The burning question of gas flares

The burning question of gas flares Chris Stanton May 22, 2010 It is one of the bitter ironies of the Gulf energy industry that it burns huge volumes of natural gas as waste despite a power crisis in the region and increasing global pressure on natural resources and the environment. Topic Dolphin Energy General Electric The Middle East as a whole ranked second in the world last year for wasting natural gas by burning it off instead of using it for power stations and industry. Each year, countries surrounding the Gulf flare 27 billion cubic metres, according to satellite data from Global Gas Flaring Reduction, an international organisation supported by the World Bank. That staggering sum is 30 per cent more than the UAE imports from Qatar through the Dolphin pipeline and is sufficient to supply a liquefied natural gas (LNG) plant with enough gas to produce 18 million tonnes per year for export, worth more than US$9.6 billion (Dh35.2bn) at current prices in Japan, the biggest market. As countries in the region face gas shortages and international criticism for their emissions of greenhouse gases, eliminating the waste should be the first logical step of any energy policy, experts say. "Gas flaring reduction is not just a technical issue that oil producers have to deal with, but it's a relevant solution in today's energy debate," says Paulo de Sa, the manager of the oil, gas and mining division at the World Bank. "Some countries use heavy fuel oil for power generation while still flaring associated gas. Generating electricity with gas that would otherwise be flared contributes to improving access to energy in the most efficient way possible." The practice of flaring only increases the region's carbon footprint, emitting about 80 million tonnes of carbon dioxide per year, based on World Bank figures, slightly more than the carbon emissions of Austria. Globally, flaring emits 400 million tonnes of carbon dioxide, roughly equivalent to the carbon emissions of France. Ending the practice in Iraq alone, which is planning to increase oil production as much as five-fold in the next two decades, would prevent forecast emissions of tens of millions of tonnes of carbon from entering the atmosphere, says Mounir Bouaziz, a vice president for new gas business at Royal Dutch Shell, the oil giant. "There are one or two elephants we can chase," he says. "The example of Iraq, we are talking about the equivalent of taking more than 4 million cars off the road, or reducing the amount of cross-Atlantic flights by 100,000 flights per year." Russia and Nigeria are the worst offenders, followed by Iran and Iraq. The oil industry is well aware of the arguments against flaring and is often quick to agree that action is needed, but say economic and logistical challenges stand in their way. Oil companies flare or vent gas when they lack the pipelines and other infrastructure to move it to where it can be used. Often, they say they are forced to flare because the source is a remote oilfield that is too small or far away from major infrastructure to make it practical to capture the gas. In such cases, additional investment is needed to make the capture of gas possible, they say. Gas also is flared at refineries as well as LNG and chemical plants as a safety mechanism to prevent a sudden rise in pressure. At Oman LNG, which operates a plant near Sur, flaring remains "a very important element of ensuring process safety", said Brian Buckley, the chief executive of the company. Oman is responsible for about 1.5 per cent of the gas flared worldwide, putting it in the top 20 flaring countries. It is joined on the list by Iran, Iraq, Kuwait, Qatar and Saudi Arabia. Page 2 of 2 The sultanate has reduced the practice by 25 per cent in the past five years, Mr Buckley says. John Malcolm, the managing director of Petroleum Development Oman, the country's largest oil company, plans to halve flaring in four to five years. In Qatar, Maersk Oil Qatar, a joint venture between the Danish company Maersk and Qatar Petroleum, has cut flaring from 5.6 million cu metres to 1.1m cu metres on the Shaheen oilfield, even as it expanded production, said Sheikh Faisal Al Thani, the acting managing director. "It shows you can [produce] more oil and less flaring," he said. Qatar Petroleum would encourage more flaring reduction projects, but was not ready to set a firm target at all its fields, said Saif al Naimi, the company's director of health, safety and environment regulation and enforcement. The UAE is the only major oil producer in the region not on the top 20 list, following the success of a dogged government policy in Abu Dhabi that has reduced flaring by the Abu Dhabi National Oil Company (ADNOC) by 98 per cent since 1990, said Ali al Jarwan, the general manager of Abu Dhabi Marine Operating Company (ADMA-OPCO), an offshore division of ADNOC. "If the gas plant is not available, we do not flare," he said. "If we don't have facilities we shut down production and we think about recovering production the next day or next week." Now ADMA-OPCO is looking to shift from minimal flaring to a zero-tolerance approach in five to seven years, he said. Initial rapid gains were a result of simple fixes such as better co-ordination between drillers and gas plant operators, but extinguishing the last flares will require large capital investments. Some of those investments may not prove cost-effective on their own, Mr al Jarwan noted, but were required by government policy. Across the wider region, many flaring reduction projects need an extra funding stream to offer sufficient returns to investors. International carbon credit schemes organised by the UN Clean Development Mechanism are one option, but the process is cumbersome and the rewards too uncertain for investors. So far only two flaring reduction projects having received credits since the programme began in 2005. Ultimately, projects across the region need another boost, which could and should come as part of a new international treaty on climate change under discussion this year, says Sam Nader, the director of Masdar Carbon, a division of the Abu Dhabi Government's clean energy company. "Gas-flaring reduction should be among the first to be considered for finance by the international treaty under the global agreement," he says. "The two most important goals in this decade are energy efficiency and energy access, and gas flaring meets both. You have energy access, access to saved gas and mainly these are developing countries that can make use of the gas for their communities … secondly, energy efficiency, optimising your hydrocarbon production." For Abu Dhabi, one of the largest oil exporters in the world, gas flaring reduction also meets a third priority, he says, which is to clean up the hydrocarbon industry. "Prolonging the life of the hydrocarbon industry is of prime concern to us in Abu Dhabi," he says.cstanton@thenational.ae Read more: http://www.thenational.ae/thenationalconversation/industry-insights/energy/the-burning-question-of-gas-flares#ixzz2IVjxwpD5 Follow us: @TheNationalUAE on Twitter | thenational.ae on Facebook =========== UPDATE 3-Dana creditors talk tough after Islamic bond miss Thu, Nov 01 09:53 AM EDT * Dana says in talks to amend, extend sukuk terms * Bondholders to claim Dana's Egyptian assets - source * Company missed $920 million outstanding payment on Wednesday * Shares suspended on Abu Dhabi bourse By Dinesh Nair DUBAI, Nov 1 (Reuters) - The United Arab Emirates' Dana Gas failed to repay a $920 million Islamic bond on maturity, prompting a source close to holders of the bond to say they will stake claim to the natural gas producer's extensive Egyptian assets. Dana, a leading Middle East natural gas company, said on Thursday it was in talks with bondholders to amend and extend the terms of the bond, or sukuk, after it became the first firm from the UAE not to repay a bond on maturity. But a source close to the creditors said Dana sukukholders are determined to go after the assets used to back the issue. "Bondholders will now pursue an enforcement of Egyptian assets and pursue their unlimited recourse $1 billion claim against Dana Gas PJSC," the source said, declining to be named. Dana has operations in Egypt and Iraq, is listed on the Abu Dhabi stock exchange and is headquartered in the emirate of Sharjah. The Abu Dhabi bourse suspended Dana shares on Thursday, pending clarification on the Islamic bond. Although indebted firms in the Gulf Arab state have extended maturities on billions of dollars in bank loans since the onset of the world financial crisis of 2008-09, no sukuk have been restructured or unpaid on maturity. There are very few private corporate bonds or sukuk outstanding in the UAE, as most issuance has so far been from the state, or state-linked entities, and financial institutions. Other bonds and sukuk in the Gulf Arab region did not appear to be affected by the non-payment of Dana's sukuk. Islamic finance, launched in its modern form in the 1970s and estimated to have global assets of over $1 trillion, offers investments that comply with Islamic law which bans interest or investing in industries that involve gambling or alcohol. Sukuk are one of Islamic finance's highest profile products. Some in the industry claim sukuk are safer than traditional bonds because they are effectively certificates of ownership in a real asset and not pure debt. The Dana saga is not expected to have any significant impact on sukuk issuance or prices because the firm, a relatively small one compared to other issuers, is seen as a special case not representative of Gulf economies which are growing strongly. Dana, which is privately owned, is not seen as a strategic entity for the UAE so any government support is unlikely. NO MAJOR CONTAGION

"We haven't seen any major contagion in the Gulf bond and sukuk markets from this news. Frankly, institutional investors appear to be taking this in their stride," Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi, said. "Telling investors that they have successfully paid all coupon payments thus far and are committed to a consensual arrangement is pretty lame. Bottom line is that they (Dana) didn't pay the $920 million that was due yesterday," Bhogaita said. Dana has a three-day grace period to make the payment but "appear unlikely to do so," the source added.

The UAE's largest listed natural gas firm, hit by payment delays from Egypt and Iraq's Kurdistan region, said it had also missed an $18.75 million accrued profit payment due Oct. 30 on the five-year sukuk, issued with a 7.5 percent coupon. It had repurchased $80 million of the $1 billion bond in 2008. Dana said it had paid $356 million to bondholders over the last five years. "Dana Gas is in ongoing discussions with an ad-hoc committee of sukuk holders over terms to amend and extend the sukuk," it said in a bourse statement. Bondholders have yet to issue a formal statement. The convertible sukuk has gained global interest as most of the debt is said to be owned by big investment firms including BlackRock Inc and Ashmore Group. The sukuk is secured against Dana's Egyptian operations, Sajaa Gas Private Ltd, a gas processing and sweetening plant in Sharjah, and United Gas Transmissions Co, a pipeline project to supply Iranian gas which is yet to start up. Sources told Reuters on Tuesday that Dana would not repay the sukuk on the Oct. 31 maturity. They said the two sides had entered a so-called standstill, valid for up to six months, in early October to allow talks to continue. PAYMENT DELAYS Dana's problems worsened in 2011 after political unrest in the region led to payment delays from Egypt and Iraq's Kurdistan region. It had outstanding receivables of 754 million dirhams ($205 million) in Egypt and 1.33 billion dirhams in Kurdistan as at Sept. 30. Dana said liquidity challenges, mainly due to non-payments from Egypt and Kurdistan, are "short term" and it is committed to finding a consensual solution with the bondholders. In May, Dana said it had hired Blackstone Group, Deutsche Bank and law firm Latham & Watkins as advisers. Investors have hired Moelis and law firm Linklaters. Dana's shares and sukuk have been under pressure on investor worries of non-payment of the outstanding bond. The sukuk, which is lightly traded, was quoted at 66 cents to the dollar according to prices from Nomura Holdings, unchanged from Wednesday's close. It was quoted at 78 cents to the dollar earlier in the week but slumped after reports of non-payment. "This was well-flagged and with the restructuring, sukuk holders will be looking at any way Dana can monetise its assets," said Amer Khan, fund manager at Shuaa Asset Management. In a separate statement, Dana said its third-quarter net profit fell 27 percent to 104 million dirhams from 143 million dirhams a year ago. Its cash balances stood at 516 million dirhams as of Sept. 30. Revenue for the period fell 21 percent to 512 million dirhams, due to a decline in Egypt production and lower hydrocarbon prices, Dana said. ============== Regulation & Environment: Australia’s coalseam-to-LNG companies stand up By News Desk | May 20, 2013 12:01 AM Comments (0) Companies looking to turn Australian coalseam gas into LNG for export are facing increasing resistance from environmental groups. In this week’s Regulation & Environment column in Oilgram News, Christine Forster discusses how producers are pushing back. ——————————– Some of the companies building massive new coalseam gas-to-LNG projects in the eastern Australian state of Queensland have gone on the front foot to counter what they describe as anti-development activism. BG subsidiary QGC has been particularly vocal among the players, who are fighting back against criticism in social and traditional media of the rapidly expanding industry’s environmental footprint. QGC is building the $20.4 billion Queensland Curtis LNG project on Curtis Island in Gladstone. The 8.5 million mt/year facility will be the world’s first CSG-based LNG plant when it starts up in 2014. Two other LNG plants are being constructed on Curtis Island. All three will be fed with CSG from thousands of wells in Queensland’s Bowen and Surat basins. Origin Energy and ConocoPhillips are developing the $24.7 billion Australia Pacific LNG project, with a capacity of 9 million mt/year, and a Santos-led group is working on the 7.8 million mt/year Gladstone LNG plant. Those two facilities will start up over 2015-2016. In recent weeks, QGC has railed against federal government plans to regulate CSG projects which impact water resources, and to monitor fugitive emissions from CSG wells. BG Group Australia Chairman Catherine Tanna, at a recent speech to the American Chamber of Commerce in Australia, criticized increasing regulation of the industry, pointing at the federal government’s planned changes to its Environment Protection and Biodiversity Conservation Act to include a so-called “water trigger.” That move took the industry by surprise, coming as an additional layer of regulation on top of the requirements of the state governments. The EPBC Act amendments, proposed by the Labor government of Prime Minister Julia Gillard, were debated in the Senate on May 14 and look set to be passed with support from the Green party and unaligned parliamentarians. The opposition Liberal National Party Coalition opposes the bill. “The gas industry has been criticized on many fronts,” Tanna told the AmCham event. “Very occasionally that criticism is warranted and the industry has been quick to remediate. A lot of what is said, though, is highly questionable, and propagated without challenge to the point where activism determines public policy; where the tail wags the dog.” ——————————–

Tanna argued that rather than “poisoning” aquifers, and “alienating” farm land, the CSG industry reduced the pressure on stressed aquifers by purifying salty coalseam water and providing it to farmers and local towns. “It is water that otherwise would not be available for any use,” she said. “If these proposals were, therefore, designed to protect Australia’s water resources, they fail on this logic alone. They were clearly not introduced to deal with an environmental problem. They were introduced to appease activists.” “That is a measure of what is at stake when we have decision making on this basis; when green activists and their supporters deliberately misinform; and when motives and charges go unquestioned and unchallenged,” Tanna said. “Just as it is right that our industry be scrutinized and held to account, so, too, should our critics.”

QCLNG will add $32 billion to the Queensland economy in its first 10 years. QGC has also hit out at proposed federal regulations to measure fugitive emissions of CSG from gas production, saying the costs of implementation outweigh any environmental or revenue gain. The regulations, to be introduced from July 2013, have been applied after nearly a year of public consultation during which the government received only 17 submissions, with gas companies given just a month to comment, QGC said. Santos has also pitched into the debate, running newspaper advertisements last month in response to a critical report on high-profile Australian Broadcasting Corporation television program 4 Corners. “The Santos GLNG project in Queensland was subject to an extremely comprehensive environmental approval process,” CEO David Knox said in the advertisement. “Rather than being rushed, as claimed by 4 Corners, this process took over four years to complete between 2007 and 2010, involved 20,000 pages of environmental submission and resulted in 1,200 specific environmental conditions.” The upstream peak industry body is also campaigning hard, releasing a steady stream of statements refuting the environmental lobby’s claims, including its “shameful scare campaign” on the human health impacts of the CSG industry. But the industry might soon get its wish, with a return to a streamlined approvals process concentrated in the hands of the states. That is the system backed by the federal LNP opposition, widely tipped to oust the minority Gillard government in a general election scheduled for September 14 this year. –Christine Forster in Sydney