

well platforms.

► This interconnectivity can be achieved by laying submarine cables and transferring surplus power (NG based) to the shore for sale.

► The project replaces more carbon intensive power source (DG based) to relatively cleaner (NG based) power.


Potential GHG abatement projects in Upstream Oil & Gas Sector...(contd)

3. Recovering Vapors from Storage Tanks► Recovery and utilization of vapors, previously being vented

out from oil storage tanks, using ejector system.

4. Carbon Capture & Storage (CCS)► Capture of CO2 from large stationary sources, transportation

of the gas to an appropriate injection site where it is pumped and stored into underground geological formations such as natural gas and oil fields.

► Storage may also be combined with Enhanced Oil Recovery (EOR) or Enhanced Gas Recovery (EGR)

► This also results in energy consumption reduction of oil and gas recovery from the wells.


Other Potential GHG abatement projects in Upstream Oil & Gas Sector► Facilities for reduction of gas flaring through

ejectors/compressors/separators/pipeline etc.

► Waste heat recovery at oil production facilities.

► Energy efficiency improvement in gas processing plant

► Power factor improvement at oil installations

► Reduction in gas pipe leaks

► Fuel switch from fossil fuels to other cleaner fuels like natural gas

► Captive power generation by utilizing natural gas

► Oil tank head vapor recovery system


Potential GHG abatement projects in Downstream Oil & Gas Sector


Potential GHG abatement projects in Downstream Oil & Gas Sector

1. Energy efficiency Improvement measures in the existing system

► Steam generation and distribution system up-gradation-Enhanced heat utilization through installation of centralized flash steam recovery system to recover steam condensate-Flash steam utilization in vapour absorption chiller to produce refrigeration effect-Better steam trap management to reduce heat loss-Improvement in the cogeneration/ self generation efficiency

► Steam optimization by installation of Dry-ejector system instead of steam-jet ejector in VDUIn Dry-ejector system vacuum gas oil is used as motive liquid and circulated in the system. This reduces generation of LP steam which is required as motive fluid in conventional steam-jet ejector. An unique technology.


Potential GHG abatenment projects in Downstream Oil & Gas Sector & Petrochemical Units1. Energy efficiency Improvement in the existing system…contd

► Installation of ‘mist cooling tower’ instead of conventional cooling towerA much lower cooling water temperature can be achieved through ‘mist cooling tower’. This improves heat recovery and reduces cooling water requirement hence lower pumping energy etc. Not a common practice in large-scale hydrocarbon industries.

► Heat integration through the application of state-of-the-art pinch technologyEnergy efficiency improvement through optimization of heat exchanger network in CDU/VDU/pre-heat train of distillation units etc. Optimization of HEN is performed using Pinch Analysis.

► New generation refractory Replacement of conventional refractory with ceramic fibre insulation to reduce heat loss in furnace


Few more potential areas in refinery units where CDM may be applicable

2. Flare recovery system► utilization to cater to heat demand of refinery► utilization in boilers/ Gas Turbine

3. Fuel switch projects► Fuel switching in furnace, heater etc► Fuel switch in the thermal energy generation system/

cogeneration/ self generation equipments► Optimization in H2 recovery from off gases from CRU,

VGO hydro-treater etc

4. Application of Advanced Processes► Use of new generation catalysts which reduces coke

deposition on the catalyst► Application of energy-efficient Solvent De-asphalting

technology instead of energy-intensive Cracking/Coking technology


Few more potential areas in refinery units where CDM may be applicable.... (contd)► Novel bio-catalytic processes with very low energy consumption

► Application of membrane separation technology instead of conventional separation techniques

► H2 generation in the refinery through natural gas reforming instead of naphtha reforming

► Gas-to-Liquid (GTL) technology for production of petroleum fuel/Lube oil/Wax from Natural Gas

► Integrated Gas Combined Cycle (IGCC) based power generation from vacuum residue/

petroleum coke – higher power generation efficiency with generation of H2 as by product

► Steam-injection in Gas Turbine

5. Alternative Fuels/ Energy

► Bio-diesel

► Efficient generation of H2 and utilization

► Renewable energy – wind power/ hydro power/ solar power etc.

6. Transportation project

► Changes in the mode of transportation of petroleum products e.g. from road to rail/ pipeline

► Energy efficiency improvement in the intermediate pumping stations of crude/ product pipelines


► Recovery and utilization of gas from oil wells that would otherwise be flared or vented

► Steam optimization systems

► Flare (or vent) reduction and utilization of gas from oil wells as a feedstock

► Baseline and Monitoring Methodology for the recovery and utilization of waste gas in refinery facilities

CDM methodologies available for the Oil & Gas Sector

AM0009

AM0018

AM0037

AM0055

► Recovery of gas from oil wells that would otherwise be vented or flared and its delivery to specific end-users

► Recovery and utilization of waste gas in refinery facilities

AM0077

AMS-III.P


Registered CDM projects in the Oil & Gas Sector from India

► GHG emission reduction through the installation of energy efficient vacuum creating system in the vacuum distillation column of petroleum refinery Methodology used: AM0018

Essar Oil Limited

► Flare gas recovery project at Uran plant, Oil and Natural Gas Corporation (ONGC) Limited Methodology used: AM0037

► Flare gas recovery project at Hazira Gas Processing Complex (HGPC), Hazira plant, Oil and Natural Gas Corporation (ONGC) Limited Methodology used: AM0037

► Up-gradation of Gas Turbine 1 (GT 1) and Gas Turbine 2 (GT 2) at co-generation plant of Hazira Gas Processing Complex (HGPC) of Oil and Natural Gas Corporation Limited (ONGC) Methodology used: AMS.II-D

► Waste heat recovery from Process Gas Compressors (PGCs), Mumbai high south (offshore platform) and using the recovered heat to heat process heating oil

► Methodology used: AMS-II.D

Oil and Natural Gas Corporation (ONGC) Limited

► NRL -Captive power generation by recovery and utilization of the waste energy (thermal and pressure) of HP steam Methodology used: ACM0004

Numaligarh Refinery Limited


Registered CDM projects in the Oil & Gas Sector from India

► Bharat Petroleum Corporation Limited (BPCL)’s Wind Power Project, IndiaMethodology used: AMS.I-D

Bharat Petroleum Corporation Limited

► GHG emission reductions through pre-heat train optimization in the CDU and VDU of Digboi Refinery,, Indian Oil Corporation Limited (Assam Oil Division) Methodology used: AMS-II.D

► Flare Gas Recovery and Utilization of Recovered Flare Gas for process heating requirements at IOCL, Haldia Refinery Methodology used: AMS-III.P

► Flare Gas Recovery system (FGRS) at Barauni Refinery of Indian Oil Corporation Limited Methodology used: AMS.III-P

Indian Oil Corporation Limited

► Oil India Limited (OIL) – Greenhouse Gas Emission Reduction through Recovery and Utilization of Flare Gas Methodology used: AM0009

Oil India Limited

Carbon transactions


carbon transactions are purchase contracts whereby one party pays another party in exchange for a given quantity of GHG emission reductions, either in the form of allowances or “credits” that the buyer can use to meet its compliance objectives vis-à-vis greenhouse gas mitigation.

Payment for emission reductions can be made using one or more of the following forms: cash, equity, debt, or in-kind contributions such as providing technologies to abate GHG emissions.

Carbon TransactionsCarbon Transactions

Allowance based Transactions (EUA)Allowance based

Transactions (EUA)Project based

Transactions (CER,ERU)Project based

Transactions (CER,ERU)

Carbon transactions


Carbon transaction options…

Forward transaction

Ensures guaranteed carbon revenue

Advance possible, but modalities still uncertain

Could be fixed price or market-linked

Possible to put ‘floor’ and ‘ceiling’

‘Guaranteed’ quantity or ‘best effort’ basis

Spot transaction

Transaction on issuance of CERs

Till today, has resulted in better rate

Has been more popular in India so far

Combination of ‘Forward’ and ‘Spot’

Usually when large quantum of CERs available

(say >100,000 p.a.)


Project finance

Investors from Europe, Japan interested in financing CDM, especially RE projects

Right on CERs (full / partial) imperative

Transaction cost finance

Buyers ready to pick up full/part of transaction cost

CER price usually discounted

Carbon Finance Opportunities…


VER market….

Voluntary market

► Essentially a non-compliance market

► Driven by social responsibility

► Market is emerging… not stable yet

► Transacted comodity: VER = Verified Emission Reduction

► From registered projects outside crediting period

► From non-registered projects

► Prices lower compared to CERs

► Opportunities are yet to be assessed

Voluntary market

► Essentially a non-compliance market

► Driven by social responsibility

► Market is emerging… not stable yet

► Transacted comodity: VER = Verified Emission Reduction

► From registered projects outside crediting period

► From non-registered projects

► Prices lower compared to CERs

► Opportunities are yet to be assessed


CDM – Value Accretion Curve

PHASE0%

100%

VALUE Approximately 10 months, variable depending on type of project TIME

1.PIN Issued

2.PDD Prepared.

3. Host Country Approval

4.PDD

Validationfinalised

5.Registration

with UNFCCC

7.Issuance of

CERS

Key step

6.Construction

PDD = Project Design Document PIN = Project Idea Note UNFCCC = United Nations Framework Convention on Climate Change


CDM Transaction Cost

Documentation cost

Expenses incurred in documentation, Consultant’s fee Validation cost

Fee payable to DOE for validation Registration fee to UNFCCC

For 15k CER/y : Nil

For > 15k CER/y : @ 0.1 USD for first 15k CERs

@ 0.2 USD for balance CERs CER verification charges

Fee payable to DOE for verification (every time) Share of Proceeds (SoP)

Charged by UNFCCC every time during issuance of

CERs, calculated same way as Regn Fee. Regn fee

paid, if any is adjusted Adaptation Fund

2% CERs deducted by UNFCCC at issuance


Summary

► Climate change and global warming: major threat to the Oil & Gas industries.

► The Oil & Gas sector will be a significant part of an evolving solution to the CO2 challenge and certainly drive the ushering of a cleaner hydro carbon age in future.

► Companies have already started pursuing strategies to position themselves in the cleaner, more sustainable and low carbon growth trajectory by conscious reorganization of their product portfolio and restructuring of their multi-location operations.

► Big Oil Companies like British Petroleum is planning to invest USD 8 billion in low carbon power and alternative energy business over the next decade and aims at USD 1 billion of operating profit by 2015 from this business only.

► Adoption of the right strategy for mitigating long term climate change risks can provide distinct competitive advantage.

► Companies seeking to develop their strategies should first analyze their ‘value-at-stake’ or ‘value-at-risk’ under a variety of scenarios from current and emerging policies to reduce carbon emissions.


Carbon footprint - key starting step

Map carbon footprint

Determine boundary

Develop carbon

inventory

Capacity building

Determine carbon

emissions

Establishing carbon footprint

Carbon footprint has the power to influence all decisions on climate change strategy

Enablers

Identify key sources of GHG

emissions

Identify and decide

Organizational and Operational

Boundary

Select the GHG emission

calculation approach

Developing customized

modules and inventory manuals

Provide Training on the

implementation of inventory

manuals

Demonstrating the use of

customized modules

Collecting activity data and

emission data

Applying customized

calculation tools for estimating

GHG emissions


ACCURACYACCURACY

WBCSD & WRI Protocol…. The framework for GHG Accounting

COMPLETNESSCOMPLETNESS

CONSISTENCYCONSISTENCY

RELEVANCERELEVANCE

TRANSPARENCYTRANSPARENCY

GHG ACCOUNTING & REPORTING PRINCIPLES GHG ACCOUNTING & REPORTING PRINCIPLES


Determining Organizational Boundary

ApproachCompany selects an approach for consolidating GHG emissions and

then consistently applies the selected approach to define those businesses and operations that constitute the company for the purpose

of accounting and reporting GHG emissions.

Equity share approach

• A company accounts for GHG emissions from operations according to its share of equity in the operation.

Control approach

• A company accounts for 100% of the GHG emissions from operations over which it has control. • Does not account for GHG emissions from operations in which it owns an interest but has no control (Financial or Operational).


Determining Operational Boundary


Identifying and calculating GHG emissions


Key Performance Indicators

► PRODUCTIVITY/EFFICIENCY RATIOS:

-Express the value or achievement of a business divided by its GHG impact.

-Increasing efficiency ratios reflect a positive performance improvement.

-Examples of productivity/efficiency ratios include resource productivity (e.g., sales per GHG) and process eco-efficiency (e.g., production volume per amount of GHG).

► INTENSITY RATIOS (normalized” environmental impact data):

-Express GHG impact per unit of physical activity or unit of economic output.

-A physical intensity ratio is suitable when aggregating or comparing across businesses that have similar products. An economic intensity ratio is suitable when aggregating or comparing across businesses that produce different products. A declining intensity ratio reflects a positive performance improvement.

-Many companies historically tracked environmental performance with intensity ratios.

-Examples of intensity ratios include product emission intensity (e.g., tonnes of CO2 emissions per electricity generated); service intensity (e.g., GHG emissions per function or per service); and sales intensity (e.g., emissions per sales).

► PERCENTAGES (Percentage Indicator):

-Ratio between two similar issues (with the same physical unit in the numerator and the denominator).

-Examples of percentages are current GHG emissions expressed as % of base year GHG emissions.

Thank you

Indra GuhaSenior ManagerClimate Change and Sustainability [email protected]: 9871430769

5_june_09

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