Energy poverty is defined as a lack of access to electricity, heat or other modern forms of power and affects about 1.6 billion people in the world today . In addition, the lack of affordable and reliable power supply creates significant knock-on effects such as the lack of industry and other income-generating activities, thereby impacting economic development and growth.

Meanwhile, even though gas flaring has declined by 22% since 2005 (despite a 3.4% increase in oil production over the same period ), an estimated 130-140 billion cubic meters (bcm) of gas is still flared globally every year from upstream petroleum operations, the equivalent of the total gas consumption of US households. An estimated additional 100 bcm of natural gas is vented or lost through fugitive emissions from the oil and gas sector. The combined flared, fugitive, and vented gas contributes the equivalent of nearly 1,400 MM tons of CO2 to the atmosphere annually (the equivalent of annual emissions from 192 million cars).

Much Gas Wasted In Countries With Acute Energy Poverty—The Case Of Sub-Saharan Africa

A large share of waste gas is produced in some of the most energy-poor regions in the world (see Figure 1). With a current electrification rate of 31%, some of the greatest challenges in terms of energy poverty lie in sub-Saharan Africa’s oil and gas producing countries. Today, this region flares 35 bcm annually, which could generate nearly 12,000 MW of electricity (half the continent’s power consumption). Nigeria, sub-Saharan Africa’s largest gas producer, has a multi-decade legacy of flaring and is the largest flarer of gas per barrel of oil produced (0.0155 bcm/MMbbl versus 0.005 bcm/MMbbl for Russia) . However, Nigeria’s electrification rate per capita is particularly low, as recognized in 2010 by President Goodluck Jonathan in his remarks on the Nigerian power plan : “Today less than half of our citizens have access to electricity. We expend about $13 billion every year providing power from diesel generators when we require only about $10 billion per year of investment over the next few years to develop our generation, distribution and transmission capacities.”

It is estimated that over 30% of Nigeria’s vented and fugitive gas emissions could be captured at a profit (USD16.2 billion of sales revenues annually) , and directly benefit populations suffering from energy poverty. This illustrates the disconnect between resources in place and utilization (see Figure 2), demonstrating the complexity and challenge of transforming waste gas into domestic gas or electricity. Thus it is essential to understand the factors that could help turn waste gas from an environmental misfortune into a long-term solution for the alleviation of energy poverty.

Transforming Waste Gas Into Reliable Energy—Technological, Economic And Political Challenges For Africa

While marginal routine flaring is associated with the safe conduct of petroleum operations (pressure release for equipment protection, emergency flaring), most of today’s waste gas is the result of failing to align governments and key industry stakeholders when addressing the combination of technological, economic and regulatory challenges involved in gas monetization; thereby making flaring the only economically viable option for operators.

Historical practices, unsupportive fiscal system and weight of legacy

Unlike today, with increased awareness about global warming, associated gas was historically viewed as a waste product. Production contracts and upstream regulatory frameworks tolerated flaring and, in many oil production sharing contracts, no ’rights to gas’ were specified and there was no economic incentive to manage (e.g., re-inject) or monetize the gas produced. Project economics were dictated purely by oil revenues.

While these views are changing both from a regulatory standpoint as well as within the upstream industry, any move to better value gas has been slow. Reasons for the inertia include: the cost of retro-fitting production platforms (mostly offshore fields that have platform space constraints that limit capability to take gas equipment, especially if gas recovery was not in the original platform design); small associated gas volumes of individual projects that fail to support monetization considerations; and associated gas not being seen as a reliable long-term supply source due to fast depletion and potential damage to the reservoir’s oil production profiles. As such, associated gas cannot compete with more reliable and cheaper sources of gas, even if it means importing gas to meet national energy demand.

Technological challenge

Many technologies for associated gas projects exist in mature markets, in particular to detect, measure, capture, and utilize vented or fugitive methane emissions. However, their implementation in sub-Saharan Africa is challenged by high additional marginal costs (maintenance, training, advisory), a reluctance to chance, high dispersions of fields as well as a lack of capabilities to easily absorb new technologies.

Size of gas fields and getting to market

Beyond the technological challenge, there is little availability of small size technology solutions at a reasonable cost. For example, a gas-to-power project that commissions an open cycle gas turbine (OCGT) requires a sizable 50 MW to 60 MW power generation capacity to be profitable. The operator can commission smaller technologies such as internal combustion engines (ICE) with light capacity that can go up to 8 MW power generation, but this equipment is still considered capital expensive. It also demands intensive maintenance and monitoring especially in high-temperature environments like sub-Saharan Africa, and requires technological capabilities that may not be readily available locally.

The technological challenge is compounded by highly dispersed gas fields (as is the case in the prolific oil producing region of West Africa): because of the cost associated with the tie-in of a high number of fields flaring small volumes of gas, it is difficult for associated gas projects to reach a critical size to meet economic viability.

Furthermore, the integrity of oil pipelines in the region has been compromised numerous times and safety issues concerning gas projects are an increasingly prevalent consideration.

Inexistent gas markets and regulatory frameworks

Even if numerous wells could be tied-in to create a gas hub, the underdeveloped domestic gas and gas products (LPG, methanol, power) markets provide little by way of opportunity to sell the waste gas. This problem is partly due to the limited or inexistent institutional, legal, and regulatory framework for gas (including associated), which creates financing constraints to develop markets.

Long-term Solutions Require Development Of A Full Gas Value Chain

The availability and affordability of associated gas is highly dependent on accessible gas infrastructure with a critical mass to be economic and reliable. Commercial volumes can only be achieved through the inclusion of both associated and non-associated natural gas and such an endeavor requires a commitment to gas as a long-term reliable energy source that will ultimately replace more expensive ones – the immediate impact of substituting associated gas for oil into existing electricity production could result in significant cost reductions of up to 82% (see Figure 3). However, current local initiatives, such as small-scale gas utilization technologies or micro-turbines, often only address the use of gas in the upstream part of the value chain and do not consider the processing, transportation and marketing of the extracted gas. Initiatives, such as Ghana’s policy on the Jubilee field, where associated gas is being re-injected, are helpful to reduce gas flaring for the next couple of years, but do not enable the promotion of a comprehensive and durable solution to waste gas reduction.

Host governments, committed to eliminating the waste of gas resources, have realized the need to support policy solutions with fiscal and other incentives for gas recovery and monetization (policy, implementation strategy, industry structure, regulatory framework, reserves policy, national company role definition). African countries are starting to develop fiscal tools, such as royalties payable on flaring above permitted levels (Algeria), lower taxation with separate ring-fencing for associated gas projects (Nigeria), or cost recovery incentives to develop local gas-to-power generation (Congo Brazzaville), that enable the local oil and gas industry to monetize both associated and non-associated gas.

Angola’s ’no flare’ policy initiated in 2004 was a key driver in the sanctioning of a USD4 billion LNG plant using associated gas that will be fully operational by 2012. This represents a major step forward for a country that currently flares around 70% of its associated gas. Angola LNG is the first to use mostly associated gas gathered from approximately 20 offshore fields. It aims to cut offshore gas flaring altogether and reduce CO2 emissions by up to 32 MM tons by 2012. However, to secure future gas supply, the project must supplement declining associated gas production in maturing oil fields with new developments in discovered gas fields nearby. Furthermore, care has been taken to identify potential export markets for the gas to secure the economic viability of the project.

Local Gas Value Chains Impact Energy Poverty Reduction In The Long Run

Unless countries and governments look beyond the reduction of wasted gas and commit to the development of a full local gas value chain, the benefits of waste gas reduction initiatives will not translate into the desired alleviation of energy poverty and economic growth for local populations. In the case of the Angola LNG project, the availability of a reliable gas source should spur infrastructure development for petrochemical plants and other industrial developments, notably with the support of the national oil and gas company Sonangol.

One way to anticipate the requirements of gas infrastructure, focused on domestic use instead of exports, is through a comprehensive gas master plan that effectively reduces waste gas and energy poverty whilst spurring economic growth. The potential of natural gas needs to be considered for both power generation as well as residential, commercial, and industrial use. This means anticipating infrastructure needs, such as building or increasing gas pipeline capacity, constructing gas power plants, promoting domestic use for heating and cooking, and investing in gas derivative industries. If these considerations are not addressed early enough, excess gas obtained from waste gas reduction initiatives will end up being exported for a quick financial gain, at the expense of continuing energy poverty in the country.

New Producing Regions Can Solve Energy Poverty By Incorporating Waste Gas In A Comprehensive Strategy

The new emerging oil and gas provinces of Africa need to adapt to the global commitment to reduce CO2 emissions and the fundamental shift in power prices, which have made crude oil an expensive power source and natural gas an inexpensive and environmentally preferred alternative.

Exposed to significant energy poverty, some nations have started to think about their gas development strategies. Africa’s emerging oil and gas provinces currently have the opportunity to take a comprehensive and integrated approach to gas development through a courageous gas master plan. The challenges faced by current African producing countries that lacked the foresight in terms of a gas strategy will provide a stark reminder of the necessity to consider gas development plans in their entirety at an early stage. Some challenges can only be tackled economically at the earliest stages of field development as the promotion of a structured gas value chain takes time and is expensive to retroactively adjust.

To significantly reduce waste gas and alleviate energy poverty in the long term requires not only technical ingenuity but also a strong political will and the ability to align the interest of the myriad of stakeholders (government, oil and gas industry, utilities, gas dependent industries, and the local population) with the ecological and economic challenges of gas monetization.

Footnotes

1 Source: IEA, Energy Poverty Action Initiative Brochure

2 World Bank & NOOA 2010

3 Rystad Energy

4 NOOA and GGFRP World Bank estimates

5 Flaring refers to the burning of unwanted natural gas through a pipe (also called a flare). Flaring is a means of disposal used when there is no way to transport the gas to market and the operator cannot use the gas for another purpose. Flaring generally is not allowed because of the high value of gas and environmental concerns.

6 Venting refers to the act of disposing of natural gas by releasing (venting) it through valves or other installations. Key sources for venting are well, tank and pneumatic equipment venting. Fugitive emissions are unintended leaks of gas from the processing, transmission, and/or transportation of fossil fuels and often appear in pipelines and other equipment such as compressors.

7 Global average since 2002. Source World Bank

8 Source: NOOA, Rystad and SBC analysis

9 Address at the Retreat for Power Investors, Abuja, 14 October, 2010.

10 Global Forum on Flaring and Venting Reduction (Estimated at $70 per thousand m3 gas price).

11 SBC economic model and analysis

12 Initial value as reported by Downstream Today on February 13, 2008. Total LNG project value may have changed. http://www.downstreamtoday.com/news/article.aspx?a_id=8698

13 For example Ghana, Sierra Leone, or Liberia in West Africa; and Tanzania, Mozambique or Uganda in East Africa.