IEA urges action on gas flaring

The article below was carried in Interfax Natural Gas Daily on 21 November 2018. Interfax runs a gas analytics service with daily, weekly and monthly analysis of the global gas and LNG market.
By Peter Stewart, Interfax chief Energy Analyst and Managing Director of Interfax Europe Ltd
The International Energy Agency (IEA) said this week that oil and gas companies should be doing more to cut emissions from their upstream operations, singling out gas flaring as a key area for improvement.
The IEA’s flagship World Energy Outlook (WEO), published on Tuesday said flaring gas was both wasteful and harmful, and that upstream emissions could be reduced further by the electrification of upstream and midstream operations or by building renewables-based systems into the extraction and production process.
The call to action will pile pressure on IOCs and NOCs that are already under intense scrutiny from activist shareholders who want them to decarbonise their value chains. The IEA said 97% of the gas consumed today has lower lifecycle emissions than coal, but that companies need to decarbonise the gas value chain further because of gas’s growing role in the energy mix.
“The aim for the future should be to focus on cost-effective ways to minimise the gap between gas and zero-carbon technologies rather than focus on the gap between coal and gas,” the WEO said.
The IEA estimated that emissions from oil and gas operations accounted for 15% of the energy sector’s greenhouse gas (GHG) emissions.
The industry has been working for years to reduce emissions from oil and gas production, but results have been mixed. Carbon capture and storage/use have been discussed for decades, but the number of sites in operation is limited. Injecting carbon dioxide into wells is common in enhanced oil recovery operations, but it is expensive and by no means universally used.
Billions of cubic metres of gas are still flared annually at oil and gas production sites around the globe, however, and reducing flaring is one of the lowest-cost options for cutting energy-related emissions.
Carbon price
The IEA said a carbon price of $50 per ton of CO2, which is already used by some companies when screening upstream projects, would cut emissions in 2040 by more than 1,000 MMt CO2 equivalent (MMtCO2e) if applied across the oil and gas supply chain. A total reduction of 2,500 MMtCO2e could be achieved if the $50/t carbon price was combined with methane emission reductions that can be achieved at no net cost. The IEA estimated total emissions from oil and gas production amount to 5,200 MMtCO2e per year.
“This saving would be equal to the entire energy sector GHG emissions of India today,” according to the WEO.
Most flaring results from lack of infrastructure rather than the type of oil or gas that is extracted. Small-scale LNG and GTL plants are potential ways to monetise stranded gas or to avoid flaring gas produced in association with oil. But such projects typically make economic sense only if a carbon cost is assumed.
The World Bank’s Global Gas Flaring Reduction Partnership (GGFR) publishes annual estimates of gas flaring based on data from a satellite launched in 2012. The GGFR is a public-private initiative including IOCs and NOCs, national and regional governments, and international institutions. The GGFR has set a goal of zero flaring by 2030.
The 2018 GGFR report, produced with the United States’ National Oceanic and Atmospheric Administration in cooperation with the University of Colorado, showed a nearly 5% decline in gas flaring in 2017 despite a rise in oil and gas production.
“While Russia remains the world’s largest gas flaring country, it also saw the largest decline in flaring last year,” the GGFR said. Venezuela and Mexico also reduced flaring significantly in 2017, while Iran and Libya saw significant increases.

Scale of Canadian LNG still a bone of contention

The article below was published in Interfax’s Natural Gas Daily when Peter Stewart was chief energy analyst for Interfax. Peter spoke at the Gas Asia Summit held 31 October-1 November in Singapore.

LNG Canada took FID on 1 October on a C$40 billion ($32 billion) plan to build a two train 13 mtpa facility at Kitimat in northern British Columbia. The plant could be expanded to four trains with a total capacity of 26 mtpa in the future. Kitimat is the traditional territory of the Haisla Nation, which the company said supports the project.

Spotlight on Canada

Speakers at a Canada Spotlight presentation at last week’s Gas Asia Summit in Singapore said Canadian LNG was “open for business” and that between five and 12 plants could be operating in the country by 2030 now LNG Canada has paved the way. However, with more than 200 mtpa of new liquefaction capacity proposed in the United States alone, new entrants such as Mozambique due to take FIDs in H1 2019, and Qatar already planning to expand its LNG capacity to 110 mtpa, the scale of the future Canadian projects is likely to be a bone of contention.

Western Canada is only 8-9 days sailing time from Asian markets – around half the time from the US Gulf Coast. Bigger vessels could be used to export LNG from the region because there is no need to traverse the Panama Canal, which improves freight economics. However, modular and small-scale LNG have become popular in recent years because of market uncertainty.

Pacific Oil & Gas is tipped as the next company likely to take an FID, on its small-scale (2.1 mtpa) Woodfibre project in Squamish, British Columbia. The company’s president, Ratnesh Bedi, said last week in Singapore that an FID would be taken “within months”. Woodfibre signed a heads of agreement with China’s CNOOC Gas & Power in September for potential offtake of 750,000 tpa for 13 years starting from 2023.

While Woodfibre is small, there are bigger projects at earlier stages of development, such as Steelhead LNG. Steelhead plans to export LNG from Sarita Bay on Vancouver Island and is targeting FID in 2020. The company filed a project description in mid-October with provincial and federal regulators for the Kwispaa project, which is being co-developed with the Huu-ay-aht First Nations, an approach that the company believes is unique. The plant will have a potential capacity of 24 mtpa.

Woodfibre and Steelhead are among nearly 50 projects that have sought export licences from the National Energy Board to export gas, LNG or NGLs from Canada.
Many analysts had been pessimistic about the potential for Canadian LNG exports because the indigenous peoples of Canada, the First Nations, have in the past resisted industrial developments on land they consider sacred. This has also made it difficult for pipeline projects to get approval. Now that the First Nation hurdle has apparently been cleared, other Canadian liquefaction projects are likely to follow more quickly.

Canada could be ready to export as much as 60 mtpa of LNG from its east and west coasts by 2030, but there is a risk that the new capacity will scupper the recovery in prices that is expected as LNG demand catches up with the supply overbuild.
New projects will need to have buyers signed up if they are to attract investment, but the number of competing LNG sources worldwide may encourage buyers to rely on short-term or spot supplies. New long-term contracts may be difficult to negotiate given market uncertainty over the level of future supply and Canada’s inexperience in LNG trading.

LNG Canada is led by Shell, but with several LNG consumers among the investors – including Petronas, PetroChina, Kogas and Mitsubishi. The inclusion of buyers as equity holders may be a model for future projects to succeed.   

Conference notes: Gas Asia Summit

More of a buzz than usual at the Gas Asia Summit in Singapore this year. Gone were long faces about low prices — indeed, the big players in LNG seems to have forgotten the supply glut ever happened. The mood was upbeat: not quite business as usual, more like a shot of strong coffee after a heavy night out. I had a feeling that people were rolling up their sleeves having made some big decisions. GAS was part of Singapore International Energy Week (SIEW) and as ever the island is buzzing.
This conference had three big takeaways for me:
Canadian LNG is no longer a pipe dream. It will happen, and it will probably be on a big scale. The Shell FID gave a clear signal that, despite the complex permitting process, it can be done. A Canada spotlight panel reckoned that Canada could have 5-12 liquefaction projects up and running by 2030, on both the east and west coasts. Exports will be of the same magnitude as those from the US, Qatar or Australia.
LNG in shipping is becoming a reality. Shipyards are busy preparing vessels for the IMO 2020 regulation, but older vessels will be scrapped rather than retrofitted. The next generation of boats will be dual-fuelled or LNG ready, but the yards also have orders for LNG-fuelled vessels from barges to tankers. What we are seeing now is the seeds of a new industry. This is no longer something that is waiting to happening, it is happening now.
Islands are getting smart about energy. Advising SIDCs on fuel supply has always been my idea of a dream job, and I met a gentleman who was doing just that over lunch. LNG is the fuel of choice, as it ticks all the boxes: lower carbon than diesel, energy intensive, resilient and with lower investment cost than alternatives such as energy storage.
After a conference, it’s important to think about what was not said, as well as what was said. Were there elephants in the room that no-one talked about? Yes. A whole herd of them. Here are just two:
The benefits of LNG vs diesel are crystal clear, but I felt that many in the gas industry were in denial about the potential for energy storage. Maybe batteries are the next big story, despite all the skepticism. Lithium has already had its first supply shock, after prices soared above $20,000/t a couple of years ago because supply couldn’t meet demand. The battery brigade are already looking at lithium alternatives such as selenium, costs are declining, and battery life and range improving. It cannot yet replace gas as a backup fuel for intermittent renewables, but by 2030? Perhaps.
King Coal has lost its crown, but no-one seems to entertain the idea that coal might make a significant comeback. I never understood the idea of Clean Coal, but if Carbon Capture and Use (CCU) were possible on a large scale, it would be a game-changer. Researchers are looking into ways to solidify emissions and potentially also finding uses for the solids. The dash for gas in China and India has been driven as much by air quality concerns as GHG emissions. CCS as a carbon disposal technology remains out of reach, but CCU could be a game-changer.

LNG to benefit from IMO and EU sulphur regulations

The article below was published in Interfax Natural Gas Daily on 1st November 2018. Peter spoke at the Gas Asia Summit during Singapore International Energy Week, and chaired a panel discussion on new uses for LNG.
Shipping companies around the world are scrambling to meet new fuel standards being put in place by the EU and the International Maritime Organization (IMO). Although the switch will not be immediate, LNG is back on the table again as potentially the main beneficiary.
Delegates at the Gas Asia Summit in Singapore this week said many shipping companies are largely unprepared for the tightening of the IMO regulations, which would see the limit on the sulphur content of marine fuels cut from 3.5% to 0.5% worldwide by 2020. Shipyards are full with vessels being converted to meet the new regulations and orders have picked up for new LNG-fuelled ships.
Under the EU’s Monitoring Reporting and Verification regulation, which came into force in July 2015, shipping firms must collect data on emissions from their vessels on a voyage-by-voyage basis from this year. The data will be collated by the European Maritime Safety Agency, and aggregate emissions data will be published in June 2019. The data will over time be used to bring the shipping sector into the EU Emissions Trading System.
In parallel, the IMO introduced regulation 22a of Marpol Annex VI in March. This will require all vessels above 5,000 gross tonnage to keep a detailed record of their fuel consumption from 2019. Under the new rules, shipping companies will have to issue a statement of compliance with the new fuel standards by the end of May 2020.
The new rules apply only to international shipping and not to vessels on domestic voyages, where exemptions are allowed.
Shipping companies have three options to meet the IMO fuel standard: switching to lower-sulphur fuels such as diesel or specially formulated heavy fuel oil; investing in scrubbers to clean the exhaust from their vessels; or using LNG, either by buying new LNG-fuelled or dual-fuelled ships or retrofitting vessels to allow them to run on the fuel.
Oil price spike
The new standards being introduced in 2020 are the biggest challenge the refining industry has faced in more than a decade. Philip Verleger, a veteran oil consultant, has predicted the new rules will contribute to a massive spike in oil prices in 2020. Verleger issued a report in July that predicted that oil prices could rise to $200 per barrel – and perhaps double that – because the refining industry will be unable to make enough diesel to meet the demand created by the new IMO standards.
LNG has for years been touted by oil and gas companies as a potential alternative to fuel oil and diesel in the transport sector, and its greater uptake could be the key to a step-change in global gas demand growth. But the volatile spread between oil and gas prices has to date discouraged shipping companies from investing in gas-fuelled vessels. Many companies looked at making the switch when oil was above $100/bbl, but the drop in oil prices in 2016 to below $30/bbl took away the incentive to do so.
Ports around the world are rushing to ensure that fuels meeting the IMO standard are available in time for the 2020 deadline. Singapore – the world’s largest bunkering port – is already offering LNG bunkering on a small scale, and its first LNG bunkering barge will be operating by mid-2020. The Singapore Maritime and Port Authority has invested around $20 million in building the necessary infrastructure to supply LNG to vessels. Other large ports in emissions control areas such as Rotterdam and Los Angeles already offer LNG, but uptake of the fuel has so far been restricted mainly to coastal vessels or image-conscious cruise firms.