Flare Gas - Energy for Our Future

GE Energy
Policy Position Paper

Flare Gas

Issue Description
Each year, billions of cubic meters of natural gas are burned off or “flared” during oil extraction, typically
because the low volumes of associated gas rarely justify the high capital expenditure of gas gathering
equipment. This practice imposes significant economic and environment costs on local economies.
Flaring of associated gas wastes the equivalent of five percent of the world’s annual natural gas
production and emits roughly 400 million metric tons of CO2 per year, equal to the emissions from 77
million automobiles. This problem is compounded by the fact that no one solution exists to end the
practice; today, flaring occurs across a range of facilities, including both onshore and offshore sites,,
existing and new sites, remote and centrally located sites, and conventional and unconventional sites.
Despite the scale of the problem, various technical solutions are currently available to utilize this
resource, including: large scale or distributed power generation; gas re-injection for enhanced oil
recovery; new pipelines to transport the gas to market; and other distributed energy solutions such as
micro gas-to-liquids. However, flare gas remains a formidable challenge, one that requires a concerted
effort by policymakers at all levels to put in place the necessary infrastructure and market designs to
enable these solutions.

GE Position
A decade has passed since flare gas first emerged as an international issue within the broader debate
over the regional environmental and global climate impacts from fossil fuel use. Since then, several
countries have made significant progress in gathering and utilizing associated gas streams. However,
global gas flaring levels remained essentially unchanged, despite yearly fluctuations and some
improvements in the quantity of flaring relative to total oil production. Recognizing the potential
economic, societal and environmental gains, flare gas reduction should be a priority issue for
policymakers at all levels.
Specifically, policymakers can support the creation of stable investment environments by developing
clear and consistant legal frameworks and regulations for gas flaring. In addition, effective flaring
regulations can help developers to internalize the environmental externalities associated with this
practice in order to pursue the most economically feasible options to reduce flaring. To this end, the
most effective policies and regulations feature a combination of requirements and incentives, alongside
targeted infrastructure investments that broaden the range of available end uses for this resource.
GE offers the following recommendations to accelerate the pace of flare gas reduction:

1. Adopt effective national regulatory and legislative solutions. Governments should develop
and implement market reform strategies that align producer and consumer interests to create
incentives for flare gas reductions. Some options include:

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 Pricing reform in managed/administered gas and electricity markets to create better
alignment with supply costs;

 Contractual reform in instances where state-owned entities’ pre-emptive rights to
associated gas may limit project development;

 Effective monitoring and enforcement mechanisms in jurisdications with flare gas
reduction targets;

 Sufficient transparency on oil contracts, leasing terms, ownership and budgets to better
track flaring levels and regulatory compliance;

 Tax or royalty relief for qualified flare gas reduction projects;
 Low carbon emissions standards for petroleum imports into developed countries; and
 Security measures that preserve market access by protecting pipelines and electricity

transmission infrastructure.

2. Expand access to financing for flaring and venting reduction projects. Investments in
pipeline, processing and storage facilities are required to support the economically viable
gathering and distribution of associated gas. Various forms of credit enhancement, including
partial risk guarantees, can be used alongside policy and regulatory reforms to encourage
investment. Other mechanisms to expand access to financing include:

 Streamlining and broadening of eligibility criteria for flare gas reductions within the
existing Clean Development Mechanism (CDM) program;

 Designation of flare gas reductions within national and regional carbon emission offset
programs; and

 Creation of funds to provide pipeline, transmission, and flare reduction projects with
favorable rates and conditions.

Other options, such as targeted technology funds and carbon partnerships , show promise as
additional means to facilitate project investment.

3. Implement transparent and comprehensive natural resource accounting practices. Over
the last decade, governments have become more proactive in delineating and classifying their
natural resources. This practice enables a more thorough quantification of the costs and
benefits associated with flare gas reduction. Specifically, the transparent and comprehensive
accounting of natural resources - including hydrocarbons as well as forests, fisheries and other
resouces - are essential to determining the value of those resources placed at risk by gas flaring.
Such at-risk resources would include the flared gas, as well as those resources adversely
impacted by the environmental impacts of this practice . In addition to providing host countries
with a better understanding of the costs of gas flaring, improved resource accounting can also
help to attract foreign investment and leasing revenues in the hydrocarbon industry

4. Develop new roles for the international community. The international community can help
accelerate flare gas reductions by launching a new international sector agreement focused
specifically on this issue. The voluntary program currently sponsored by the World Bank’s Global
Gas Flaring Reduction (GGFR) initiative can serve as a model. Such a structure could be

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Date of Publication: February 22, 2012

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developed under existing international institutions or through a new entity. Signatories to the
agreement would commit to flare gas reduction targets in exchange for preferential access to
new clean technology funds, including any that may be focused specifically on flaring.

Background

Over the last decade, a number of large oil producing countries, including Algeria, Saudi Arabia and
Indonesia, have made signifcant progress in gathering and utilizing their associated gas streams.
Meanwhile, many other countries have recently begun to explore practices to reduce or avoid gas
flaring. For example, most new oil developments in Algeria, Angola and Kazakhstan now incorporate
associated gas re-injection and gas gathering into their overall development plans.

While progress is being made at many of the larger flaring sites and those sites located close to energy
markets, the flares at isolated and smaller sites continue to burn. Gas flaring can be largely eliminated
in a decade or less, but doing so will require close coordination between policymakers, producers and
international institutions, as well as the creative application of available technologies.

As a major supplier of advanced technologies to international and national oil companies around the
globe, GE Energy has been involved in a number of gas flaring success stories. These projects have
included: reinjection; gathering for generation of electricity; transportation via pipelines; and processing
at LNG plants. Specific examples include:

Russia – Power generation with Jenbacher gas engines

In 2009, Russian oil and gas producer Monolit LLC initiated a project to reduce emissions by
utilizing previously flared gas at a remote Western Siberian production facility. The waste gas
will be separated into liquefied natural gas and other transportable products, including propane,
butane, and ethane. Monolit LLC will use 12 GE Energy Jenbacher gas engines for on-site power
generation, thereby avoiding the need to transport diesel fuel over long distances. This solution
will help avoid the equivalent of 536,000 tons of CO2 emissions per year.

Kazakhstan - Sour gas re-injection with centrifugal compressors

Natural gas with high levels of hydrogen sulfide (“sour gas”) is lethal if dispersed into the air. In
Kazahkstan, where sour gas is widely found in oil deposits, GE recently partnered with local
producers at the Karachaganak, Tengiz and Kashagan oil fields to capture, compress, re-inject
and sequester this gas in order to improve oil recovery. This approach utilizes GE’s BCL300
series of centrifugal compressors, which are specifically designed to handle the high pressure,
high sulfur gas associated with oil production in this region.

Pennsylvania – Unconventional gas processing with Waukesha compressor engines

Unconventional gas deposits – including the shale formations across parts of North America –
often produce “wet” gas containing a variety of liquid hydrocarbons. Because these natural gas

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liquids must be removed during gas processing, they are periodically flared when storage or
transporation is unavailable. GE recently provided Kahuna Ventures LLC with seven Waukesha
compressor engines specifically designed to run on wet fuels such as the liquid ethane from
Marcellus Shale wells in West Pennsylvania. The engines are located at Keystone Midstream’s
Sarsen cyrogenic processing plant near Evans City, and result in a gas processing operation with
zero waste. In the future, Waukesha compression engines and Jenbacher gas engines can play
an even larger in reducing flared gas from unconventional gas production by utilizing the waste
gas associated with hydraulic fracturing.

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Date of Publication: February 22, 2012
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