opportunities for increased gas use - world...

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Opportunities for increased gas use

Energy Week Bent Svensson

Tuesday March 15 - 4 p.m.

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Overview of session

• Commercialize stranded gas • Discuss Sustainability issues

– Bank policies on Transparency and governance

– Gas flaring reduction– Social aspects and stakeholder consultation– Carbon financing

• Examples Nigeria and Algeria

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Policy reform in Nigeria

• Governance, Fiscal reform and Flare Out• Gas market development, Gas2Power• Panelists:

– Dennis Fahy, MD, West African Pipeline Company (WAPCO)

– Charles McPherson: Transparency and governance – Subramaniam V. Iyer: link to power sector

4Source NOAA: DMSP-OLS Annual Composites of Nigeria and CameroonRed = 2003 only. Yellow = 2003 and 2000. Green = 2000 only. Cyan = 2000 and 1992. Blue = 1992 only. White = 2003, 2000 & 1992

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Gas production and utilization in Nigeria 2003

Gas production 50 Bcm

Flared 43%LNG 25%gas reinjected 15%Sold domestically 11%Fuel use 4%Other 2%

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Global Gas Flaring Reduction Partnership

• GGFR was formed at the World Summit on Sustainable Development in Johannesburg in August 2002

• Objective is to support the efforts of national governments and the petroleum industry to reduce flaring and venting of associated gas

• Leading to sustainable resource development– Promoting efficient use– Reducing environmental effects– Reducing poverty

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Background of Global Flaring• Global venting and flaring level over

100 bcm/year, equal to:• current African flare volumes (37

Bcm) could produce about 50 percent of the current power consumption in Africa and more than twice the level of power consumption in Sub-Saharan Africa (excluding South Africa).

• >10 percent of committed emission reductions by developed countries under the Kyoto Protocol for the period 2008-2012.

• This level has stayed constant for the last 20 years

• 80% of global venting and flaring occurs in fewer than 15 countries

• Reliability of available data varies widely

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Key GGFR Accomplishments

• A significant representation of world gas flaring in the Partnership– Currently 42% , 75% including OPEC secretariat.

• Global deliverables– A global standard for flaring and venting

• Agreed among Partners May 2004– Regulatory Best practices– Carbon credit financing

• Local Public Private Partnerships under implementation– Associated gas recovery plans (companies)– Governments: supportive measures

• Demonstration projects with all Partners

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Dennis Fahy, MDWest African Pipeline Company

(WAPCO)

Tem

a

Escr

avos

Coto

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GHANA

TOGO

NIGERIA

Lom

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Lago

s

BENIN

West African Gas Pipeline

New West African Gas Pipeline (WAGP)gas transmission system funded, owned and operated by shareholders, extending from the ELPS to landfalls in Benin, Togo, and Ghana.

Existing Escravos-to-Lagos Pipeline System (ELPS)

owned and operated by Nigerian National Petroleum Corporation..

Objective: Transport Nigerian produced natural gas to commercially viable markets in Benin, Ghana & Togo.

System Capacity:Initial MMscfdUltimate 475 MMscfd

200

Tako

radi

Benefits of WAGP

GHANA NIGERIA

TOGO

BENIN

• Provides a low cost, sustainable fuel solution for Benin, Ghana, and Togo

⇒Fuel for existing and forecasted electric power plants; ⇒Fuel for industrial and commercial facilities

• Provides infrastructure as a catalyst stimulating direct foreign investment in new West African industries as well as provides trade opportunities for foreign exporters.

• Enhances the regional environment by substituting cleaner burning natural gas for less desirable fuels.

•Accelerates regional integration, economic growth and stability.•Cornerstone of West African Power Pool

• Provides Nigeria and foreign investors an additional commercial market for natural gas.

• Reduces gas flaring associated with oil production in Nigeria, contributing to reduction of ‘greenhouse’ gases.

Schedule and Milestones

Pipe Coating

Offshore Installation

Line Pipe Manufacture

Jan’05 Jan’06 Jan’07

FirstGas

Construction Phase

Engineering

Onshore – Procure / Construct.

Commissioning

Dec ‘06

Dec ‘04

FID

Sharing of Economic Benefits

Project Net Benefits

0 200 400 600 800

Ghana

Togo

Benin

Nigeria

Private

NPV10 ($Millions)

Gas Sales

WAPCo Div

Fuel Sav

Taxes

Gas Flare Reduction

Building Community Relationships

• Multiple meetings and consultations– Conceptual Design Reviews– EIA Posting and Public Hearings

• Resettlement Action Plan– Impact Assessments– Land Acquisition

• Community Development Plan– Participatory Needs Assessments

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Charles McPherson

Policy reform and Legal framework

Transparency and Governance

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Outline

• Issues and Opportunities• Aspirations• Obstacles• Response

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Issues and Opportunities

• Major reserves and significant productionBut,

• Limited exploration for gas• Massive flaring• Unexploited market opportunities• Dysfunctional power sector

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Aspirations

• Capture economic value• End flaring• Develop domestic market• Increase private sector participation

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Obstacles

• Strategic vacuum• Policy vacuum• Institutional arrangements• Legal and regulatory framework• Pricing and fiscal regimes• Financing requirements

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Response

• Natural Gas Strategy• Natural Gas Policy• Downstream Gas Act (DGA)• Fiscal reform (NGFRA)• Action plan

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Natural Gas Strategy

• Views sector as a whole• Identifies opportunities and options• Sets priorities and selection criteria• Identifies policy issues to be addressed

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Policy (Institutional Arrangements)

• Definition of sector roles and responsibilities

• Establish a regulatory agency (GRC)• Unbundle existing state monopoly (NGC,

NGTC)• Promote new entry and competition• DGA and regulations

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Policy (Pricing and Fiscal Regimes)

• Transparent, cost recovery pricing• Explicit subsidies• Transitional pricing regime• Uniform, non-discriminatory tax regime• Rent capture• DGA and NGFRA

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Policy (Financing)

• Private sector emphasis• Implement required reforms• Address payment and FX risks• Limited public sector participation

(strategic or major domestic infrastructure)

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Action Plan• September 04: draft legislation; submit

budget for GRC; NGC unbundled, NGTC incorporated…

• October 04: legislation to National Assembly

• March 05: legislation passed• June 05: GRC appointed and

operational• March 06: “Go live”; 12 months fine-

tuning

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Assessment• High marks, with reservations• Critical, timely, major undertaking• Thorough preparation (mostly)• Transparent process (mostly)• Extensive stakeholder consultation (with

lapses)• Weak inter-agency coordination• Optimistic assessment of National Assembly

action• Incomplete preparation for implementation

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Subramaniam V. IyerLink to Power Sector

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State of the Nigerian Power Sector….• History of focus on generation - large plants,

economies of scale etc.• Distribution neglected - led to declining

revenues and growing inability to support generation in a business like way.

• Government unable to implement cost-reflective tariffs or force better performance

• Results:– Dwindling resources for new investment– Declining levels of power availability and customer service– Growing share of public budget required to just keep system

“alive”

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So what is being done in Nigeria?

• Twin approaches:– Speedy sector reforms: new legislation,

regulation, unbundling, creation of viable and creditworthy business model and private participation.

– Second track to commercialize the business in the near term through CREST(Commercial Re-orientation of the Electricity Sector Toolkit)

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Nigeria: Power Demand

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Gas/power project development• Under the reform track, assuming sector

readiness to support large IPPs three years down the road– A gas pipeline project to carry gas from south to

north is being developed (with PPP). – Private IPPs to serve power demand are

envisaged along the pipeline corridor– Feasibility and initial development work has

commenced.– Co-gen and commercial gas market to be

developed e.g. cement plant, steel mill

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The CREST approach• Track 1 – commercialize distribution to

mitigate risks, create value and ensure better customer service

• Track 2 – private generation with direct access to serve demand in lieu of PPAs

• Track 3 – Expand access and increase future demand through more efficient business models

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Illustration with Port Harcourt

• Registered demand 300MW, with un-served demand of 100MW; Total 400MW

• Peak NEPA supply possible ~ 200MW, leaving half the customers without power

• Track 2 approach could envisage dividing P. Harcourt into 2-3 ring-fenced clusters with potential demand ~150 MW each

• New Distribution licensees could contract new G2P power injection of 70-80 MW each to augment committed supply from NEPA.

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Some issues on this approach …

• Does current and future legal framework allow such a cluster approach?

• Can potential licensees handle the distribution risks?

• How will tariffs be handled?• How will the clusters and the licensees be

selected?• Is this cherry picking? • How would NEPA’s (and the sector’s) cross-

subsidy interests be protected?

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Marketing of Remote gas and carbon financing in Algeria

• Panelists:• Redouane Haddadji, Sonatrach• Sascha Djumena

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Associated Gas Utilisation in Algeria

Energy Week 2005, Redouane Haddadji (Sonatrach), Sascha T. Djumena

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Gas Flaring reduction: an early Sonatrach’s target

Associated gas reinjection in oil fields to enhance oil recoveryGas lift systems, using associated gasUsing associated gas as fuel for utilities (furnaces, boilers, turbines…etc)Constructing a huge gas transport network in order to monetise gasLPG and condensate recovery from associated gas.

Since the early seventies, Sonatrach has set up as an objective to reduce gas flaring in its main fields, through different schemes:

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Associated gas flaring Comparison between 1970 & 2003

9.50

2.04

7.46

38.71

34.48

4.23

0

5

10

15

20

25

30

35

40

45

bcm

1970 2003

Produced associated gasRecovered associated gasFlared associated gas

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Satellite imageclear reduction of flaring

Source : DMSP-OLS Observations of Gas Flares

Mars 20th, 2002September 24th, 1992

Algeria

Tunisia

Algeria

Tunisia

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GGFR – Algeria work program

• 1. Associated Gas Utilisation Study– Together with Sonatrach, three areas have

been selected where flaring remains significant. These areas are Ohanet, Tin Fouye Tabankort (TFT) and In Amenas, with a combined 2003 flared gas volume of 1.3 BCM.

• 2. CDM Capacity Building

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Objectives of the Algeria CDM Capacity Building Project

• Create a Process to develop CDM projects• Develop methodology for associated gas

utilisation (capture & transport)• Lay basis for the creation of a Designated

National Authority (DNA)

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Roles of DNA

DNADNA

REGULATORY- Adopting international criteria- Developing national criteria- Establishing national procedures for evaluation & approval of projects- Establishing guidelines for projectpresentation


PROMOTIONAL- Marketing & capacity building- Support project developers- Facilitate international investment


DNADNA





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CDM Capacity Building Pilot Project for Gas Flaring Reduction in Algeria

• The project will support the country’s overall development and sectoral policies in that the gas will be used productively downstream and totally eliminate the flaring on-site.

• According to the study results, – The project needs an investment

capital of 25.5 million US$– The flaring reduction is about 1.8

billion CM over the lifetime of the CDM project (14 years).

– CO2 emissions reduction will be approximately 5.7 million tons of CO2 equivalent

Algeria

Tunisia

Libya

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PIN• The task force (Sonatrach and MEM)

identified several potential projects both upstream and in the LNG operations.

• The transport division also reviewed its operations to see if any significant flaring or venting of gas could be identified (none were identified).

• These projects were then prepared to the PIN level and then a single project was selected for development into a PDD.

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Ohanet results• Based on the methodology, the Ohanet

project to capture and transport of currently flared associated gas clearly qualifies for CDM designations.

• It is additional and results in real, measurable and long-term emission reductions of GHGs.

• It would reduce CO2 emissions significantly below the baseline (approximately 5.67 million tons.)

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Ohanet Investment Costs (in US$ millions)

• Gathering Lines: 5• Dehydration: 2.5• Compression: 12• Connection • to main line: 2• Contingency: 4 • Total: 25.5 2610IRR (%)

11.70.1NPV @ 12% ($ million)

With carbon credits ($5/ton and 38% tax rate)

Without carbon credits

Ohanet

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Notable results to date• The development of a core group with Sonatrach

and the Ministry of Energy and Mines, now well versed on Kyoto concepts and the development of CDM projects related to gas flaring.

• The screening of several projects to the PIN level and the selection and development of one pilot project to the PDD level.

• The building of a broad understanding of the need for, and function of, a DNA. Most likely the DNA will be housed at a to be created national agency for climate change (ANCC).

• Development of CDM Methodology for gas flaring reduction

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Benefits of Project to Algeria

• Less wastage of a natural/national resource

• Process for the possible development of marginal projects

• Support sustainable development goals• Access to new financial resources (carbon

credits)• Participation in international

environmental issues

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Thank you

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Back - Up

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Pilot Project: Capture & TransportGisement 1 Gisement 3Gisement 2

Gisement 5Gisement 6 Gisement 4

C/S C/S

C/S C/S

C/S

C/S

COLLECTE

COLLECTE

C/ D

GR1 / GR2

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CDM Project Cycle

Validation

Project Identification (PIN)

Executive Board (EB)

Host country approval

Designated National Authority (DNA)

Operational entities (OE) - auditors

Issue CERs

Monitoring

Verification & certification

Registration

Project screening

Project Design Document (PDD)

Bank TA

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Regulatory role: Developing Sustainable Development (SD)

Criteria

• Evaluation & approval process = assessing & confirming project’s contribution to SD criteria

• Definition of SD open to interpretation – Environmental protection– Social advancement– Economic development

• Countries either have SD criteria:– Well-established which can be applied to CDM– Not well defined and need to be identified addressing unique

conditions of the country

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Objectives for Gas Sector Policy

• Extend gas penetration • Enabling and transparent environment

for investors in the gas sector• Streamline the permitting process for

gas projects• Capture economic value of gas and

generate as much revenue from gas as from oil

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Main barriers to gas development

• Absence of a formal gas policy • Industry structure, Institutional, Legal and

Regulatory framework– Conflict of interest

• PSC gas terms• Petroleum Fiscal System• Gas pricing• Infrastructure constraints and access• Funding constraints

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Solutions

• Strategic gas plan for Nigeria• Power sector reform• Downstream gas act• Petroleum Fiscal reform• Gas Development agreement for PSC• Gas pricing• Government funding for strategic projects• Stakeholder co-operation

– Globally and locally

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No. Country GGFR Estimates % of globalGlobal coverage through

direct country representation in GGFR

Additional global reach through international partner organizations

1 Nigeria 18.9 17% 17%2 Iraq 15.0 14% 14%3 Russia 13.5 12% 7%4 Iran 10.0 9% 9%5 Algeria 4.8 4% 4%6 Indonesia 4.6 4% 4%7 Angola 4.3 4% 4%8 Equatorial Guinea 3.9 4% 4%9 Venezuela 3.1 3% 3%

10 Mexico 2.8 2%11 USA 2.4 2% 2%12 Canada 2.3 2% 2%13 Brazil 2.1 2%14 UK 1.6 1%15 Cameroon 1.6 1% 1%16 Gabon 1.6 1%17 Kazakhstan 1.4 1%18 Lybia 1.4 1% 1%19 Azerbaijan 1.0 1%20 Trinidad & Tobago 1.0 1%

% of total 88% 46% 27%

World Total 111.0 Current coverage 72%

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Current GGFR Public and Private PartnersCountries/NOCs IOCcAlgeria (Sonatrach) BPAngola ChevronTexacoCameroon (SNH) ENIChad ExxonMobilEcuador Norsk HydroEquatorial Guinea ShellIndonesia StatoilKhanty Mansiisk (Russia) TotalNigeriaDonors Multilateral OrganizationsCanada The World BankNorway OPEC SecretariatUSA NGOsUK (Foreign and Commonwealth Office) OSS

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-

300

600

900

1,200

1,500

1,800

2000 2002 2004 2006 2008 2010

BCM

Power Plants Industries ALSCON

NAFCON Bonny IPP Kwale IPP

Abuja IPP

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Nigeria Domestic Gas Market Forecasts

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Nigeria Export Gas Market Forecasts

Export Gas Volume

0.0

2.0

4.0

6.0

8.0

2000 2005 2010 2015 2020

Bcfd

NLNG (T1&2) NGL's/LPG's (East/West)NLNG (T3) EGP2/WAGPEGP3/GTL EAGP NGLYoho NGL NLNG (T4&5)Nnwa/Doro FLNG Brass River LNG PlantExxonMobil FPLNG

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