Flaring Issues

Flaring Issues

January 23, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

With the world grappling with ways to reduce carbon emissions and bring forth more energy resources, some are questioning why oil companies must still flare natural gas. The problem has long lurked. But as energy companies develop a wider liquefied natural gas (LNG) infrastructure, the practice may one day cease.

As the oil companies bring their crude to the earth's surface, they find that it is often mixed with natural gas. Unfortunately, the gas must often be flared off or re-injected back into the deep waters. An ideal use for such gas, however, is to transform it into LNG, or to convert it to a liquid form so that it can be shipped to ports around the world.

In the next five years, global gas demand is projected to increase to 113 trillion cubic feet, or 2.4 percent per year, says the International Energy Agency. Even in a high gas prices environment, a decrease in that demand is only likely to be felt after 2010.

The LNG industry currently constitutes only 6.5 percent of the gas market but is set to attract half of the sector's investments, the agency adds. As far as the United States goes, LNG currently provides approximately 2.8 percent, a figure that is predicted to increase to 16 percent by 2030, according to the U.S. Department of Energy.

Oil companies do not want to leave any natural gas stranded. If they can monetize it and make a profit, they will do so. That's why they are investing billions throughout the LNG value chain -- everything from liquefying stations, to transport ships to re-gasification ports to pipelines.

Consider Exxon Mobil, which through its affiliate Mobil Producing Nigeria, has spent $3.5 billion to recover natural gas liquids from the area. Toward that end, it has built LNG facilities that will process about 950 million cubic feet of natural gas per day, or enough to make 50,000 barrels of natural gas liquids.

"Working together with the Nigerian National Petroleum Corporation, we were also able to integrate innovative technical solutions into the project execution plan to significantly reduce flaring and maximize the value of the resource for our shareholders and the country of Nigeria," says Mark Albers, senior vice president of Exxon Mobil.

A study performed by the World Bank in 2002 concluded that 5.3 trillion feet of natural gas is flared each year -- about a quarter of the natural gas consumed in this country and roughly 30 percent of the gas used in the European Union. That same study also concluded that global gas flaring releases about 400 million tons of carbon dioxide emissions per year.

Paying Dividends

Certainly, the gas can be used for on-site power generation or in the form of LNG. Countries like Canada and Norway are reducing their flares through other means. Norway, for example, imposes a huge carbon dioxide tax while Canada has established a collaborative effort between government and industry.

The major flaring region in the world is Russia and the Caspian, which is followed by the Middle East and North Africa. Sub-Saharan Africa is the third-biggest flaring region and then Latin America. To battle flaring in Nigeria, which is one of the biggest culprits, the World Bank says that government leaders and industry are aggressively outlining ways to fix the problem. As for Russia, it is sending a strong message that it seeks to cut such flaring over the next four years.

"In Africa, where many people lack access to energy, approximately 35 billion cubic meters of gas was flared last year, which, if captured, could have generated nearly 12,000 megawatts of electricity," says Somit Varma, World Bank Group's Director for Oil, Gas, Mining and Chemicals, in a recent speech. "Gas flaring also reduces potential tax revenue for governments and market opportunities for companies."

While capital intensive, more LNG projects will get built to accommodate the stranded gas. The host governments, meanwhile, will reap millions in new tax revenues. High global demand will furthermore ensure it. In fact, Scottish Consultancy Wood Mackenzie says that worldwide LNG demand will triple by 2020 to 25 trillion cubic feet a year.

The investments are already paying dividends. In Angola, a World Bank-led group will gather flared gas from about 20 offshore fields and then channel that to an LNG plant. The $4.5 billion endeavor is expected to reduce flaring by 7 billion cubic meters per year while achieving carbon reductions of 32 million tons over the next few years.

Meantime, Shell Oil Co. is now working in Iraq to build an LNG infrastructure that will take 700 million cubic feet of natural gas that is typically burned off every day there. Iraq, which is the one of the top oil producing nations in the world, flares off about half the natural gas that is conjoined with its oil discoveries. Shell is further expected to invest $3 billion over the next six years in Nigeria and all to collect stranded natural gas.

The World Bank says that global figures from the latest satellite estimates show a small decline in global gas flaring from 157 billion cubic meters in 2006 to 147 billion cubic meters in 2007. But much more remains to be done. Altogether, the bank says that annual emissions from flaring and venting are equivalent to more than twice the potential yearly emission reductions from projects currently submitted under the Kyoto mechanisms.

"Reducing natural gas flaring, methane venting and fugitive emissions from oil and natural gas production are part of the solution to the global climate challenge," says Dina Kruger, director of EPA's Climate Change Division. "The oil and gas sector can reduce greenhouse gas emissions, increase production, generate revenue, and provide communities with a clean and reliable energy source."