Contax Partners’ Saiga Chandy discusses how Gas Flare Reduction projects continue to scale up in the Middle East
Gas flaring, the process of burning off associated gas from oil wells and hydrocarbon processing plants either as a means of disposal or as a safety measure, has been a widely implemented practice in the Middle East.
Around the world, approximately 150 billion cubic meters of natural gas is flared each year, which accounts for nearly five per cent of global natural gas production or 2.4 billion barrels of oil equivalent per day, and billions of dollars in lost revenues.
In 2011, the Middle East and North African region had the second highest concentration of gas flaring in the world, after Russia and the Caspian region, and burned roughly 30 billion cubic meters of gas in that year (Figure 1).
Gas flaring is recognised as a major environmental problem, emitting 400 million metric tons of carbon dioxide (CO2) annually, the same as 77 million automobiles and two per cent of global CO2 emissions from energy sources, without producing useful heat or electricity.
In addition to economic and environmental issues, gas flaring also poses a threat to health and safety, and impacts local communities, making it a growing concern which governments are required to address.
The main drivers for worldwide programs to reduce flaring are drawn upon the need to achieve energy security, introduce energy policy reforms and incorporate corporate social responsibility into the hydrocarbon sector.
In the Middle East, increasing power demand which is in turn fuelling natural gas demand is seen as an additional reason for achieving flare reduction. Prime examples are countries like Kuwait, which uses Heavy Fuel Oil for power generation and is developing systems to import gas to address domestic gas issues, while still flaring its associated gas.
Other countries including the UAE, which faces supply shortages in natural gas, can similarly benefit from gas that is recovered.
However, there are challenges to the implementation of gas flaring reduction projects in the Middle East, with subsided domestic price of gas posing the biggest challenge, as opposed to the lack of infrastructure or technology, which is the problem in other countries with remote oil production sites.
Furthermore, the high sour content of the associated gas requires additional processing to sweeten the gathered gas, increasing the cost for associated gas processing and flare reduction projects.
However, the growing environmental concerns and increasing gas demand has prompted the Middle East to move in a direction where the associated natural gas can be utilized, and the region is slowly demonstrating commitment to tackle the challenges surrounding gas flaring reduction.
Middle East countries have thus been exploring solutions including distributed power generation, gas re-injection (for enhanced oil recovery, gathering and processing), pipeline development and micro gas-to-liquids (GTL) plans to reduce flaring and utilize recovered gas.
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Flare gas recovery systems are either being retrofitted on existing production platforms or designed into the facilities for new ones. Saudi Arabia, which produces a large amount of associated gas, has successfully developed the Kingdom’s master gas system project, which gathers almost 100 billion cubic meters of gas annually.
This gas supply has played an important role in meeting the increased gas demand across the country by supporting its industrialization and power generation needs.
Spurred by the country’s environment protection laws, provisions of the Kyoto Accord on climate change, and improved corporate code of conduct developed by its NOC’s, the UAE has similarly introduced measures to curb flaring.
Several flare gas recovery projects have been completed or are currently under execution. In Abu Dhabi, project owners including ADGAS, ADMA-OPCO, Takreer and GASCO are executing flare gas recovery projects on their existing atmospheric flares on offshore associated gas and upcoming integrated gas development facilities.
In Kuwait, KOC has undertaken a vast program of gas flaring reduction since 2006 which includes facilities to collect, treat and compress the gas and make it available to end users like KNPC for refineries, MEW for power generation and petrochemical companies such as Equate for petrochemical projects.
This initiative has reduced flaring to 1.75 per cent of associated gas production during 2010-2011, compared to the 17.5 per cent levels in 2006.
More of such flare recovery systems are planned by KNPC and KOC, with the intention to achieve less than one per cent flaring in the country.
The Middle East’s increased focus on gas development is demonstrated by some of the major projects and policy changes which are happening in the region.
These include the BP and Oman Ministry of Oil’s $15 billion development of the Khazzan-Makarem tight gas fields, which will provide a gas output of 1 billion cubic feet per day (bcfd) of gas to meet Oman’s growing gas demand.
In Saudi Arabia, Aramco’s recent decision to change the configuration of the 2000MW Rabigh Power project from heavy fuel oil fired to natural gas fired is representative of the Kingdom’s increased focus on natural gas. All of these developments in the Middle East demonstrate an intention to increase investment on gas production.
In Iraq, the majority of natural gas production (nearly 70 per cent) is flared, positioning it as the fourth largest natural gas flaring country in the world in 2011 (Figure 2). Iraq has been ramping up oil production in the past few years, and alongside, associated gas flaring has also been on the increase. The country is in the process of taking serious steps to reduce flaring and utilizing its associated gas for power generation.
In Iraq, one of the world’s largest flare gas recovery projects is finally taking shape, with the formation of the Joint venture between Shell, Mitsubishi and Iraq’s state owned South Gas Company.
After signing the initial deal in 2008, the joint venture has finally started formal operations in May 2013, and will aim to capture associated gas from the Rumaila, West Qurna 1 and Zubair oil fields in southern Iraq.
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The c. $17 billion facilities that will be built under this joint venture are expected to increase gas production capacity from the three oil fields to 2 cbfd from today’s 400 mcfd.
The increased gas production from this project can address Iraq’s increasing power generation requirement, which has been a critical factor in limiting the country’s industrial development.
With this mega project, Iraq will see significant development in the gas value chain, from gathering systems, to pipelines, sulphur handling, gas marketing and export systems, as well as systems for domestic consumption.
Contax Partners believes this presents opportunities for contractors who have expertise in the gas sector and are looking to expand their presence in the Middle East into countries like Iraq.
As counties in the Middle East try to optimize their hydrocarbon production and energy access, eliminating gas flaring is a favorable step to take which can improve countries’ environmental image as well as benefit them in the long term.
Middle East countries like Qatar followed by Iraq and most recently Kuwait have joined the World Bank’s Global Gas Flaring Reduction Partnership (GGFR), aimed at implementing country specific programs to reduce flaring.
As more concerted efforts to reduce flaring in these countries develop, and as local efforts to reduce flaring gather strength and overcome its initial commercial barriers, local gas gathering, transportation and utilisation infrastructure will also become available for future projects.
Improved flare reduction technologies adapted to regional requirements will also become available, leading to reduced costs of implementation, and this will have a direct impact on expanding flaring reduction and associated gas gathering projects across the region.
About the author
Saiga Chandy is a business advisory manager at Contax partners. To further discuss how the Business Advisory Team can help you understand the project landscape, the potential realization rates and likelihood to proceed tiers for your projects, the full set of opportunities open to you and the best strategy/approach to ensure the opportunities are successfully secured, please contact Ann-Marie Carbery Antoun: AnnMarie.Carberry@contax-partners.com
