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					Reducing Emissions and Attracting
Investments: Energy Efficiency in
        the Gas Industry
           Martina Bosi (martina.bosi@iea.org)
            International Energy Agency (IEA)

                         Carbon Expo
     Oil & Gas – from Gas Flaring to Downstream Utilisation

                     Cologne, May 12, 2005

INTERNATIONAL ENERGY AGENCY    AGENCE INTERNATIONALE DE L’ENERGIE
                 Who is the IEA?
 Autonomous Body, established in1974 under the framework
  of the OECD
 Comprehensive program of cooperation among 26 of OECD’s
  30 Member Countries
 Aims:
    Maintain and improve systems for coping with oil supply
     disruptions
    Promote rational energy policies
    Operate oil market information system
    Improve world energy supply and demand structure through
     promotion of alternative sources and efficiency
    Assist in integration of environmental and energy policies

 http://www.iea.org
INTERNATIONAL ENERGY AGENCY    AGENCE INTERNATIONALE DE L’ENERGIE
          Context: Ongoing IEA Study
       GHG Mitigation Investments in Russia’s Natural
         Gas Sector – Examining Economic and
                   Environmental Issues
 Builds on, e.g. IEA (2003) ‘Emission Reductions in the
  Natural Gas Sector through Project-Based Mechanisms ’
 Quantitative assessment of synergies between GHG
  reductions and need for foreign investments
       Fugitive emission reductions
       Flaring reduction/elimination
       Energy efficiency improvements
 Consider different mechanisms: Joint Implementation &
  International Emissions Trading; and Green Investment
  Schemes
 Assess practical opportunities and challenges
 INTERNATIONAL ENERGY AGENCY    AGENCE INTERNATIONALE DE L’ENERGIE
  Why Russia? Why Natural Gas?




INTERNATIONAL ENERGY AGENCY   AGENCE INTERNATIONALE DE L’ENERGIE
                     World Primary Energy Demand
                             (Reference Scenario)
                   7 000

                   6 000                                                Oil

                   5 000

                                                                Natural gas
                   4 000
            Mtoe




                   3 000                                               Coal

                   2 000                                   Other renewables

                   1 000                                     Nuclear power
                                                  Hydro power
                      0
Source: WEO 2004      1970   1980   1990   2000     2010        2020          2030

            Fossil fuels will continue to dominate the global energy mix,
             with oil remains the leading fuel and gas growing fastest
  INTERNATIONAL ENERGY AGENCY          AGENCE INTERNATIONALE DE L’ENERGIE
     Natural Gas Production by Region
   OECD North America

         OECD Europe

          OECD Pacific

   Transition economies

       Developing Asia

                 Africa

           Middle East

          Latin America

                          0   200    400    600     800   1 000   1 200   1 400
                                              bcm
Source: WEO 2004
                              1990   2002      2010       2020     2030
 INTERNATIONAL ENERGY AGENCY               AGENCE INTERNATIONALE DE L’ENERGIE
      Cumulative Investment in Natural Gas,
                   2003-2030
 United States and Canada
              Other OECD
                    Russia
      Other developing Asia
               Middle East
             Latin America
                     Africa
 Other transition economies
                     China
                  Shipping

                              0   100   200   300      400      500    600   700     800
                                                    billion $ (2000)
Source: WEO 2004                              Upstream          Downstream         Shipping


 INTERNATIONAL ENERGY AGENCY                  AGENCE INTERNATIONALE DE L’ENERGIE
            Russian CO2 Emissions :
         the world’s third largest emitter
2002 World Energy-Related CO2 emissions: 24,102 MtCO2
                                                  Rest of the
                                                 world, 44.0%


        Germany, 3.5%

          India, 4.2%

         Japan, 5.0%


               Russia, 6.2%                                     United States,
            1494 MtCO2        China, 13.6%                          23.5%




Source: IEA Statistics 2004

 INTERNATIONAL ENERGY AGENCY                 AGENCE INTERNATIONALE DE L’ENERGIE
            Kyoto Commitments: Estimated*
              Gap for Selected Countries
                               Estimated* Kyoto Gap in 2010

           300


           200


           100
 Mt CO2e




             0
                   Z




                                                                                  P
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                                                                                      U
           -100


           -200                                            Various sources


           -300

                                                                             *Various sources
                                                                              *Various sources
           -400

INTERNATIONAL ENERGY AGENCY                         AGENCE INTERNATIONALE DE L’ENERGIE
 Upstream/Midstream Natural Gas,
   Energy Efficiency and GHG
           Reductions




INTERNATIONAL ENERGY AGENCY   AGENCE INTERNATIONALE DE L’ENERGIE
      Preliminary estimates of Russian
           gas volumes and GHG
                                      Gas               GHG
CH4 from transmission pipelines &     ~6.5 bcm          ~96.2 MtCO2e
compressors
CH4 from distribution pipeline        ~21 bcm*          ~310 MtCO2e
network
Emissions from gas flaring            ~14 bcm           ~29 MtCO2e
Fuel combustion in compressors        ~65 bcm           ~130 MtCO2

Estimated total                       ~ 106.5 bcm       ~ 565
Greater than UK 2003     ~ Canada’s 2002                MtCO2e
gas consumption          energy-related CO2
  INTERNATIONAL ENERGY AGENCY       AGENCE INTERNATIONALE DE L’ENERGIE
          Russia and Energy Efficiency
 Russia’s energy intensity is almost 3 times higher than OECD
  average
    ‘The Saudi Arabia of energy efficiency’
 Russian energy strategy (2003) highlights importance of EE:
      Growth of domestic energy consumption
      Energy security
      Competitiveness of Russian energy sector
      Free-up supplies for export
But
    Gazprom priority: development of new fields
    Low domestic gas prices
    Gazprom acknowledges challenges in controlling losses in gas
     transportation network and improve its efficiency

 INTERNATIONAL ENERGY AGENCY         AGENCE INTERNATIONALE DE L’ENERGIE
         Russia’s Natural Gas Sector
 Russian 2004 gas production: 633.5 bcm
 Proven natural gas reserves: 47 tcm (26% of world total)
 Gazprom:
    World’s largest gas company
    Provides ¼ of federal government tax revenues
    Close to 90% of Russian gas production
    Owns & operates national gas pipeline network
 Gas transmission system mostly built between 1975-1990
 154,000 km of trunk pipelines
 In 2003, 264 compressor stations with over 4000 compressor
  units (Gazprom 2003)
 Domestic gas price: ~33$/tcm
      Cost-reflective gas price estimates: $35-45/ tcm
 INTERNATIONAL ENERGY AGENCY        AGENCE INTERNATIONALE DE L’ENERGIE
       Russian Gas Network Conditions
 Large share of equipment is obsolete
 Estimated refurbishment needs: $2 billion/year (IEA)
 Gazprom refurbishment plans & investments
    5-year (2002-06) program: $5.6 billion with aim of yearly
     savings of 5 bcm & 9.2 MtCO2e
    2002: 1,370 km of pipelines repaired ($1.26 billion)

    2003: 1,350 km of pipelines repaired ($0.5 billion)

    Plans to purchase 150-180 gas compressor units/year, but
     ~80-90 commissioned annually (IBRC 2003)
 Investments needed!

 INTERNATIONAL ENERGY AGENCY     AGENCE INTERNATIONALE DE L’ENERGIE
             Natural Gas Compressor Unit
-Main source of CO2
from natural gas
                                                                  exhaust gas &
sector (~80% in                                                   emissions
Russia)                          engine(s)/
                                 drive
-Use 10% of
transported gas
                   engine fuel
                                                         compressor power

gas flow through pipeline

 -Compressor units: >50% of
 CH4 from natural gas sector                    compressor
 in Russia
  INTERNATIONAL ENERGY AGENCY                 AGENCE INTERNATIONALE DE L’ENERGIE
      Can Kyoto Mechanisms help increase
     natural gas sector’s energy efficiency ?
 GHG reductions can be monetised through Kyoto
  Mechanisms
 Value of GHG reductions and impact on project
  economics
 Economic return needs to be compared with that of
  other investment possibilities
    E.g. Russian investment opportunities can yield up to 30-
     40% !
    Also compare with marginal cost of production
 Cannot generalise: need to consider specifics of each
  project, but there are opportunities.
INTERNATIONAL ENERGY AGENCY     AGENCE INTERNATIONALE DE L’ENERGIE
     Russian Upstream/midstream Natural
    Gas Energy Efficiency Example with CO2
                     value
 Assumptions:                                Replacement       70 units of   Value
      Replacement of 25MW compressors                            25MW

      Upgrade turbine efficiency from 29%    Capex            25 M$/unit
       to 38.5%
      Average natural gas price 82 $/103m3   Gas saving       1.4 bcm/y      113 M$
      GHG reductions value : 15$/tCO2
      CAPEX: 1 M$/MW                         CO2 reductions   2.8 MtCO2/y    41 M$

                                              CH4 reductions   2.0 MtCO2e/y   30 M$
 Significant CO2 and CH4 reductions
 GHG credits ~ 40% of revenues               ‘Gas Saving’     6.5%
                                              Return
 GHG has significant impact on                                        +4%
  economics, but does not beat                ‘Gas + GHG’      10.5%
                                              Return
  Russia’s hurdle rate
  INTERNATIONAL ENERGY AGENCY            AGENCE INTERNATIONALE DE L’ENERGIE
                    Issues to Consider
 Improving efficiency is a government priority
 Gazprom’s transportation investment needs
    Refurbishment needs could be more than $2 billion/yr
    But Gazprom’s investment program largely focused in new fields
     development
 Pricing structure (legacy of Soviet system)
    households and other customers hardly pay cost-recovery prices
    Implications for financing capital spending
 Large price differentials with EU-25
    Outlook to raise domestic prices to cost-reflective levels   over next
     5 years
 Extreme distances from supplies to markets
 Still difficult business environment for investors
 Reaping benefits from GHG savings and gas savings
 INTERNATIONAL ENERGY AGENCY       AGENCE INTERNATIONALE DE L’ENERGIE
                      Conclusions (1)
 IEA 2004 projects natural gas to be fastest growing fossil
  fuel in 2000-2030.
 Russia has important role in energy markets
      Largest gas producer and exporter
 Russia could be important player in emissions market
    Surplus emission allowances
    High energy and CO2 intensities
 Russia needs significant investments in its natural gas
  sector (WEIO 2003):
    $11 billion/yr projected from 2001 to 2030
 Energy efficiency is a priority, but large untapped
  potential

 INTERNATIONAL ENERGY AGENCY      AGENCE INTERNATIONALE DE L’ENERGIE
                      Conclusions (2)
 Monetising GHG reductions through JI/IET can improve
  project economics of natural gas efficiency projects
    CO2 and CH4 reductions
    Economic return can double
    But likely not enough to fulfill EE potential
    May help smooth implementation of EE policies

 Need to consider, e.g.:
    Gas prices
    Need to invest in development    new fields and competing
     investment possibilities
    Reaping benefits of GHG and gas savings

 INTERNATIONAL ENERGY AGENCY        AGENCE INTERNATIONALE DE L’ENERGIE

				
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posted:5/29/2012
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