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    [NGW Magazine] Gas Flaring Down across the World

Summary

This article is featured in NGW Magazine Volume 3, Issue 15: New satellite data show a significant decline in gas flaring at oil fields around the world in 2017, despite a 0.5% increase in global oil production, according to the World Bank's latest annual report. NGW interviewed the Global Gas Flaring Reduction’s programme manager Bjorn Hamso about the 2017 flaring data and some of the trends it identifies. Some of his “could do betters” include mature industrialised producer countries, while Azerbaijan gets good marks.

by: Mark Smedley

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[NGW Magazine] Gas Flaring Down across the World

New satellite data show a significant decline in gas flaring at oil fields around the world in 2017, despite a 0.5% increase in global oil production, according to the World Bank's latest annual report.

The amount of gas routinely flared has fallen overall but in some countries it has risen, according to the World Bank's Global Gas Flaring Reduction (GGFR) Partnership. In its annual report, published mid-July, it said there had been an almost 5% decline in flaring in 2017 compared with the year before, which begins to reverse an upward trend that started in 2010.

Flaring declined to 140.6bn m³ in 2017, down by 4.7% from its revised figure of 147.6bn m³ in 2016, GGFR said. While Russia remained the world’s largest flaring country, it also saw the largest decline last year, down by 2.5bn m³ to 19.9bn m³. Many of its oil fields are too far from any gas infrastructure. Venezuela and Mexico also reduced their flaring in 2017, but Iran, Libya and the US increased theirs.

The head of the World Bank’s energy and extractives division Riccardo Puliti cautioned: “The latest global gas flaring data is encouraging but we will have to wait a few more years to know whether it represents a much-needed turning point.”

Three years ago, the UN secretary-general, Ban Ki-moon and the World Bank president, Jim Yong Kim and 25 entities launched the ‘Zero Routine Flaring by 2030’ Initiative that commits endorsers to not routinely flare gas in new oil field developments and to seek to end routine f

laring at existing ones as soon as possible and no later than 2030. It has now been endorsed by 27 governments, 35 oil companies and 15 institutions. 

GGFR programme manager Bjorn Hamso added: “It is paramount that oil field operators continue to address ongoing ‘legacy’ flaring, and that new business models are developed that will enable more investors to participate in flaring reduction projects.” The data are based on analysis by the US National Oceanic and Atmospheric Administration (NOAA) using space imaging by Nasa’s satellite-borne visible Infrared imaging radiometer suite (VIIRS).

A separate list of 14 mostly, but not all, upstream companies have signed Guiding Principles, devised by the UN and others, to “continually reduce methane emissions” at all stages of their operations.

Russia, Iraq and Iran remain the top three largest flaring nations. Iraqi flaring was up slightly to 17.8bn m³, the flat line signalling that more gas isbeing harnessed for power generation. Iran’s increase, up by 1.3bn m³, means it is only just behind at 17.7bn m³. A worrying factor is that the US has vaulted from fifth to fourth worst flaring position, up 0.6bn m³ at 9.5bn m³, as shale oil production went up without remote associated gas being monetised. Nigerian flaring too increased by 0.3bn m³ to 7.6bn m³, after declining for several years, but the end of militant attacks in the Niger Delta saw a key bounce-back in Nigerian oil production (from 1.9mn in 2016 to almost 2mn b/d last year).

Angola’s flaring had increased for several years but fell by 0.7bn m³ in 2017, as exports from its LNG plant – fed solely by gas from offshore oil fields – stabilised. Angola LNG had been shut for repairs for two years until mid-2016 but now is shipping more gas to markets, which otherwise would have been flared.  Welcome declines, among the Top 10, were also seen from Mexico and Algeria.

Excluding Iraq, Iran, the US, Nigeria and Libya, all the other top 20 reduced their flaring last year.

Flaring intensity

The pattern over the past two decades is encouraging too: whereas global oil production increased by 33% since 1996, gas flaring at such oilfields declined by 15% over that period, GGFR adds.

GGFR also calculates ‘flaring intensity’ – how much gas is flared per barrel of oil produced – which varies enormously among the top six oil producers in 2017: the US (13.06mn b/d), Saudi Arabia (11.95mn b/d), Russia (11.26mn b/d), Iran (4.98mn b/d), Canada (4.83mn b/d) and Iraq (4.52mn b/d). 

The US flared 2.8 m³/b last year, whereas Saudi flaring intensity was four times better at 0.6 m³/b, with Canada (0.9 m³/b) not far off the Saudi level. Russian flaring intensity last year, at 5.2 m³/b, was double that of the US while Iran and Iraq were both double Russian intensity at 10.9 m³/b in 2017.

It should be easier for oil operators to implement better flaring practices at new oil fields than older ones, say industry sources. Sometimes though, when operators are told to reduce oil output in line with Opec quota compliance, they shut in a field where good flaring practice is in force, which can increase the country’s flaring intensity. 

Norway excelled with a 2017 flaring intensity of 0.4 m³/b, on its almost 2mn b/d oil produced. Surprisingly, developed nations like Australia (6.8 m³/b) and the UK (4.1 m³/d) have worse flaring intensity levels than Brazil (1.2 m³/b) which was only twice that in 2014.

At the other extreme were war-torn countries like Yemen (90 m³/b last year) and Syria (estimated to have spiked from 52.9 in 2016 to 233 m³/b last year).

NGW interviewed the Global Gas Flaring Reduction’s programme manager Bjorn Hamso about the 2017 flaring data and some of the trends it identifies. Some of his “could do betters” include mature industrialised producer countries, while Azerbaijan gets good marks.

You mention 'legacy' flaring by certain oil operators. Can you give us examples of where investment to curb flaring and monetise associated gas keeps on getting overlooked?

Most of the gas flared around the world could be monetised at a 10% rate of return, and some flaring projects would obtain very attractive returns. However, sometimes oil companies find the risk associated with investments in the local energy market excessive, or they decide to deploy capital to their core business. 

Flaring intensity – the amount of gas flared per barrel of oil produced – is a valuable indicator, albeit an imperfect one, of where more work is needed on flaring reduction. The worst flaring cases are as one could expect: typically, in conflict and fragile states. The global average flaring intensity is 4.8 m³/barrel so anything higher can be considered a location where flaring is overlooked.

Where and what are the low-hanging fruit - when it comes to reducing flaring upstream?

In countries where power produced by flare gas could replace diesel generators, greenhouse gas emissions can be reduced in a cost-effective manner. Nigeria is a case in point – if the investment risk in the local energy market can be managed. 

Iraq is another example. The flaring volumes there are large, they are geographically concentrated, and there is a massive unmet local energy need. But again, risks relating to investments impede fast progress in eliminating the flaring.

How alarmed are you at the increase in US flaring? Is this mainly in onshore shale oil areas? Is it difficult to monetise such gas, given the mobile liquefaction units in Argentina? 

Gas flaring in the US increased by about 7% in 2017 and that same year oil production increased by about 14% primarily as a result of increased shale oil development. Relative to the level of the oil production, US flaring is substantially lower now than five years ago, indicating that more infrastructure is being installed to handle the associated gas. 

US flaring intensity at 2.8m³/b in 2017 was roughly half the global average of 4.8 m³/b. The US is good versus the global average but you can always do better. The history of shale oil development is that the infrastructure has lagged the oil production; but the sense is they are catching up on building infrastructure in North Dakota and the Permian basin. This is more an issue in North Dakota which is a newer basin; the Permian is an older producing area.

How sustainable is the 2017 decline in Russian flaring and the levelling off of Iraqi flaring? Did both step up monetisation of associated gas sharply in power generation last year?

We are looking at steps were taken in Russia to reduce flaring in 2017, while oil production was steady. So, there’s possibly a good flaring reduction story there that we hope to learn about. 

The Iraqi government is now in a transition phase, working with the World Bank and others to improve management of their oil sector, including addressing flaring. We anticipate the flaring situation to improve over time. The outgoing Iraqi government had a very ambitious flaring plan to eliminate most of the flaring by 2021. 

Flaring in Iraq is very concentrated so, under the right circumstances, progress can be made rapidly. Shell is a core shareholder in Iraq’s Basrah Gas Company alongside state-owned South Gas Co and Japan’s Mitsubishi which has the largest flaring reduction project anywhere in the world; it would like to have invested more in flaring mitigation but the cash flow is not yet sufficient for it. The circumstances need to change first in Iraq.  

Flaring increased in Iran last year. Why? Will US curbs on oil trade and investment mean more or less flaring?

If US sanctions hamper Iran’s oil sales significantly in 2018/19, the reduction in oil production would likely be accompanied by a significant reduction in gas flaring.

Nigeria's flaring increased. Worrying? Or a blip, linked to a bounce-back of oil production?

Nigeria’s flaring increase seems to be connected to an increase in oil production in 2017. The government is focused on reducing gas flaring and has recently passed new flaring regulations. Effective regulations are an important foundation for developing business models where third-party investors – meaning, not only the field operator – can monetise flare gas. We are very excited about the plans of the government in this area; we are working with them.

Optimistic - despite Nigeria's presidential election in early 2018 when things tend to stall? 

We do not expect any major policy changes for flaring reduction.

Are the declines in Venezuela and Libya a sign of economic decline and under-investment?

Flaring reduction in Venezuela (-25%) seems for a large part to be connected to a reduction in oil production (-12%). The reduction in oil production may be partly in response to the Opec output curb, but also the result of continuing operational difficulties at PdVSA, the national oil company. 

In Libya, an increase in flaring is reflective of an increase in oil production. In conflict and fragile countries, we often see that producing the oil is given priority while facilities to process and handle gas are neglected, resulting in more flaring.

Why can't Algeria and Malaysia, with their sizeable gas economies, monetise more and flare less? Both have flaring intensities higher than Nigeria's.

That question is better addressed to those governments.

Are there any particular successes you'd like to point to?

Azerbaijan, Norway, and Saudi Arabia come to mind among the larger oil producing nations. Norway obtained good results simply by banning routine flaring from the beginning of their oil era.  

That caused oil field operators to co-operate in building joint gas gathering and gas processing infrastructure at a scale not often seen elsewhere. Saudi Arabia has been addressing their existing flaring through investments from the 1970s onwards. Azerbaijan’s flaring intensity – at 0.5 m³/b – is lower, so better, than even Canada (0.9 m³/b).

One thing worth noting is that gas-to-oil ratios vary significantly from one area or country to another. This impacts the cost effectiveness of flaring reduction projects, and should be kept in mind when comparing flaring intensities among countries.  Nonetheless, flaring intensity remains a good indicator when looking for areas where lower-cost improvements can be made.

One surprise from the data is that the UK's 2017 flaring intensity was ten times greater than Norway's, and double Brazil's. Australia's flaring intensity is at least 50% higher than the UK's. Why such disparities?

The UK did not go the route of a routine flaring ban, as Norway did in the 1970s, but allows some flaring to take place based on economic criteria. The UK’s flaring intensity is a tad better than the global average.  

However, a better result should perhaps be expected from such a mature oil basin. Unlike its neighbours around the North Sea, the UK government has not yet endorsed the “Zero Routine Flaring by 2030” initiative, which commits governments to not routinely flare in new oil field developments and to implement solutions to end their existing flaring by 2030. 

We now have 60% of global gas flaring covered under that ZRF-2030 initiative. Unfortunately, the UK is not with us on that yet.

What are the Norwegians, Azeris, Saudis and Canadians doing that others could do?

In those countries you have a number of oil companies present with good flaring practices, and good government policies, too. Canada has been quite progressive when it comes to flaring reduction, and many governments and regulators travel to Canada to learn from their experience. 

The province of Alberta is a GGFR partner, and they have an interesting story to share when it comes to flaring regulations, so we have connected the Alberta government with other jurisdictions around the world in order to share best practices and to learn from each other. 

War starves investment and drives up flaring intensity in Yemen and Syria. Are these exceptions - or are any other areas of the world getting much worse on flaring due to war?

Because of war and conflict, the flaring situation in Yemen and Syria [respectively 91m³/b and 233m³/b] is extreme relative to the size of the oil production. It’s safe to say that conflict countries typically lose control over their flaring situation. This plays out in the flaring intensity data just published.

* enter the words – GGFR Dashboard – into any search engine and check that 2017 data pops up, or follow this link

Mark Smedley