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MONETIZING STRANDED ASSOCIATED GAS,

PETROAMAZONAS’ PERSPECTIVE

CHRISTIAN GUTIERREZ / DAVID NEIRA

EFI GAS FLARE REDUCTION & MONETIZATION FORUM

DENVER MARRIOTT CITY CENTER

DENVER, COLORADO

15 – 17 JUNE 2015

BUSINESS AS USUAL

South America

The existing Business Environment in

N

ECUADOR Ecuadorian Amazonian Region

the oil industry (still) shows high levels

of gas flaring in the Ecuadorian oil

sector

SCENARIO PRIOR TO THE

ENERGY MATRIX REVOLUTION

Over the past 30 years, prior to implementing

the Energy Efficiency Initiative through the

OGE&EE Project, the Ecuadorian Oil Industry:

Developed only 15 MW of additional gas / crude power generation facilities which represents no

more than 4.4% of the total power demand in the year 2023 (by means of the OGE&EE Project the

State is developing over 300 MW).

Over 100 million cubic feet of associated gas were burned per day whereby its value in BOE

represents over US $ 14 billion.

Overall utilization factor in the range of 30-35% which means that for every 1 MW power demand it

had to install ~3 MW (by means of the OGE&EE Project the overall utilization factor will increase to

> 70%).

CURRENT SCENARIO TOWARDS

LOW CARBON DEVELOPMENT

PETROAMAZONAS EP fosters a new energy model

through the OPTIMIZACIÓN GENERACIÓN ELÉCTRICA

Y EFICIENCIA ENERGÉTICA Project (also referred to as

the OGE&EE Project), whereby one of the core

strategic approaches is to develop a “Cluster Project

Program”.

The main goals of the OGE&EE Project are the

following:

Reduce overall “footprint” per produced barrel of

oil.

Optimize available non-renewable energy resources

(low cost and environmental impact) within the Oil &

Gas Industry.

Eliminate diesel and reduce crude oil consumption

for power generation.

Optimize Associated Gas for Power Generation.

Develop a robust power transmission/distribution

system enabling it to deliver low cost energy to

end users (Oil Companies and Communities within

the area of influence) and reducing

overall environmental impact.

PROJECT CLUSTER APPROACH

SISTEMA ELÉCTRICO INTERCONECTADO

PETROLERO EXTENDIDO (SEIP-E) 2012 - 2017

FACILIDADES DE GENERACIÓN ENTREGADAS Y EN CONSTRUCCIÓN / FABRICACIÓN OGE & EE

CAPACIDAD

ITEM ESTACIÓN COMBUSTIBLE DETALLE

(MW)

1 BLOQUE 12 - EPF 24,00 GAS / CRUDO Fase 1 NCG Gas / Crudo

2

BLOQUE 12 - EPF

15,40

CRUDO**

Fase 1 NCG Crudo

3

BLOQUE 12 - EPF

15,40

CRUDO**

Fase 2 NCG Crudo

4

BLOQUE 15 - CPF

6,25

GAS

Fase 1 NCG Gas GE-320

5

BLOQUE 15 - CPF

4,00

GAS

Waukesha

6

BLOQUE 15 - LIMONCOCHA

3,75

GAS

Waukesha

7


4,00

GAS

Waukesha

8


2,40

GAS

Waukesha

9

BLOQUE 15 - YAMANUNKA

2,08

GAS

Gas GE-320

10

BLOQUE 15 - PAKA SUR

2,08

GAS


11

SECOYA

11,00

GAS / CRUDO

Fase 1 Central Generación

12

BLOQUE 18 - ZPF

7,00

CRUDO**

Fase 1 NCG

13

BLOQUE 12 - EPF

15,40

CRUDO**

Fase 3 NCG Crudo

14

BLOQUE 18 - ZPF

14,00

CRUDO**

Fase 2 NCG

15

BLOQUE 15 - CPF

14,00

CRUDO**

Fase 1 NCG Crudo

16

BLOQUE 15 - CPF

3,12

GAS


17

BLOQUE 15 - PAKA SUR

2,08

GAS


18

SHUSHUFINDI CENTRAL

7,00

GAS

Waukesha

19

LAGO AGRIO

6,80

CRUDO

MPU

20

AUCA SUR

6,80

CRUDO

MPU

21

SECOYA

7,00

GAS / CRUDO

Fase 2 Central Generación

22

BLOQUE 7 - OSO B

13,60

CRUDO

MPU

23

DRAGO

7,40

GAS

Waukesha

24

PUCUNA

2,00

GAS

GMPU

25

CULEBRA

5,00

GAS

GMPU

26

AUCA SUR

10,00

GAS

GMPU

27

GUANTA

5,00

GAS

GMPU

28

VHR

5,00

GAS

GMPU

29

SACHA CENTRAL

15,00

GAS

NCG Gas

30

SHUSHUFINDI CENTRAL

15,00

GAS

GMPU

31

CUYABENO

5,00

GAS

NCG Gas

32

SACHA SUR

15,00

GAS

GMPU

33

SHUSHUFINDI CENTRAL

17,10

GAS

Wartsila 18V34SG

34

BLOQUE 12 - EPF

14,00

GAS / CRUDO

Fase 2 NCG Gas / Crudo

35

SHUSHUFINDI CENTRAL

6,80

CRUDO

MPU Emergentes

36

CUYABENO

6,80

CRUDO

MPU Emergentes

37

SACHA

6,80

CRUDO

MPU Emergentes

TOTAL

323,06

** Con capacidad de Generación a Gas y Condensados

SIMBOLOGÍA G Generación (Facilidades Entregadas)

G Generación (Facilidades en Construcción)

G Generación (Facilidades a Licitar)

G Generación (Facilidades Adicionales)

S/E Eléctrica en Bloques/Campos (138kV)

S/E Eléctrica en Bloques/Campos (69kV)

S/E Eléctrica en Bloques/Campos (34.5kV)

S/E Eléctrica en Bloques/Campos (13.8kV)

Línea 230kV Aérea Nueva (Transelectric)

Línea 138kV Aérea Nueva (Transelectric)

Línea 138kV Enterrada Nueva (En Evaluación)

Línea 138kV Enterrada Nueva (En Aprobación)

Línea 69kV Aérea Existente

Línea 69kV Aérea Nueva

Línea 69kV Enterrada Nueva

Línea 34.5kV Aérea Existente

Línea 34.5kV Enterrada Existente

Línea 34.5kV Enterrada Nueva

Línea 13.8kV Enterrada Existente

Línea 13.8kV Enterrada Nueva

N

OVERALL INVESTMENT

~USD 1,200,000,000

INVEST UP TO

DECEMBER 2014

~USD 575,000,000

POWER GENERATION

Increase nominal installed capacity

(distributed power with > 20 power

generation facilities).

324.06 MW

Additional capacity installed up to December 2014

173.16 MW

Under construction up to December 2014

82.26 MW

POWER DISTRIBUTION

13.8 / 35 / 69 kV of 13.8 / 35 / 69 kV of

Distribution System to be developed

519.7 km

Distribution System built /

under construction up to December 2014

149.7 km

138 kV Transmission

System to be developed

470 km

GAS GATHERING AND

TRANSPORTATION

Gas pipelines to be developed under the

OGE&EE Project.

+ 100 km

RESEARCH AND DEVELOPMENT

Fuel Flexibility: Develop technology with the

capability to burn either Crude Oil, Associated

Gas and or Liquid Associated Gas

(Condensates).

Waste Heat Recovery (WHR): Optimize

exhaust gases for process facilities.

Monetizing Stranded Gas: Bring to market to

monetize remote/ limited volume of

Associated Gas.

AGENDA

1. BACKGROUND

2. PROBLEM DESCRIPTION

3. ALTERNATIVES FOR MONETIZING

STRANDED ASSOCIATED GAS

4. TECHNICAL – ECONOMIC ANALYSIS

5. CONCLUSIONS

1. BACKGROUND

o Oil Production fields inherited

from different Companies

o Field with more than 40 years in

operation.

o Different Technologies.

o Transport pipelines designed for

liquid phase.

o Incremental oil production.

1. BACKGROUND

o Well to tank (oil

production)

o Degasification in local

gas boot

o Small volume of gas is

flaring (20 to 750

MSCFD)

1. BACKGROUND

1. BACKGROUND





5. CONCLUSIONS

AGENDA


Distribution Map of wells

• A large distance between

well pad to well pad.

• The gathering stations of fluids

is very far away from the well.

• Petroamazonas.EP analyzed

different scenarios and from

technologies that permit,

collection, transportation and

storage, of associated gas.

• Conceptual Engineering of

Monetizing Stranded

Associated Gas.

Well pad A

Well pad B

Well pad C

Well pad D

Central Process Facilities

Well pad E

Well pad F

2 k

m

www.petroamazonas.gob.ec

@petroamazonasEP Petroamazonas EP

Petroamazonas EP

Associated Gas Challenges:

1.- The associated gas is UNSTABLE,

UNRELIABLE and UNPREDICTABLE,

in terms of Volume, composition

and trend.

2.- It is not possible to implement a

generic solution that can be

adapted to the variations of

volume and compositions.

3. ALTERNATIVES FOR MONETIZING STRANDED ASSOCIATED GAS

% m

ola

r C

O2

M

MSC

FD

Volume trend of well pad 192, Sacha Norte 2


Gas Composition Range of Ecuador Amazonia Region

Molar Fraction Pucuna

Field

Ecuadorian

Amazonia

Region

Average

Cuyabeno

Field

N2 2.915 2.84 1.71

CO2 13.32 25.00 48.79

H2O 3.68 0.27 8.39

C1 48.84 47.05 14.54

C2 8.56 7.92 4.23

C3 11.55 9.91 12.02

i-C4 1.66 1.29 2.03

n-C4 5.19 3.80 4.51

i-C5 1.36 0.81 1.43

n-C5 1.26 0.69 1.37

C6 1.15 0.39 0.98

C7 0.14 0.02 0.00

C8 0.14 0.01 0.00

C9 0.13 0.00 0.00

C10 0.12 0.00 0

Total 100.00 100.00 100.00

1. BACKGROUND





5. CONCLUSIONS

AGENDA


According to Petroamazonas.EP criteria, the alternatives analyzed

were:

Alternative 1. To transport by conventional gas pipeline

Alternative 2. To install a small power plant at local site

Alternative 3. To Install conversion Kits (bi-fuel system) in existing

diesel engines

Alternative 4. To transport associated gas and the

condensated one in a virtual pipeline to existing

power plant

For each alternative the analysis considered 150 MSCFD


Alternative 1: To transport by conventional gas pipeline

o Advantage:

o Use of existing power plants. The site where the gas would be

collected, has an existing gas treatment plant and existing gas

power plant.

o Disadvantage:

o Due to high degree of uncertainty regarding the production

forecast, it would have a high risk of having unused assets to

future.

o High cost for investment

Estimated Implementation Cost(Class V): 4.35 Million USD


Alternative 2: To install a small power plant at local

site

o Advantage :

o Quick Installation

o Modular and Portable criteria

o Disadvantage :

o It is required to buy new engines/turbines for

generation

o The cost of exporting the electrical energy to

the other fields has not yet been considered in

this analysis.

Estimated Implementation Cost(Class V):

1.35 Million USD

Implementation Cost, Million USD

Alternative 1 4.35

Alternative 2 1.35


Alternative 3: To install conversion Kits (bi-fuel

system) in existing diesel engines

o Advantage:

o Low investment cost

o Quick installation

o Disadvantage:

o Poor adaptability to the dynamic

fluctuation of gas.

o It is not possible to displace all diesel

fuel

Estimated Implementation Cost(Class V): 1.05

Million USD.


Alternative 1 4.35

Alternative 2 1.35

Alternative 3 1.05


Alternative 4: To transport associated gas and the condensated one in

virtual pipeline to existing power plant.

o Advantage:

o Modular and Portable. All equipment can be relocated to another

field , when gas production decreases

o The existing Gas Power Plant could be used

o Disadvantage:

o Special materials for the transportation stage are required, because

the gas composition is aggressive against metallic material

Estimated Implementation Cost (Class V): 1.4 Million USD


Alternative 1 4.35

Alternative 2 1.35

Alternative 3 1.05

Alternative 4 1.40


Selection Criteria for Alternatives:

o Use of existing installations - UEI.

o Versatility of technology to move the equipment to another

location– VT.

o Prioritize centralized power generation in order to maximize

the utilization of the equipment factor– PCPG.

o Minimum Investment Cost, in order to maximize the

profitability of project. (Estimated cost Class V)– MIC.

o Implementation time – IT.


Calculation of the weighting factor (WF ) of the selected criteria

Qualifications 10 = Much More Important

5 = More Important

1 = Same Important

0.2 = Less Important

0.1 = Much Less Important

FP = Weighting Factor

PO = Option weight

Weighting Factor of Each Criteria UEI VT PCPG MIC IT Sum Weighting

Factor (WF)

Use existing Installations (UEI) 0.20 1.00 5.00 0.20 6.40 0.16

Versatility of technology (VT) 5.00 5.00 1.00 1.00 12.00 0.29

Prioritize centralized power generation(PCPG)

1.00 0.20 1.00 0.20 2.40 0.06

Minimum Investment Cost(MIC) 1.00 1.00 5.00 1.00 8.00 0.20

Implementation time (IT) 5.00 1.00 5.00 1.00 12.00 0.29

40.80 1.00


Weigh of Options (PO) according to the criteria: Versatility of technology

to move the equipment to another location– VT

Weigh of Options (PO) according to the criteria: Use Existing

Installations - UIE

Use existing Installations (UEI) CP PPLS ICK VP Sum Alternative

Weight (AW)

Conventional gas pipeline (CP) 5.00 1.00 1.00 7 0.27

Power Plant at local site (PPLS) 0.10 5.00 0.10 5.2 0.20

Install Conversion Kits (ICK) 1.00 5.00 1.00 7 0.27

Virtual Pipeline (VP) 1.00 5.00 1.00 7 0.27

26.2 1.00

Versatility of Technology (VT) CP PPLS ICK VP Sum Alternative

Weight (AW)

Conventional gas pipeline (CP) 0.20 0.20 0.10 0.5 0.02


Install Conversion Kits (ICK) 5.00 1.00 0.20 6.2 0.19


32.8 1.00


Weigh of Options (PO) according to the criteria: Minimum Investment

Cost (INV)

Weigh of Options (PO) according to the criteria: Centralization

(CENT)

Prioritize centralized power generation(PCPG)

CP PPLS ICK VP Sum Alternative

Weight (AW)

Conventional gas pipeline (CP) 10.00 10.00 1.00 21 0.47


Install Conversion Kits (ICK) 0.10 1.00 0.10 1.2 0.03


44.4 1.00

Minimum Investment Cost(MIC) CP PPLS ICK VP Sum Alternative

Weight (AW)


Power Plant at local site (PPLS) 5.00 0.20 5.00 10 0.33


Virtual Pipeline (VP) 5.00 0.20 0.10 5.3 0.17

31.2 1.00


Weigh of Options (PO) according to the criteria: Implementation Time

(TIM)

Total Qualification of each Alternative

Implementation time (IT) CP PPLS ICK VP Sum Alternative

Weight (AW)





37.8 1.00

1. BACKGROUND





5. CONCLUSIONS

AGENDA


• As the alternatives, Conversion Kit and Virtual Pipeline,

are very close to each other, we analyzed the cash flow

for each alternative including the cost of fuel, during life

cycle of the project. This opened a large gap between

the alternatives. We selected the Virtual Pipeline

because the conversion kit alternative can only move

60% of fuel. The remaining 40% would be diesel fuel that

Petroamazonas.EP would have to import.

• The cost of gas fuel for this analysis is considered zero,

since at this time the gas is flaring.


For the Alternative Virtual Pipeline, the stages for monetizing

stranded associated gas are:

– Collection

– Transportation

– Reception.

Variable Units Value

Suction Pressure psig -2 to 0

Suction Temperature °F 110 to 130

Distance between Pucuna Station and existing power plants

Km 100

Speed of truck Km/h 50

Efficiency of gas engines BTU/KW-

h 9500

Efficiency of oil engines BTU/KW-

h 8900

Variable Units Value

Transport Pressure psig 500 to 5000

Gas Volume MSCFD < 750

Container Volume ft3 < 2000


Collection:

Hydrates formation during

the filling of transport

container

Technical Challenges for implementing the Virtual Pipeline in the

Ecuadorian Amazonia Region with small volume of gas are:


Transportation:

Not stabilized - fluid, Vapor-

Liquid mixture at transport

condition


Reception:

Depressurization, Hydrate

Formation, and gasification

all the product to be used in

existing power plant

Small volume at its origin (In natural pipeline

gas, a market exists with high volumes at origin

and small volumes at consumption).

Harmful components (CO2, water, etc.)

Companies working with virtual pipeline

require that the gas is dry and CO2 is

removed.


Economical parameters for comparison

The transported fuel by Virtual Pipeline will have to compete

against the following products, according to reality of

Petroamazonas.EP:

o Electrical Generation (generated by oil), according to

the Petroamazonas.EP cost for generation is 0.084 USD/

KW-H, ó 8.82 USD/MMBTU. Calculated with oil price of 50

USD/bbl.

Petroamazonas.EP requires a IRR not less than (12%) to

implement the new projects .


o Economical Sensitivity analysis based on the following variables:

o Transport pressure

o Transport container volume of compressed associates gas (Vapor

phase + Liquid phase).

o Life cycle: 10 years

o Associated gas volume at the origin.

• Scenario 1. Gas Flow 750 MSCFD is constant over time. The pressure

and volume are used to find the optimal values, Scenario 2. The

volume of the real production forecast of gas at Pucuna field, is used

to know the future behavior of the pilot project implementation

Scenario 3. Minimum gas volume that allows profitability of the

project is used.


The sensitivity analysis was performed to study the variation of the

internal rate of return (IRR) and Net Present Value (NPV) based on

the variables: Transport pressure, container volume and Volume

of gas at origin. Thus, the optimal values were for the first two

(pressure and contained volume), where the highest obtained

NPV was.

1. BACKGROUND





5. CONCLUSIONS

AGENDA

5. CONCLUSIONS

• According to the studies conducted by OGE&EE,

Petroamazonas.EP Department, the following results

were obtained:

o OGE&EE considers that there may be a potential of up to 15

MMSCFD of stranded associated gas, scattered in different

fields not exceeding 750 MSCFD by wellpad.

o Optimal Pressure for Virtual Pipeline is 1,500 psig.

o Optimal transport containers volume: 17 m3 for 750 MSCFD,

and 6 m3 for 150 MSCFD.

o The minimum volume of gas that we obtain the minimum

profitability required is 150 MSCFD.

5. CONCLUSIONS

• OGE&EE determined that this option is valid, to recover and

monetize the stranded associated gas in the Ecuadorian oil

sector, implementing the Virtual Pipeline project, which includes

the transportation of liquid phase and gas phase in the same

container, for use in gas existing power plants.

• The pilot project of Virtual pipeline and condensated one for

small volumes of associated gas will be installed in Pucuna

Station, with an investment around 1.8 MMUSD, from which we

will obtain a NPV = 1.7 MMUSD with an IRR=52%.

• This project has the support of Inter-American Development

Bank (IADB). Currently it is validating the conceptual

engineering.

• Petroamazonas.EP expects to implement the pilot project in the

middle of 2016.

www.petroamazonas.gob.ec

@petroamazonasEP Petroamazonas EP

Petroamazonas EP

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