Flare Reduction Projects - Issues underlying limited uptake Steve Ross Global Forum on Flaring Reduction & Natural Gas Utilization Amsterdam 3 rd – 5 th December 2008

Introduction Objective - Improve understanding of flare reduction project issues and suggest methodology improvements to enable increased uptake Current lack of certainty in the flare reduction project development process presents a barrier to investment. Investment confidence is not currently afforded by the validation, registration, verification and issuance process for flare reduction projects. The main issues to be resolved: - Applicability criteria Additionality assessment Methodology issues Monitoring issues

Objective - Improve understanding of flare reduction project issues and suggest methodology improvements to enable increased uptake

Current lack of certainty in the flare reduction project development process presents a barrier to investment. Investment confidence is not currently afforded by the validation, registration, verification and issuance process for flare reduction projects. The main issues to be resolved: -

Applicability criteria

Additionality assessment

Methodology issues

Monitoring issues

AM0009 v3 History Apr 08 – Clarified AG must be used for energy products only Apr 08 – AMREV_0086 - Revision to include CNG rejected Aug 08 - CLA107 – Correction to equation 3 Sep 08 – Revised to v3.2 to correct equation 3 Sep 08 – AMREV_0109 - Revision to include gas lift and gas from other oil fields – no response posted Nov 08 – CLA119 - Clarified lift gas rejected and projects can not use fuel gas from other fields. Nov 08 – CLA118 - Clarified default CH4 factors can not be used.

Apr 08 – Clarified AG must be used for energy products only

Apr 08 – AMREV_0086 - Revision to include CNG rejected

Aug 08 - CLA107 – Correction to equation 3

Sep 08 – Revised to v3.2 to correct equation 3

Sep 08 – AMREV_0109 - Revision to include gas lift and gas from other oil fields – no response posted

Nov 08 – CLA119 - Clarified lift gas rejected and projects can not use fuel gas from other fields.

Nov 08 – CLA118 - Clarified default CH4 factors can not be used.

Applicability Criteria AM0009 / AM0037 revisions have become project specific and no longer generic. Now unusable for most projects without further revisions. AM0009 v3 now refers to AG only. AM0037 v2 now also refers to AG (but downstream of processing) and therefore methodology can no longer be used for process or tail gas flare reduction (semantics). New methodologies required where the only changes are products (e.g. NM268 –CNG) New facilities / oil fields? Need to move towards consolidated methodology

AM0009 / AM0037 revisions have become project specific and no longer generic. Now unusable for most projects without further revisions.

AM0009 v3 now refers to AG only.

AM0037 v2 now also refers to AG (but downstream of processing) and therefore methodology can no longer be used for process or tail gas flare reduction (semantics).

New methodologies required where the only changes are products (e.g. NM268 –CNG)

New facilities / oil fields?

Need to move towards consolidated methodology

Project delays No latitude for DOE judgement where all projects are subject to review by RIT for any perceived deviation from AM. Therefore DOE now adopt same approach as no allowance for materiality Reasons for RfR Additionality Monitoring Only 4 registered as CDM Rang Dong (original AM9 v2) Kwale (complete rework) Al-Shaheen (monitoring issues) Tambun

No latitude for DOE judgement where all projects are subject to review by RIT for any perceived deviation from AM. Therefore DOE now adopt same approach as no allowance for materiality

Reasons for RfR

Additionality

Monitoring

Only 4 registered as CDM

Rang Dong (original AM9 v2)

Kwale (complete rework)

Al-Shaheen (monitoring issues)

Tambun

Additionality Oil company investment priority is exploration and production. Flare reduction project return needs to meet E&P rate of return. E.g. 20% rather than CDM suggested 10%. In current investment climate 30% would be more realistic. Opportunity for private investment at lower rate is limited. Vast majority AG flare reduction potential are either international oil companies, state owned oil companies or JV. Gas / product contract price fluctuation - Local market price v international spot / long term stability.

Oil company investment priority is exploration and production. Flare reduction project return needs to meet E&P rate of return. E.g. 20% rather than CDM suggested 10%. In current investment climate 30% would be more realistic.

Opportunity for private investment at lower rate is limited. Vast majority AG flare reduction potential are either international oil companies, state owned oil companies or JV.

Gas / product contract price fluctuation - Local market price v international spot / long term stability.

Methodology Issues Fundamental principle Emission reduction = Avoided Flare Avoided flare = Products Monitoring product end use is now required for new revisions, to be treated as leakage where lower carbon fuel is offset, higher efficiency technology is replaced, or where the product or fuel source leads to increased production. Possible confusion between fuel switch and flare reduction.

Fundamental principle

Emission reduction = Avoided Flare

Avoided flare = Products

Monitoring product end use is now required for new revisions, to be treated as leakage where lower carbon fuel is offset, higher efficiency technology is replaced, or where the product or fuel source leads to increased production. Possible confusion between fuel switch and flare reduction.

Methodology Issues Fugitive CH4 - Fugitives CH4 emissions in modern plant are about 0.001% of total project emissions, but inclusion in methodologies is proving most problematic AM0009 v2 approach - Default equipment factors such as from EPA / GRI studies as used in original AM0009 carry high uncertainty, but inclusion in methodology is conservative AM0009 v3.2 methodology uses CH4 mass balance but : - A) Balance calculation not possible due to inherent measurement uncertainty and mathematical principles B) For this balance, measurement point A is placed after compression, which is the largest potential source of fugitive emissions C) Includes process flare as CH4 (assumes venting) Either fugitive CH4 can be ignored on materiality grounds, or methodology should stipulate LDAR (measured) and flare measurement.

Fugitive CH4 - Fugitives CH4 emissions in modern plant are about 0.001% of total project emissions, but inclusion in methodologies is proving most problematic

AM0009 v2 approach - Default equipment factors such as from EPA / GRI studies as used in original AM0009 carry high uncertainty, but inclusion in methodology is conservative

AM0009 v3.2 methodology uses CH4 mass balance but : -

A) Balance calculation not possible due to inherent measurement uncertainty and mathematical principles

B) For this balance, measurement point A is placed after compression, which is the largest potential source of fugitive emissions

C) Includes process flare as CH4 (assumes venting)

Either fugitive CH4 can be ignored on materiality grounds, or methodology should stipulate LDAR (measured) and flare measurement.

Monitoring issues - Materiality Inclusion of a materiality assessment for each input to final calculated ERs within the PDD / MP / MR would prevent needless RfD / RfR delays where the deviation has no material effect on ER or quality of the MR. Example project specific AM0009 ER equations :- ER = BL-PE CO2 -PE CH4 Where:- BL = Feed gas (previous flare) PE CO2 = MCO2 12"feed - MCO2 MO1 - MCO2 LPG – MCO2 LPGcond – MCO2 1stGrade - MCO2 2ndGrade PE CH4 = PE CH4Plant + PE CH4Pipeline + PE CH4PipelineAccident The expanded ER equation becomes: - ER = ((V12"*EF12")+(V4"*EF12"))-((V12"*EF12")-(VM01*EFM01)-(VLPG*EFLPG)-(VLPGcond*EFLPGcond)-(V1st*EF1st)-(V2nd*EF2nd))-PECH4plant - PECH4pipeline-PECH4 pipeline accident

Inclusion of a materiality assessment for each input to final calculated ERs within the PDD / MP / MR would prevent needless RfD / RfR delays where the deviation has no material effect on ER or quality of the MR.

Example project specific AM0009 ER equations :-

ER = BL-PE CO2 -PE CH4

Where:-

BL = Feed gas (previous flare)

PE CO2 = MCO2 12"feed - MCO2 MO1 - MCO2 LPG – MCO2 LPGcond – MCO2 1stGrade - MCO2 2ndGrade

PE CH4 = PE CH4Plant + PE CH4Pipeline + PE CH4PipelineAccident

The expanded ER equation becomes: -

ER = ((V12"*EF12")+(V4"*EF12"))-((V12"*EF12")-(VM01*EFM01)-(VLPG*EFLPG)-(VLPGcond*EFLPGcond)-(V1st*EF1st)-(V2nd*EF2nd))-PECH4plant - PECH4pipeline-PECH4 pipeline accident

Monitoring Issues - Materiality Sensitivity coefficients (S) are found by varying the inputs to the expanded equation one at a time, as used for financial analysis, or by partial differentiation as per ISO GUM

Sensitivity coefficients (S) are found by varying the inputs to the expanded equation one at a time, as used for financial analysis, or by partial differentiation as per ISO GUM

Monitoring Issues - Equipment Rather than defining monitoring equipment to be used within methodologies, reference to the measurement uncertainty level required for each parameter would allow greater flexibility for PP with regard to selection of instrumentation in consideration of project specific process conditions and country specific custody transfer methodologies. The uncertainty level required can be defined using the materiality analysis on the effect of each input parameter on the calculated ER Each PDD can then state the measurement technology to be employed to meet the AM requirement Currently there is no clear guidance offered on measurement uncertainty calculation or consistent treatment of uncertainty within CDM.

Rather than defining monitoring equipment to be used within methodologies, reference to the measurement uncertainty level required for each parameter would allow greater flexibility for PP with regard to selection of instrumentation in consideration of project specific process conditions and country specific custody transfer methodologies.

The uncertainty level required can be defined using the materiality analysis on the effect of each input parameter on the calculated ER

Each PDD can then state the measurement technology to be employed to meet the AM requirement

Currently there is no clear guidance offered on measurement uncertainty calculation or consistent treatment of uncertainty within CDM.

Monitoring Issues - Semantics RfD / RfR have been initiated over definitions of terms used in methodology. Without UN definitions such terms are highly dependent on interpretation and cause severe project delays, for no material reason. E.g. AM0037 refers to AG, but this is downstream of processing plant E.g. DOE required flow meters installed for product measurement, however process conditions could not support flow metering, and weighbridges have been employed on previously verified projects as meeting ‘continuous measurement’. Subject to clarification request – define continuous as ‘not sampled’ E.g. process flare now treated as fugitive

RfD / RfR have been initiated over definitions of terms used in methodology.

Without UN definitions such terms are highly dependent on interpretation and cause severe project delays, for no material reason.

E.g. AM0037 refers to AG, but this is downstream of processing plant

E.g. DOE required flow meters installed for product measurement, however process conditions could not support flow metering, and weighbridges have been employed on previously verified projects as meeting ‘continuous measurement’. Subject to clarification request – define continuous as ‘not sampled’

E.g. process flare now treated as fugitive

Summary Combine AM0009/AM0037 as essentially same methodology – AG / Tail gas / Waste gas etc Include all product scenarios and treatment of these Include all project emission scenarios for project compression and process fuel, including the monitoring methodologies required for each Include CO2 mass balance option for AG fuel and flare consumption as well as measurement approach. Include production / pipeline sharing option and calculations Include process emission (CO2 venting) for sour gas scenarios Fugitive CH4 via LDAR or defaults (if process fugitives captured by flare headers, these can not be treated as fugitive CH4) Include requirement for materiality assessment Define parameter uncertainty requirements rather than stating equipment to be used.

Combine AM0009/AM0037 as essentially same methodology – AG / Tail gas / Waste gas etc

Include all product scenarios and treatment of these

Include all project emission scenarios for project compression and process fuel, including the monitoring methodologies required for each

Include CO2 mass balance option for AG fuel and flare consumption as well as measurement approach.

Include production / pipeline sharing option and calculations

Include process emission (CO2 venting) for sour gas scenarios

Fugitive CH4 via LDAR or defaults (if process fugitives captured by flare headers, these can not be treated as fugitive CH4)

Include requirement for materiality assessment

Define parameter uncertainty requirements rather than stating equipment to be used.

Finally…. Suggest development of generic CDM/JI Monitoring Guidelines to include instrument selection, maintenance requirements and uncertainty calculations. Removing ambiguity and lack of consistency in monitoring requirements between methodologies and between projects Provide level playing field for CER in uncertainty terms in line with e.g. EUETS Prevent non-material project delays and increase project uptake

Suggest development of generic CDM/JI Monitoring Guidelines to include instrument selection, maintenance requirements and uncertainty calculations.

Removing ambiguity and lack of consistency in monitoring requirements between methodologies and between projects

Provide level playing field for CER in uncertainty terms in line with e.g. EUETS

Prevent non-material project delays and increase project uptake