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Algeria Associated Gas U0liza0on Study Perrine Toledano, Patel Karishma and Shayan Banerjee, with thanks to Tom Mitro for his review.

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Page 1: Algeria Associated Gas U0lizaon Study - Millennium Promiseccsi.columbia.edu/files/2014/06/Algeria-APG-Utilization-Study-May-2017-CCSI.pdf · S Algeria is the third largest oil producer

AlgeriaAssociatedGasU0liza0onStudy

PerrineToledano,PatelKarishmaandShayanBanerjee,withthankstoTomMitroforhisreview.

Page 2: Algeria Associated Gas U0lizaon Study - Millennium Promiseccsi.columbia.edu/files/2014/06/Algeria-APG-Utilization-Study-May-2017-CCSI.pdf · S Algeria is the third largest oil producer

Toughstanceongasflaringwithastronglegalframeworkmade

oftaxandpenalty

GGFRawardandCCSproject

Increasingflaringduetoagingfieldsandlackofinvestmentin

infrastructure.

SummaryofFindings

S  Algeriaappearstohavetakenatoughstanceongasflaringwithinthelastdecade.Ithaslegallyprohibitedflaringsince1966butonlystartedpenalizingitin2005.Itisoneofonlythreecountries(alongwithNigeriaandNorway)thattaxesflaring.ThecurrentlevelofflaringtaxissimilartothatleviedinNorway.

S  Un0l2012,thereduc0onofflaringwasdras0c,whichledtotheAlgerianna0onaloilandgascompanySonatrachreceivingtheWorldBanks’sGlobalGasFlaringReduc0on(GGFR)award.Sonatrachwasinpar0cularrewardedforitsuniqueCarbonCaptureandStorage,injec0ngCO2removedduringsweeteningintoasalineforma0on(InSalahGas).

S  Sincethen,however,flaringhasbeenonanupwardtrend,inpar0cularfromSonatrachfields,sugges0ngthattheenforcementofthestronglegalframeworkischallengedby1)alackofinvestmentinadequateinfrastructure,whichishamperedbyacombina0onoffuelsubsidiesandlowoilpriceshur0ngthestatefinance;2)theagingofoilfieldsgenera0ngmoreassociatedpetroleumgas(APG);and3)thelackofforeigninvestment.

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Thesta0s0csofAPGflaringinAlgeria:Howbadisit?

OverviewstatsonAPGflaring

Flaringtrendover0me

Onthecompaniesinvolved

37.4

14.611.4

9.47.1

5 4.7 4.1 3.7

0

5

10

15

20

25

30

35

40

Gasflared

(bcm

)

Top10GasFlaringCountries2011

S  AlgeriaisthethirdlargestoilproducerinAfrica,a_erNigeriaandLibya,andthelargestnaturalgasproducerinAfrica.AccordingtotheEIA,Algeria’scrudeoilproduc0onwillgraduallydeclineatleastintheshortandmediumtermgiventhatthebigoilfieldsarematureandonlysmalloilfieldsareplannedtocomeonline.

S  TheAPGcomesfromthefieldsinthesouthernandsoutheasternregionsofthecountry.

S  AccordingtotheflaringdatacollectedbyGGFR,Algeriaflared9.1billioncubicmeters(bcm)ofAPGasof2015.

Source:NOAAsatellitees0mates,2011

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OverviewstatsonAPGflaring

Flaringtrendover0me

Onthecompaniesinvolved

Source:GGFR,2011

FlaredgasvsGasproducJon

S  AlgeriadevelopedastringentprogramthatbroughtdownAPGflaringfrom33%ofthegrossnaturalgasproducedin1995tolessthan2%today,accordingtotheEIA.

S  Thisprogramleveragedtheconstruc0onofgaspipelineinfrastructureandliquefiednaturalgas(LNG)infrastructurewhichgaveamarketoutlettotheAPGproduced.

Thesta0s0csofAPGflaringinAlgeria:Howbadisit?

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S  A_erasharpreduc0oninflaringbetween2009and2012,sanc0onedbytheGGFRawardin2012(seenextslide),Algeria’sflaringisonanupwardtrendagain.

S  GGFRdatashows8.1bcmofAPGflaredin2013,8.6bcmin2014and9.1bcmin2015.Thisincreasingtrendismostprobablyexplainedbythedeclineofthebigoilfieldswherethegas/oilra0otypicallyrises,reflec0ngdecliningoverallwellpressure,withthereinjectedgascomingtothesurfaceanddisplacingsomeoftheliquidsbeingproduced;thisleadstomoreAPGbeingproducedandthenflaredifnoaddi0onalmeasureistakentomone0zeit.

S  Whilethedomes0cenergyconsump0onhasrisenandAPGcouldservethisdemand,itseemsthatlowoilmarketpricesandfuelsubsidieshavedrainedthestatefinanceandhamperedthedevelopmentofadequateinvestmentininfrastructuretoabsorbthisAPG.

OverviewstatsonAPGflaring

Onthecompaniesinvolved

Flaringtrendover0me

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014

millionmetric

tons

CO2EmissionsfromtheFlaringofNaturalGasinAlgeria

Source:Interna0onalEnergyData,2015

Thesta0s0csofAPGflaringinAlgeria:Howbadisit?

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Thesta0s0csofAPGflaringinAlgeria:Whoisinvolved?

OverviewstatsonAPGflaring

Flaringtrendover0me

Onthecompaniesinvolved

S  MostofthemajorsarepresentinAlgeriabuttheyalloperateinjointventurewithSonatrach,theAlgerianna0onaloilandgascompany.

S  MostoftheflaringcanbetracedbacktotheaginggiantfieldsthatSonatrachhasoperated:HassiMessaoud,whichtypicallyproducesaround500,000barrels/dayofcrude(40%oftotalAlgeria’soiloutput),andsmalleronessuchasthefieldsofZarzai0ne,HaoudBerkaoui,andAitKheir.

S  In2012,SonatrachwontheWorldBankGGFRaward.ThisawardrecognizestheeffortsandresourcesofSonatrachforthereduc0onofgasflaringfortheprotec0onoftheenvironment.Theseprojectsledtotherecoveryof260bcmofAPG.

S  Anadarkoisthebiggestinterna0onaloilcompanyopera0nginAlgeria.Itsignedproduc0on-sharingagreementswithSonatrachinthelate1980sandsincethenhasproducedoilfromthreemegaprojectslocatedintheSaharaDesert(Ourhoud,HBNSandElMerk–Blocks404and208).TheElMerkfacility(describedinslide12)minimizesflaringatblock208.

S  Interna0onalinvestmenthassaggedsince2002duetoanunfavorableinvestmentclimate.

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Whatisthelegalandfiscalframeworkinplacetostopflaringandincen0vizeAPGuse?

Regula0on:Agenciesandanalysis

Regula0on:Legalframeworkandanalysis

GovernmentinsJtuJonsinvolvedinregulaJonofoilproducJon/flaring

DescripJon

MinistryofEnergyandMines Inchargeofdevelopingpolicyandstrategyfortheexplora0on,produc0onandvaloriza0onofpetroleum,miningandenergyresources,andtheirrelatedindustries.

NaJonalAgencyfortheValorizaJonofHydrocarbonReserves(ALNAFT)

CreatedbytheHydrocarbonsLawof2005andeffec0velyinfunc0onsince2008.Promotesinvestmentinhydrocarbonexplora0onandproduc0on.Itmanagesandmonitorsthecontractualaspectsofupstreamac0vi0es,fromthedevelopmentplantothecollec0onofroyal0es.Thisfunc0onincludesthegran0ngofpermitsforexcep0onalflaring,aswellasthecollec0onofpenal0esongasflaring.

HydrocarbonsRegulaJngAuthority(ARH)

CreatedbytheHydrocarbonsLawof2005.Implementsandenforcesregula0onspertainingtohydrocarbonac0vi0es,includingtechnicalandtransporta0ontariffsandfreeaccessregula0on.Italsooverseestheimplementa0onofenvironmentalregula0onsincludingthoserelatedtocarbondioxideemissions.

Sonatrach Na0onalcompanyinchargeoftheexplora0on,exploita0on,transport,processing,andmarke0ngofhydrocarbons.BeforetheestablishmentofALNAFT,Sonatrachwasalsotheregulator.

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Whatisthelegalandfiscalframeworkinplacetostopflaringandincen0vizeAPGuse?

S  1966:AlgerianGovernmentprohibitsflaringofgas.

S  2005HydrocarbonLawand2006Ordinance:S  Prohibitsflaring,butALNAFT(Na0onalAgencyfortheDevelopmentofHydrocarbon

Resources)may,excep0onallyandforlimitedperiods,grantauthoriza0onforflaringatanoperator’srequest.

S  Actually,Execu0veDecree13-400rela0ngtoflaringstatesthatALNAFTmustgranttemporaryauthoriza0oninspecificcircumstancessuchasinthecaseof"theassessmentoftheproduc0vityofwellsduringthepilotphaseforunconven0onalhydrocarbons”orinthecaseof"thefirstexploratoryuseofaproduc0onwell”orformaintenance.

S  Anyapplica0onforsuchauthoriza0onmustcontainawellloca0onreportdescribingtheprovisionaldate,dura0onandes0matedvolumestobeflared.Inaddi0on,adetailedtechnicalprogramfortes0ngthewelllayingouttherequiredsafetymeasuresmustbesubmined.

S  Authoriza0onstoflarearelimitedtodura0onsnotexceeding90days.S  Perminedflaringissubjecttoataxof8,000DZD(~US$110)perthousandnormalcubic

meters,modifiedeachyearatafixedrate;thisisaflaringtaxsimilartothatleviedinNorway.S  Forremoteorisolatedareas,wherethegasinfrastructureislimitedorlacking,specificpricing

condi0onsaredetermined.

S  AccordingtoGGFR,gasflaretaxescouldpoten0allycostoperatorsmorethanUS$600millionannually.Wedidn'tfindevidencethatthesewereactuallypaid.

S  Sonatrachhadsetobjec0vesofrecovering94%ofassociatedgasby2008-2009and100%by2010,butthesewereseeminglynotachieved.

S  SinceSonatrachwasalsotheregulatorforyears,passingontheregulatorypowertoALNAFThastakensome0meandmighthavealsodelayedtheenforcementoftheflaringmeasures.

Regula0on:Agencies

Regula0on:Legalframeworkandanalysis

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Powergenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

Condensates

Reinjec0on

S  ItseemsAPGwillnotbeusedforpowergenera0on.

S  AccordingtotheIEA,naturalgasalreadyaccountedfor93%ofpowergenera0oninAlgeriain2013andtheAlgeriangovernmentisaimingatreducingthisdependencebyincreasingtheshareofelectricitygeneratedbyrenewableenergy.ThegoaloftheAlgerianEnergyMinistryofEnergyandMinesistogenerate40%ofAlgeria’selectricityfromrenewablesourcesby2030.

S  TheAPGcould,however,feedLNGfacili0esandtheliquidpetroleumgas(LPG)expansionprojectasexplainedinthenextslide.

Whatneedscouldtheflaredgassa0sfy?

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Powergenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

Condensates

Reinjec0on

S  Algeria’sfavorablegeographicalposi0oningadjacenttotheMediterraneanSeamakesitaprivilegedcandidateforthedevelopmentofLNG.

S  Asof2016,AlgeriawastheseventhlargestexporterofLNGintheworld.Currently,Algeriahasfourliquefac0onLNGunitsalongtheMediterraneanSeawithatotaldesigncapacitytoprocess44mt/yearofnaturalgas.

S  ThisinfrastructurecouldbeleveragedfromAPGuse.HoweverSonatrachhadplansfortwolargescalefacili0esin2009thathavesincebeenscrapped,andagingtrainsatexis0ngfacili0esmustbeupgraded.

Whatneedscouldtheflaredgassa0sfy?

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Powergenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

Condensates

Reinjec0on

S  AlreadythelargestLPGproducerinAfricaandthe9thlargestLPGproducerintheworld,Algeriahasembarkedonanaggressiveplantoswitchfromconven0onalfuelstoLPGindomes0cpassengercarsandlight-dutyvehicles.

S  Currentlyonly3%ofvehiclesinAlgeriarunonLPG,butthegovernmenthassetagoaltointegrate100,000LPG-basedvehiclesintothetransporta0onsectorby2030.

S  Similarly,thegovernmentaimsat11,000newcompressednaturalgas(CNG)-poweredbusesby2030.Tothisend,aconversioncenterandCNGservicesta0onswillbesetup.

S  Themo0va0onistoenhanceenergyefficiencyandreducepollu0on.Roadtransportcons0tutes41%ofallenergyuse,producingabout14milliontonsofCO2annually.By2030,iftheplandescribedaboveisinplace,energyconsump0onisprojectedtodropby9%,bringingana0onalbudgetsavingsof42billiondollarsin2030—whichcouldhelpcompensateforalossinrevenuesbroughtaboutbylowpricesandfuelsubsidies.

S  ThisprojectcouldhelpchannelmoreAPGtodomes0cu0liza0on.

Source:Gazeo,2015

Whatneedscouldtheflaredgassa0sfy?

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APGusecompanycasestudy:theElMerkfacili0es

PowerGenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

Condensates

Reinjec0on

S  ProjectParJcipants

o  OperatedbyGroupementBerkine,ajointventureofSonatrachandtheAnadarkoAssocia0on(comprisingAnadarko,MaerskOilandEni)onbehalfofthemselvesandtheotherElMerkpartnersConocoPhillipsandTalisman(Algeria).

S  ProjectDescripJonandMoJvaJon

o  TheprojectisdesignedaroundaCentralProcessingFacility(CPF)toprocessandexportreservoirliquidsfromfourprimarysources–theElMerkNorth,ElMerkEastandElKheitEtTessekafieldsinBlock208andtheuni0zedElMerkfieldinBlock208andBlock405a.ItalsoaccommodatesliquidsfromtheSonatrach/AnadarkoandSonatrach/EniAssocia0ononBlock403a/404a,situatedapproximately80kmnorthoftheElMerkdevelopment.

o  Theprojectwascompletedin2013.

o  ElMerkprocessesanes0mated:o  98,000barrelsofoilperdayo  29,000barrelsofcondensateperdayo  31,000barrelsofLPGperdayo  500millionstandardcubicfeetofresidueandreinjec0ongascompressionando  About80,000barrelsperdayofproducedwatertreatmentandreinjec0onfacili0es.

S  ProjectLocaJon

o  TheElMerkFieldsarelocated300kmsoutheastofHassiMessaoud,aremotedesertloca0onintheBerkineBasin,approximately160kmsoutheastofthetownofHassiMessaoud,closetobothTunisiaandLibya.

o  AssociatedGasUse

o  TheCPFconsistsofthreetrains–twooil/condensateandoneNGL–toprocess,store,meter,andexportthehydrocarbonliquids.Theexportproductsinclude:Saharablendcrude,lightcondensateandamixedLPGstreamofpropaneandbutanewhichareextractedfromtheAPGofthesefields.

o  ThedrycomponentoftheAPGisreinjected.

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APGusecompanycasestudy:HassiMessaoud–ZCINAplant

PowerGenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

Condensates

Reinjec0on

S  ProjectParJcipants

o  SonatrachandEngineering,ProcurementandConstruc0oncontractorSaipemSpA

S  ProjectDescripJonandMoJvaJon

o  TheprojectisdesignedaroundtheZCINAprocessingzonesepara0ngLPGandcondensatesfromtheAPGoftheHassiMessaoudNorthfield.

o  Itwascompletedin2012.

o  TheprojectiscomposedofthreegastreatmentplantsthataremodularanddesignedtoaccommodatefutureAPGincreases.

o  Averageproduc0onofLPG:4,600t/dayo  Averageproduc0onofoncondensate:300t/day

o  ProjectLocaJon

o  NearthevillageofHassiMessaoud

o  AssociatedGasUse

o  TheprojectconsistsofthreeLPGtrainswithacapacityof8millioncubicmeters/dayextendabletofour.

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CO2reduc0onprojectatgasfields

PowerGenera0on

LiquefiedNaturalGas(LNG)

LiquidPetroleumGas(LPG)

NaturalGasLiquids(NGL)

Reinjec0on

S  TheInSalahfield,locatedintheAlgerianSahara,isrunasajointventurebetweenSonatrach,BPandStatoil.Here,thereisanindustrialscalefacilityforreduc0onofCO2emissionsviareinjec0onintodeepwells.

S  InSalahinvolvesthedevelopmentofsevenprovengasfieldsinthesouthernSaharadesert,about1,200kmsouthofAlgiers.Thefirstphaseofdevelopmentstartedin2004andinvolvesaproduc0oncapacityofapproximatelyninebillioncubicmetersofgasperyearatthreefields.ThegasisgatheredatthemainKrechbagastreatmentplant,transportedalonga500kmpipelinetothemajorgascollec0onpointatHassiR’Mel,andthenexportedtomarketsinSpainandItaly.Thesecondphasewillstartin2015.

S  ThegasproducedhasaCO2contentofbetween5-10percent,whichmustberemovedtomeetsalesgasexportspecifica0onsof0.3percentCO2.TheKrechbagastreatmentplantremovestheCO2andproducesaCO2streamofover98%purity.

S  Sincethestartof2004,3.8milliontonsofCO2gashasbeenstoredbelowgroundintothesamegeologicalsalineforma0onthatholdsthenaturalgas.However,reinjec0onwasstoppedin2011asasafetymeasure.

S  AlongsidethisCO2Storageproject,theInSalahCO2AssuranceJointIndustryProjectwassetuptomonitortheCO2storageprocessleveraginggeochemical,geophysicalandproduc0ontechniques,includingsatelliteimaging,wellmonitoring,seismicmonitoring,andmicro-seismicmonitoring.ItissupportedbytheJVpartnersaswellastheUSDepartmentofEnergyandtheEUDirectorateofResearch.

S  Currently,themovementsoftheinjectedCO2arebeingstudiedandusedtoassesscurrentreinjec0onstrategy.

Source:GlobalCSSIns0tute

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References

S  AlgeriaEnergyandBusiness.“SonatrachwinsWorldBankGlobalGasFlaringReduc0onAward.”hnp://algeriaenergy-business.com/Algeria/index.php/mes-ar0cles/231-sonatrach-wins-world-bank-global-gas-flaring-reduc0on-award

S  EnergyandMinesMagazine,March2009edi0on:hnp://www.mem-algeria.org/larevue/Energie_mines_10-ang.pdf

S  Gaillard,EmmanuelandMaudeLebois.AfricanUpstreamOilandGas:Algeria,Shearman&SterlingLLP,hnp://www.shearman.com/~/media/Files/NewsInsights/Publica0ons/2015/08/20150301_EGML_Algeria_Book-Africa-Upstream-Oil-and-Gas.pdf

S  GGFRFlaringData,2013-2015,hnp://www.worldbank.org/en/programs/gasflaringreduc0on#7

S  GlobalCCSIns0tute,InSalahCO2Storage,December2015,hnp://www.globalccsins0tute.com/projects/salah-co2-storage

S  InterviewwithSidAliBetata–Chairman,Execu0veComminee,ALNAFT–Algeria,EnergyBoardRoom,July2015,hnp://www.energyboardroom.com/interviews/interview-sid-ali-betata-chairman-execu0ve-comminee-alna_-algeria/

S  Interna0onalGasUnion,2016WorldLNGReport,hnp://www.igu.org/publica0ons/2016-world-lng-report

S  LamineChiki,Algeriasubsidysystem"unsustainable"evenwithhighoilprice–economist,Reuters,April2016,hnp://www.reuters.com/ar0cle/algeria-economy-idUSL5N1760LF

S  Markowski,Robert.“LPGandCNGtoGrowinAlgeria.”Gazio,June2015,hnp://gazeo.com/up-to-date/news/2015/LPG-and-CNG-to-grow-in-Algeria,news,8750.html

S  MaerskOilInsights,October2013,hnp://blog.maerskoil.com/post/65610085016/key-project-the-el-merk-field-

S  MIT.InSalahFactSheethnps://sequestra0on.mit.edu/tools/projects/in_salah.html

S  Petrofac.com,ElMerkCentralProcessingFacility,Algeria,hnps://www.petrofac.com/en-gb/regions/africa/projects/el-merk-central-processing-facility

S  Roshkova,Anastasiya.“Interna0onalPrac0cesinPolicyandRegula0onofFlaringandVen0nginUpstreamRegula0ons.”WorldBank,Dec.2011,hnp://siteresources.worldbank.org/INTGGFR/Resources/578035-1164215415623/3188029-1324042883839/1_Interna0onal_Prac0ces_in_Policy_and_Regula0on_of_Flaring_and_Ven0ng_in_Upstream_Opera0ons.pdf

S  U.S.EnergyInforma0onAdministra0on.CountryAnalysisBrief:Algeria,hnps://www.eia.gov/beta/interna0onal/analysis_includes/countries_long/Algeria/algeria.pdf