April 04, 2011

5% of the annual production of natural gas is flared and this tens of billions of dollars in waste could be fixed in 5 years

GE today released a study, Flare Gas Reduction: Recent Global Trends and Policy Considerations, which estimates that 5 percent of the world’s natural gas production is wasted by burning or “flaring” unused gas each year—an amount equivalent to 30 percent of consumption in the European Union and 23 percent in the United States. Gas flaring emits 400 million metric tons of CO2 annually, the same as 77 million automobiles, without producing useful heat or electricity. Worldwide, billions of cubic meters (bcm) of natural gas are wasted annually, typically as a by-product of oil extraction.

This waste could be fixed in 5 years with the appropriate world effort. It would generate tens of billions of dollars. Flare Gas Reduction (60 page pdf)

Approximately 150 billions of cubic meters of natural gas are flared in the world each year, representing a 15 to 20 billion dollar waste of resources and a 260 to 400 million metric ton contribution to global greenhouse gas emissions.

The study finds that the technologies required for a solution exist today. Depending on region, these may include power generation, gas re-injection (for enhanced oil recovery, gathering and processing), pipeline development and distributed energy solutions. Nearly $20 billion in wasted natural gas could be used to generate reliable, affordable electricity and yield billions of dollars per year in increased global economic output.

“Power generation, gas-reinjection and distributed energy solutions are available today and can eliminate the wasteful practice of burning unused gas. This fuel can be used to generate affordable electricity for the world’s homes and factories,” said Michael Farina, program manager at GE Energy and author of the white paper.

The report provides a region-by-region analysis of gas flaring trends, including:

* Within the Russian Federation, by some measures the world’s largest source of flare gas emissions, as much as 50 billion cubic meters of natural gas produced is wasted annually. If half of this flare gas (25 bcm per year) was captured and sold at prevailing domestic prices in Russia, the economic opportunity may exceed $2 billion U.S. dollars (65 billion rubles). A significant portion of this waste could be avoided with modest policy efforts and greater emphasis on investments in power generation and gas processing technologies.

* Although Nigeria has reduced flare gas emissions by 28 percent from 2000 levels, the country’s oil industry still wastes 15bcm of natural gas every year. While nearly half of the population has no access to electricity, the country spends nearly $13 billion per year on diesel-powered generation and perhaps 10GW of potential electricity is flared away. Successful capture and flare gas utilization could potentially triple per capita electricity consumption for this nation of 155 million people.

* Elsewhere in West Africa, Angola, Equatorial Guinea, Gabon, Congo and Cameroon collectively waste about 10 billion cubic meters of natural gas every year.

* Low natural gas prices and higher costs related to capturing flare gas in the Middle East inadvertently encourage the wasteful burning of unused gas.

Economics for Russian Gas Flaring Reduction

In 2007, the World Bank commissioned a large study by PFC Consulting to examine economic options for associated gas monetization in Russia. The study found two of the most efficient ways to monetize flare gas were electric power generation and development of gas processing plants. In addition, the authors concluded that at a netback price of around $50/Mcm ($1.42 per MMBtu) close to 80 percent of Russia’s associated gas could be economically recovered.

Assuming the gas price reforms discussed above are implemented, domestic gas price to industrial users in Russia is scheduled to increase from about $70 per MCM ($2.00 per MMBtu) in 2009 to over $115 ($3.30 per MMBtu) by 2012. An estimate by PFC points to gas transmission mainline charges of around $65 per Mcm for lean dry gas delivered to the Gazprom system from Western Siberia. However, the additional
gathering and processing costs to move gas to a transmission mainline will range dramatically depending on the size of the source field and the distance to the processing plant. When additional costs to deliver gas from associated gas processing plants to the Gazprom system are included, the netback price from the domestic industry for sales of processed flare gas will likely be less than $50 per Mcm by 2012. This means that price reforms, and perhaps other policy incentives, will be critical in driving additional flare reduction investments on an economic basis.

So, how much does it cost to gather or use associated gas? The Russian Academy of Sciences study estimates associated gas processing costs at $47 per Mcm, excluding gathering and compression charges.

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