Economic Drivers in Gas Flare Projects – CDM/JI
Paul J. PARKS
ECON Carbon
• European company with broad experience in energy
and environment
• Strong theoretical and project basis
• Experience in key regions and projects
• "Anchor" projects – In Russia, West Africa, and
Middle East
• Single focus on carbon – both policy and projects
How Carbon Credits Build Value on a Project Basis
• First the overall project design and economics
must be considered
• Gas Flare projects almost always will be
marginal
– Market conditions
– Infrastructure limitations
– Project speficic considerations
Understanding Barriers
MACRO
MARKET
OWNERSHIP
Barriers
FISCAL REGIMES
SECTOR
INFRASTRUCTURE
ACCESS
PROJECT COMMON PRACTICE
ECONOMICS
TECHNOLOGY
CONTRACTS
Utilize the Gas
• Electricity, but assc. gas has limited declining
volumes. Requires assc. gas as base load
coupled with non-assc. gas
– Requires a functioning electrical system
• Connect to domestic grids – often domestic
prices or capacity limits
• Connect to LNG facilities – requires access and
spare capacity
• Reinjection
Make an Economically Rationale Project
• Connection of the gas – domestic/ international –
question of price and logistics
• Extraction of liquids – liquid content of gas and
distance from markets
• Enhanced Oil Recovery (often already maximized)
Why Carbon Credits Matter
• Carbon credits essentially a bi-product of the gas
investment
• High profit margin compared to gas and liquids
• Hard currency
• If reinjection, carbon credits can be viewed as a
carrying cost of investment
Why Carbon Credits Carry the Project
Gas Revenue Developer
Shares
Transport
Taxes & Royalties
Capex
Taxes
Developer
Carbon Credit
Revenue Shares
Contribution to Project Gross Revenues
900
800
700
600
$ millions
500
400
300
200
100
0
Energy Fines Carbon, Carbon,
Kyoto 10 yrs
Contribution to After Tax Cash Flow
180
160
140
120
$ millions
100
80
60
40
20
0
Energy Fines Carbon, Carbon, 10
Kyoto yrs
Distribution of Profits to Govt, with and without CDM
400
350
300
250
200
150
100
50
0
Without CDM With CDM
Revenues to Govt Profit to JV
Conclusion
• Tendency to undervalue carbon credits – they can
be the primary economic contributor
• Need an integrated project approach
• Companies (including state companies) should
approach it for a portfolio basis