How the Regulation Plays an Important Role in Reducing Gas Flaring and Venting

In extracting oil from underground, it has been a common practice to flare or vent the associated gas that is blended in the hydrocarbons to the atmosphere, especially when the producing wells are located in a region without ready access to established local markets, gas transportation or distribution pipeline systems, or where volume and flow-rates make collection and recovery of such associated gas uneconomic. However, this practice contributes significantly to greenhouse gas (GHG) emissions and has negative impacts on the environment. The World Bank estimated that the annual volume of associated gas being flared and vented is about 110 billion cubic meters (bcm), the same amount of fuel to provide the combined annual natural gas consumption of Germany and France.[1] In other words, it is such a waste of energy and also contributes a negative impact to the environment.

Theoretically, associated gas can be used as cleaner energy and often cheaper than other energy available and more likely could reduce potential tax revenue and trade balances. The industry also recognizes that associated gas may bring potential economic benefits since the natural gas prices have increased substantially since the early 1970s. Nevertheless, the cost of building the infrastructure and ready access local markets are the main obstacles. Noting a statement from a Nigerian official, “Until there is worthwhile market and until there are facilities (e.g. pipeline, storage tanks) to use the gas, it is normal practice to burn-off by this product from the oil wells.”[2] As a result, only few oil-producing countries have significantly reduced associated gas flaring and venting volumes, and. in some parts of the world, mostly developing countries, flaring and venting volumes continue to rise with increased oil production.

The Role of Regulation

In countries which have significantly reduced gas flaring and venting volumes, such as in Canadian province of Alberta (Alberta), Norway and the United Kingdom, combination of regulations and non-regulatory incentives play an important role.[3] These jurisdictions use the secondary legislation, including regulations, codes, licenses and guidelines, in order to make comprehensive and transparent regulation in gas flaring and venting reduction. Moreover, Alberta has imposed strict targets and limits for annual gas flaring volumes and is currently in the process of defining gas volume venting targets.[4]

Despite those jurisdictions which make use the secondary legislation, most oil-producing countries are still using primary legislation, such as petroleum and hydrocarbon laws and environmental policies, without explicitly referring to gas flaring and venting. The disadvantages of using primary regulation instead of secondary legal instruments, is that primary regulation is not as flexible and adaptable to the ever-changing conditions of oil production and natural resource management as the secondary legal instruments.[5] Therefore it is considered to be more effective and it is necessary to regulate flaring and venting of associated gas in the secondary legal instruments.

Alberta, which has the most comprehensive and transparent gas flaring and venting regulatory regime, has reached a considerable progress in reducing flaring and venting volumes from upstream oil sources. By 2002, the flaring of solution gas had been reduced by 62 percent from the 1996 flaring baseline of 1,340 million cubic meters (mcm).[6] Solution gas venting has been reduced by 29 percent from the 2000 venting baseline of 704 mcm. The volume of solution gas flared and vented has declined from the 1996 volume of 1,808 mcm to 1,010 mcm in 2002, an overall decrease of 44 percent.

Norway, which its oil fields are located offshore in the Norwegian Continental Shelf (NCS), produced 174 million standard cubic meters of crude oil equivalent (scm of oe) in 2002. It has almost doubled since 1990 and increased six fold since 1981, when Norway produced about 95 million and 27 million scm of oe respectively.[7] The amount of gas flared has varied from year to year, mostly depending on the number of new fields that came into operation. However, flaring volumes as a percentage of oil production has decreased substantially over the last two decades.

In the UK, the U.K. Offshore Operators Association (UKOOA) calculates quantities of waste gases produced by its members, including oil and gas operators. Using 2001 data, it calculated that the oil and gas operators’ CO2 emissions represented some 4.5 percent of overall U.K. emissions.[8] Out of that percentage, about 71 percent of offshore CO2 emissions were from gas consumed in turbines, with an additional 20 percent from flaring. Venting was accounted for only 0.05 percent of the industry’s total atmospheric emissions.[9]

How the regulation has been conducted

Basically there are two ways of approaches to achieve flaring and venting reductions. Firstly is by prescriptive approach,[10] which has been adopted in Alberta. This approach is based on specific and detailed regulations established by the regulator and to be met by the operators. Detailed prescriptions of regulatory procedures and operational processes may provide clear information of what is required and how it is to be achieved. By imposing rigorous standards of enforcement procedures, it gives operators incentives to comply with gas flaring and venting regulations.[11]

In Alberta region, gas flaring and venting regulation is carried out by the Alberta Energy and Utilities Board (EUB) which has the primary responsibility for regulating the upstream petroleum industry in the province and for conserving solution gas, and has consolidated its requirements in Guide 60: Upstream Petroleum Industry Flaring, Incinerating and Venting (Guide 60).[12] Guide 60 provides regulatory requirements and guidelines for gas flaring and venting in Alberta, as well as procedural information for flare permit applications and the measuring and reporting of flared and vented gas.[13] In addition to upstream petroleum facilities, the guide also applies to gas transmission facilities licensed by the EUB.[14]

Theoretically, by this approach, it is easier for the regulator to set targets and determine whether an operator is meeting the requirements. However, it is quite complicated to impose detailed technical regulations on gas flaring and venting. Furthermore, in certain circumstances, measuring flare and vent may be impractical and costly.

Secondly is by performance-based approach which places a greater emphasis on consensus and cooperation between the industry and the regulator in setting objectives and targets for gas flaring and venting.[15] By this approach, it is the operator’s responsibility to formulate strategies to achieve these targets and to provide evidence that he has complied with the agreement. In order to impose the regulation in effective manners, enforcement powers are still required by the regulators to ensure the compliance of the regulation.

In practice, most countries that have adopted effective gas flaring and venting regulations, including Norway and the UK, often use the hybrid of these two approaches.[16] Norway has developed effective and successful regulatory regime for gas flaring and venting. The procedures in the regime are not only carried out by the government, but also carried out by the oil companies based on error-free measuring and reporting of volumes flared and vented.[17] The Petroleum Activities Act of Norway does not stipulate specific gas flaring and venting targets, and the operators are permitted to flare or vent associated gas by applying permission to flare or vent associated gas to the Norwegian Petroleum Directorate (NPD) annually. However the Act provides very strict permission procedure.[18] In the Section 4.4 of the Act stated that: “Flaring of petroleum in excess of the quantities needed for normal operational safety shall not be allowed unless approved by the Ministry. Upon application from the licensee, the Ministry shall stipulate, for fixed periods of time, the quantity which may be produced, injected or vented at all times”.[19]

In order to obtain the permit, the operator’s application must identify the type and level of the atmospheric emissions and technology applied to avoid or reduce environmental pollution. Emissions limits are established on case-by-case basis with consideration to the applicable national and regional environmental standards.[20] Furthermore, after obtaining the permit, to achieve environmental objectives set by the Government, the operating company that holds flaring permit has to submit a report indicating the amounts of gas flared daily and volumes of the flared gas every six months for the tax purposes to the State authorities.[21]

In the UK, the competent authority which is responsible in regulating and supervising gas flaring and venting is the Licensing and Consents Unit of the Department of Trade and Industry (DTI).[22] Primary legislations such as Energy Act 1976, Petroleum Act 1998; Petroleum (Current Model Clauses) Order 1999; Environmental Legislation applicable to the Onshore Hydrocarbon Industry (England, Scotland, and Wales); The Offshore Petroleum Production and Pipelines (Assessment of Environmental Effects) Regulations 1999 give DTI the power to regulate onshore and offshore gas production and exploration, and as well as gas flaring and venting.[23] They also give DTI the power to approve and issue flare and gas consents for onshore and offshore fields. Other agencies, such as local authorities, also have powers under primary legislation. For example, environmental legislation specifies that new onshore developments will be assessed by the local authorities on the likely impacts of “noise and vibration” of gas flaring and venting as part of the overall planning approval process.[24]

Beside the Primary Legislation, there are also key instruments for invoking primary legislation in flaring and venting consent such as Guidance Notes for the Completion of Flare and Vent Applications and Appendix 9: Guidelines for gas flaring and venting during platform commissioning (for gas flaring and venting during commissioning).[25] These instruments are applied by DTI to control the volume of gas flared and vented and to approve the amount of gas each facility and site can flare and vent each year. Other than that, there are also technical and operational regulations/guidelines published by UKOOA typically apply to burn technology and practices, timing of burning and venting, location of flaring and venting, and heat and noise generation.[26]

Analysis

Based on those three successful jurisdictions in reducing flaring and venting, the analysis that must be taken into consideration among other are:

a. It is important to regulate flaring and venting in the relevant primary and secondary legal instruments to provide comprehensive, open and transparent regulatory regimes.

Relevant primary and secondary legal instruments empower regulators to deal effectively with gas flaring and venting. Furthermore, comprehensive and transparent regulatory regimes develop and adopt clear and efficient operational processes in applying the regulation. For example, the regulation must clearly define the circumstances when operators may flare or vent associated gas without approval, gas flaring and venting application and approval procedure must be established and conducted in transparent manner.

b. Regulatory regime design depends on the nature of industry and overall legal and regulatory traditions. In some countries, environmental agencies are responsible for setting and enforcing gas flaring and venting regulation, but in the those countries profiled, the ministry which is responsible for managing the hydrocarbon industry has the responsibility to regulate and monitor gas flaring and venting as well.

There is no best international practice or generally accepted theory as to which body or institution authorized to enforce the regulations and to monitor how they have been conducted, but the most important thing is that to establish effective monitoring and effective enforcement, the responsibilities must be defined with no overlapping or conflicting mandates, the regulators have to be independent from regulated operators to avoid any conflict of interests, and the ability to enforce compliance by being properly staffed and financed. Moreover it also needs regulators’ commitment to enforce the regulation.

c. It needs a synergy between the Government and the Oil Companies to reduce the flaring and venting. It is also not realistic to put a strict limitation of flaring and venting considering to certain circumstances, for example lack of infrastructure, local markets, or such associated gas uneconomic. Moreover, as stated above, imposing detailed technical regulations on gas flaring and venting may be challenging and complicated, for example in measuring flare and vent volumes and monitoring compliance on each oil production site may be impractical and costly. Therefore the combination of prescriptive and performance based approach is considered more effective to give more balance in the enforcement of gas flaring and venting regulation.

Besides looking at those domestic regulations, it is also important for government and also oil companies to look at international industry standards, particularly in the area of setting improvement targets of flaring and venting and standardizing monitoring and reporting procedures. This includes that both parties should join international partnerships and/or organization such as the Global Initiative on Natural Gas Flaring Reduction (GGFR)[27] which provides technical assistance for oil producing countries to establish an efficient regulatory framework,[28] and the government to ratify international convention on carbon reduction such as Kyoto Protocol which also includes Kyoto Mechanisms for Flaring Reductions.[29]

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[1] “Regulation of associated gas flaring and venting. A Global Overview and Lessons from International Experience”, the World Bank Report, No 3. Available at http://rru.worldbank.org/documents/ publicpolicyjournal/279gerner.pdf (Last viewed on 11 April 2008).

[2] ‘Nigerian Oil and Natural Gas Industry, File DO 177/33, UKJ National Archives. Also see Gas Flaring in Nigeria: A Human Rights, Environmental and Economic Monstrosity. Available at http://www.foe.co.uk/resource/reports/gas_flaring_nigeria.pdf (Last viewed on 14 April 2008).

[3] Ibid. The World Bank Group Report. Non-regulatory incentives may be in the form of fiscal policies and gas market reform.

[4] Ibid.

[5] Ibid.

[6] Upstream Petroleum Industry Flaring and Venting Report, Industry Performance for Year Ending December 31, 2002, September 2003. Available at www.eub.gov.ab.ca (Last viewed on 14 April 2008). Also see The World Bank Group Report p. 28.

[7] Facts 2003, The Norwegian Petroleum Sector, Ministry of Petroleum and Energy. Also See the World Bank Group Report p. 40.

[8] Source UKOOA. Available at http://www.ukooa.co.uk/templates/sustainability/commitment-detail.cfm/82 (Last viewed on 14 April 2008).

[9] Ibid.

[10] Supra 1 at 8.

[11] Ibid.

[12] Available at http://www.ercb.ca/docs/documents/directives/Directive060.pdf (Last viewed on 14 April 2008).

[13] Ibid. Further details can be found in General Bulletin GB 2002–2005, May 16, 2002, EUB.

[14] Supra 12 at 3.

[15] Supra 1 at 8.

[16] Supra 1 at 9.

[17] Supra 1 at 44.

[18] Petroleum Activities Act No. 72, dated November 29, 1996

[19] Ibid.

[20] Ibid., Also see Supra 1 at 45.

[21] In 1991 Government of Norway has introduced Carbon Dioxide Tax (Co2Tax) as an incentive to encourage operators to reduce gas flaring volumes (~US$120/1000m3).

[22] Available at www.og.dti.gov.uk. (Last viewed 16 April 2008)

[23] Supra 1 at 46.

[24] Ibid.

[25] Further information and procedures can be found at BERR Guidance Notes for the Completion of Flare and Vent Applications, available at https://www.og.dti.gov.uk/regulation/guidance/flare_vent.htm (Last viewed 16 April 2008) and Appendix 9: Guidelines for gas flaring and venting during platform commissioning, available at https://www.og.dti.gov.uk/regulation/guidance/reg_offshore/app9.htm

[26] Supra 1 at 48. Also see http://www.ukooaenvironmentallegislation.co.uk/contents/Topic_Files/Offshore/Flaring.html

[27] GGFR is a World Bank Led Initiative to support national governments an the petroleum industry in their efforts to reduce flaring and venting of gas associated with the extraction of crude oil.

[28] Supra 1 at 8

[29] “Kyoto Mechanisms for Flaring Reduction”, the World Bank Group Report No. 2. Available at http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php