International Practices in Policy and

Regulation of Flaring and Venting in

Upstream Operations
Lessons from International Experience

GGFR SCM Workshop

Washington, DC
December , 2011

Anastasiya Rozhkova

Sources
International Practices in Flaring and Venting Policy and Regulation
and their Adaption for Indonesia, 2011 GGFR Study requested by DG
MIGAS of Indonesia (2011 Regulatory Study)
Regulation of Associated Gas Flaring and Venting: Global Overview and
Lessons from International Experience, GGFR Report No. 3, April 2004,
www.worldbank.org\ggfr
GGFR Voluntary Standard for Global Gas Flaring and Venting Reduction ,
www.worldbank.org\ggfr
Regulatory workshops in Alberta, Canada and a workshop in Russia with
participation of regulators from Norway and Alberta,
www.worldbank.org\ggfr
GGFR regulatory assistance in Indonesia, Kazakhstan, Mexico, Qatar
2

2011 Regulatory Study: Objectives & Output

Review, analyze & summarize variety of
flaring & venting policies & regulations
adopted by a selection of oil producing
countries (7 country case studies)
Extract key lessons learned & outline key
features of an effective regulatory system

Review existing regulatory system

Conduct extensive consultation
Recommendations on the new design
Propose the roadmap for development
and implementation
3

PART 1 of
the Report
Workshop

Part 2 of
the Report
Two
workshops

Analytical Framework for Country Case Studies

Legal & institutional framework, policy:
roles of legislative &/or executive brunches of power involved in setting flare &
vent policy;
policy objectives & their main drivers environmental/climate change, health,
energy efficiency &/or fiscal
provisions in the national hydrocarbon, environmental and/or other law(s) stating
the policy and granting regulatory powers to specific government bodies etc.,
Regulatory bodies & their effectiveness:
Mandate, responsibilities, powers, capacity, overlaps, collaboration mechanisms of the
regulatory bodies;

Flaring & venting regulations:

List of key regulations on flaring and venting and their key elements;
Flaring & venting management concept: circumstances when flaring &
venting are allowed & not allowed;
Permitting, fines/taxes, targets or combination approach;

Analytical Framework for Country Case Studies

Procedures for permit application;
Clustering requirements;
Company measurement and reporting requirements including
measurement and reporting of CO2 emissions;
Monitoring of compliance;
Enforcement of compliance;
Technical (performance) requirements (Conversion efficiency
incl. combustion efficiency, liquid separation, smoke emissions, stack
design, pilot flare, spacing requirements, noise, flare pits, etc.)

Access to flare and vent data

Tax incentives
Cost recovery rules for flare reduction investments where
PSCs exist;
Regulation on access to transportation & processing
infrastructure

Study limitations
Focus is on policy and regulation on flare and vent
management in upstream oil and gas operations
Recognition of importance but no detailed analysis of wider
sectoral disbalances such as:

Pricing distortions
Local gas market development
Availability of infrastructure
Access to infrastructure/regulation of natural monopolies

Key lessons learned: Policy

Government commitment to reduce flaring is critical to success
Policy decision with understanding of main drivers & trade-offs needs to be made
(ideally this shall define institutional and regulatory set-up)
Commitment means much more than simply setting targets for elimination (which may
be unrealistic or unachievable)
Government must follow through on institutional and regulatory measures to ensure
control of flaring
National strategies and plans for the petroleum sector must include consideration of
associated gas utilisation
Government must also work to ensure that midstream and downstream markets
support flared gas utilisation
Without the ability to access viable markets, regulating to reduce flaring is unlikely to succeed
Reforms to downstream pricing, third party access to infrastructure and interventions to
improve viability of offtakers might be required
Identification and implementation of government-led or G-leveraged infrastructure projects

Key lessons learned: Institutional

Creation of effective regulatory body with clear mandate (responsibilities, authority),

adequate staff & financial resources (ideally independent)
The majority of case study countries have separate agencies, reporting to the
relevant Minister, who are responsible for flaring regulation (and other upstream
petroleum regulation)
not always necessary Qatar has managed relatively well without such agency. Lack of
such an agency appears to be a problem in Malaysia
not always effective Algeria has a separate agency, but the political power of the state
petroleum company appears to override it

Industry consultation mechanisms are important in ensuring flaring targets are

feasible and regulations are realistic
Alberta has perhaps the most developed consultation process
previous failures to consult on the realism of targets are one of the causes cited for the
failures of past flaring bans in Nigeria

Key lessons learned: Regulations

Translation of the policy decision into set of transparent and enforceable

regulations and operational guidelines
Regulations should establish the framework for reducing flaring wherever it is
economic to do so
blanket prohibitions are unlikely to be effective, unless backed up by other
measures such as creation of downstream markets
Emphasis should be on making operators look for opportunities to utilise gas
economically
Alberta has annual obligations for tests of economic viability although this is a
potentially complex process
Nigeria is planning an obligation to use it or lose it for flared gas
Kazakhstan is introducing three-yearly economic assessments, backed up by
powers for Government to take unutilised gas for free
Such tests need to be backed up by an effective enforcement deterrent for
unauthorised flaring

Key lessons learned: Enforcement

10

Accurate measurement and reporting of flared volumes is necessary if enforcement

is to be effective
There are a number of jurisdictions where gov-ts lack data or reliable data
Scarce resources for enforcement should be allocated in a targeted manner, to
ensure they are used efficiently
Albertas linking of inspections to past track records is a good model here
Penalties may be useful when they lead to flare reduction
Nigeria show the ineffectiveness of low penalties in changing behaviour
threats to suspend or withdraw licences for flaring may not be credible

Key lessons learned: The importance of data

11

Regulation of flaring is critically dependent on access to reliable and consistent

data
identify need for intervention
monitor achievements and trends
rapidly identify and respond to large increases in flaring
Publication of data on company performance and field-by-field flaring volumes can
support flaring reduction
creates public pressure to improve, even where monetary penalties may be
limited
helps interested parties identify flared gas volumes which may be utilised

The case studies

Case Studies

Justification

Alberta (Canada)

Examples of international best practice, achieving and

maintaining very low flaring rates

Norway
Kazakhstan

Engaged in process of learning by doing with ongoing

improvements to regulatory framework for gas flaring

Nigeria

Limited success in reducing gas flaring due to conflicts of

interest, lack of downstream markets and poor enforcement

Algeria

Successful in reducing gas flaring over time, despite

institutional limitations

Summary Case Studies

Malaysia

Reliance on voluntary actions to reduce flaring appears to

have largely been ineffective

Qatar

A contrasting example, where the absence of a formal

regulatory framework has not prevented dramatic reductions
in flaring intensity

12

Alberta (Canada)

13

Alberta: Flaring performance

BCM pa
2.5

Share of solution
(associated) gas
conserved

Source: ERCB

2.0

94%

91% 91%

1.5

92%

93%

93%

94%

95%

95%

100%
96% 96% 96% 96%

95% 96%

95%

93%

90% 90% 90% 90%

Solution (associated)
gas flared and vented

90%

1.0

85%

0.5

80%

0.0

75%

14

Alberta: Institutional
Regulation of gas flaring and venting was originally driven by concerns over wasted
resources, but more recently environmental considerations have become
paramount

The Energy Resources Conservation Board (ERCB) is the independent upstream

energy regulator. ERCB is the latest in a line of energy regulatory agencies
functioning since 1938 and was created in 2008 when upstream and downstream
regulation were separated
Consultation with key stakeholders on environmental matters is formalised through
the Clean Air Strategic Alliance (CASA), a government-funded platform for dialogue
including industry, environment and health organisations and consumer groups.
Within CASA a dedicated flaring and venting team has been put in place

15

Alberta: ERCB organogram

Board Members

Chairman/CEO

Senior Advisor to the

Chair
Senior Executive to
the Chair

Public Involvement

Board Project
Executive Manager

Regulatory
Development
Executive Manager

Central Council and

Law Branch
Executive Manager

Chief Operating
Officer

Finance Branch Chief

Financial Officer &
Executive Manager

Board Secretariat

Public Security
Officer

Oil Sand Branch

Executive Manager

Applications Branch
Executive Manager

Field Surveillance &

Operations Branch
Executive Manager

Geology,
Environmental,
Science & Economics
Executive Manager

Corporate Services
Branch Executive
Manager

Oil Sands and Coal

Mining Manager

Facilities Applications
Manager

Chief Operations
Engineer

AGS Mngr & Prov.

Geologist

Bus. Info Solutions

Manager

External Relations
Manager

Insitu Oil Sands

Manager

Business Op. &

Dev.Manager

Sr. Technical
Engineer

Economics
Manager

Info Collection &

Dissemination Mngr

Human Resources
Manager

Chief and Senior

Advisor

Senior Applications
Officer

Emergency Mgmt
Mngr

Env. Monitoring &

Reg.Mngr

Techn. Support and

Infrastr. CTO & Mngr

Administrative
Services Mngr

Senior Advisors

Field Operations
Manager

Reserve & Porespace

Mngmt Mngr

Resources
Applications Mngr.

Technical Operations
Manager

Energy-Resource
Appraisal Mngr

Liability Management
Manager

Chief and Senior

Advisors

ERCB has 900

staff and 9 field
centres

Advisory& Regulatory
Change Mngr
Bus. Analysis
System & Supp Mngr

16

Information & System

Service Executive
Manager

Communications
Manager

Alberta: Regulations
Key regulation is Directive 60, originally issued in 1999 in consultation with CASA
Associated gas flaring volumes are subject to an annual industry-wide target,
proposed by ERCB in consultation with CASA. If necessary, ERCB has powers to
impose targets

Annually, operators assess if associated gas can be utilised economically

the economic test uses guidelines and parameter values set by ERCB
if the NPV of a project is greater than C$-50,000, it must be implemented
operators in proximity are required to consider the option of clustering
where utilisation is not economic, flaring must conform to strict standards

17

Alberta: Flaring management framework

Associated Gas Decision Tree

18

Alberta: Enforcement
Penalties apply to individual facilities in case of non compliance
Operators flaring or venting above 100 m3/month have to report their flaring and
venting quantities, which are published to increase transparency and pressure to
reduce flaring
Penalties for non-compliance are applied in relation to the severity of the
consequences and whether the operator has a previous record of non-compliance
ERCB enforces compliance through inspections. The frequency of inspections also
increases with the significance of flaring volumes and impacts and with previous
records of non-compliance

19

Alberta: Publication of flaring data

ERCB annually reports flaring by company and their ranking

Maps show the levels of flaring and venting affecting townships

20

Alberta: Lessons learned

Continued strong political commitment to reducing gas flaring, although motivations
have changed, has been critical
Albertas approach combines effective enforcement with a degree of flexibility for
operators in implementation
Consultation with industry produces targets and regulations that are effective but
realistic
Annual requirements to assess whether gas utilisation projects are economically
viable maintains pressures on operators to explore opportunities to reduce flaring
Monitoring and enforcement costs are reduced by focus on those operators and
fields with poor past records

21

Nigeria

22

Nigeria: Flaring performance

BCM pa
35.0

Flared gas
Source: NNPC

30.0

25.0

000 bpd
'Shut-in' of oil
production and
development of
downstream utilisation

3,500

3,000

2,500

Oil production
20.0

2,000

15.0

1,500

10.0

1,000

23

5.0

500

0.0

Nigeria: Institutional

24

The Department of Petroleum Resources (DPR) is responsible for supervising

petroleum industry operations, including gas flaring. DPR is responsible to the
Minister for Petroleum Resources
Approval of field development plans, including gas utilisation plans, is undertaken
by National Petroleum Investment Management Services, a subsidiary of the
Nigerian National Petroleum Corporation (NNPC)
Onshore and shallow water fields (59% of production) are developed as joint
ventures in which NNPC holds a 55% or 60% share
NNPC is frequently unable to cover cash costs of investments by JVs
results in delays in investing in gas-gathering infrastructure
Deep water fields are developed under PSCs

Nigeria: Regulations
Various acts have been passed setting deadlines for eliminating
flaring and providing incentives for associated gas utilisation
Associated Gas Reinjection Act 1979 and accompanying decree
set a deadline of 1984 for flaring to cease
weakened by subsequent decrees allowing continued flaring on
payment of a fine
Associated Gas Framework Agreement 1979 introduced a
package of fiscal incentives for investments to increase gas
utilisation
investments have been made in gas utilisation infrastructure, but
seem to be as much about using non-associated as associated
gas
Other flaring targets (2008 phase-out) have not been met
Further legislation is now planned

25

Nigeria: Enforcement
DPR has the authority to suspend or remove licences and permits in
the event of non-compliance of gas flaring and venting regulations.
Breaches of environmental legislation also carry the risk of
prosecution of the operating company and its employees
Milder sanctions for non-compliance include the imposition of fines
In practice, a lack of resources at DPR and the remote and insecure
location of many facilities makes it difficult to conduct regular
inspections
Sanctions are usually limited to fines
until 2008, fines for flaring were set at US$0.07/mscf. They were
increased to US$3.50/mscf in that year but they have not been
applied to date
the low level of fines means operators are often willing to pay
these instead of reducing flaring

26

Nigeria: Petroleum Industry Bill

The Petroleum Industry Bill would reform the governance of the
petroleum sector as a whole
The Bill was submitted to the National Assembly in 2009 but has not
progressed and has been subject to large-scale amendments
With respect to gas flaring, the Bill provides that
all operators must produce gas utilisation plans within six months
of the Bill being enacted
where flaring is planned to continue past 1 January 2013, third
parties can bid to use this gas, within 120 days of the plan being
published
any unplanned (unutilised) gas must be shut-in or reinjected
no new licences for oil or gas production will be issued unless a
satisfactory gas utilisation programme is in place

27

Nigeria: Downstream markets

28

A major cause of flaring has been the lack of a downstream market

gas-gathering and transportation infrastructure is limited and third party access
is difficult to achieve
downstream gas prices for power generation have been extremely low
($0.20/mmbtu until recently) and payment uncertain
Recent reforms aim to address these problems
a Central Processing Facility (CPF) will be established in each region
operators will be able to sell associated gas to the CPF or pay for it to process
gas under a tolling arrangement
the power sector is being reformed and privatised. A new single buyer is being
established with World Bank-backed guarantees
electricity tariffs and prices of gas into power are being increased (to
$1.0/mmbtu in June 2010 and to $2.0/mmbtu by December 2013)

Nigeria: Future gas market structure

29

Nigeria: Lessons learned

Nigerias efforts to eliminate flaring have been handicapped by

lack of funding for flaring reduction projects due to combination of JVs and
Government budgetary constraints
low prices and poor payment records in downstream markets meaning
utilisation projects are unlikely to be commercially viable
inadequate penalties for flaring, making paying fines preferable to increasing
utilisation and compounded by limited institutional capacity
conflicts of interest between increasing oil production and eliminating flaring
leading to reluctance to take measures to achieve targets

30

The Petroleum Industry Bill and downstream market reforms may help. But the
delays in passing the Bill and numerous rewrites make this questionable

Malaysia

31

Malaysia: Flaring performance

BCM pa

Flared gas

2.0

000 bpd
1,000

Source: NOAA / BP

1.8

Oil production

900

1.6

800

1.4

700

1.2

600

1.0

500

0.8

400

0.6

300

0.4

200

0.2

100

0.0

32

Malaysia: Lessons learned

Petronas, the major oil and gas producer, is implementing the Towards
Zero Flaring and Venting programme
State ownership of Petronas and its involvement in most petroleum sector
may mean that a formal regulatory framework has been considered
unnecessary to reduce gas flaring
However, reliance on voluntary measures appears to have been ineffective
to date
One concern that has been raised is that any offshore pipeline must involve
Petronas who will also, generally, be the operator. As a result, the viability
of flaring reduction projects by operators other than Petronas can be
dependent on the transport charges applied by Petronas

33

Norway

34

Norway: Flaring performance

Pipeline capacity
(bcm)
250

Flared gas (mmcm)

1000

Source: NPD

900
Introduction
of CO2 tax

200

800
700

Flared gas
150

600
500

100

400

300
50

First export
pipeline (Norpipe)

200

Pipeline Capacity

0
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

35

100

Norway: NPD organogram

Storting (Parliament)
Standing Committee on
Energy and Environment
The Government

NPD has 210 staff organised into

80 teams. Only 10 staff members
are classified as managers

Ministry of Petroleum
and Energy (MPE)

Ministry of
Environment (MOE)

Strategy, Communication
and Projects

Department for Climate,

Industry and
Technology

Department for Climate

Change and Pollution
Control

Internal Services and

Development

Norwegian Petroleum
Directorate (NPD)

Climate and Pollution

Agency (Klif)

Statoil

State of Environment,
Norway

Discoveries and Fields

Director
General

HR

Exploration
North Sea
North

North Sea
South

Environment and Energy

Gassco
Petoro

36

Ministry of Finance
(fiscal policy)

Prognosis, Analysis and

Data

Norwegian
Sea and
Barent Sea

Norway: Regulations
Norways commitment to eliminate flaring dates back to the start of oil and gas
production. The 10 Oil Commandments issued in 1971 include:
5 - Flaring of exploitable gas on the Norwegian Continental Shelf must not
be accepted except during brief periods of testing
Operators are required to include plans for associated gas utilisation or
reinjection in their field development plans
Since 1991, a CO2 tax has been applied to emissions from the burning of all
hydrocarbons including flaring and venting
Since 2008, offshore petroleum industry activities have been included in the
EU Emissions Trading Scheme with which Norway is aligned
Following entry into EU ETS, the CO2 tax was reduced so that the overall
penalty for flaring (tax + EU ETS price) remains constant

37

Norway: Enforcement
Field development plans and gas utilisation plans are approved by NPD and
the Ministry for Petroleum and Energy (MPE).
Annual flare gas permits must be obtained from the MPE, with strict control on
the volumes and duration of flaring allowed
Operations are subject to ongoing compliance reporting requirements, and
regular inspections by the NPD.

The CO2 tax and the Norway ETS impose strict rules as to how flare volumes
and carbon content are to be monitored and reported. This is backed up by an
enforcement system consisting of six-monthly reporting and collection cycles,
and annual inspections

38

Norway: Lessons learned

As with Alberta, Norway shows the benefits of a clear political commitment to

reducing gas flaring (in this case, with the 10 commandments)

There has been increased emphasis on the use of market mechanisms to

encourage flaring reductions, alongside an emphasis on the climate change
impacts of flaring (CO2 tax and EU ETS)

Government has taken various measures to encourage gas utilisation and

export including

promoting the creation of a gas exporting union (subsequently ruled illegal

under EU law)
forcing the merger of the pipeline interests of major producers into a single
company, operating under a common carriage model

39

Kazakhstan

40

2011 Economic

Kazakhstan: Flaring performance

BCM pa

000 bpd

9.0
Source: NOAA / BP

Oil production

1,800

8.0

1,600

7.0

1,400

6.0

1,200

Flared gas
5.0

1,000

4.0

800

3.0

600

2.0

400

1.0

200

0.0

41

Kazakhstan: Institutional
The main responsibility for regulating gas flaring and venting activities lies with
the Ministry of Oil and Gas (MOG)
MOGs implementing agency for gas flaring policy is the Committee of
State Inspection of the Oil and Gas Industry (CSIOG). While legally
separated from the MOG, CSIOG is subordinate to MOG
The Ministry for Environmental Protection (MEP) also plays a key role in the
regulation of gas flaring activities in Kazakhstan
under MEP, the Committee on Ecological Regulation and Control (CERC)
is responsible for monitoring environmental compliance. Among its
competencies are the issuance of emissions permits
Industry representatives can voice concerns or suggestions on policy and
regulation within the Foreign Investors Council (FIC). This is a chaired by the
president of Kazakhstan and includes an Oil and Gas group within its structure

42

Kazakhstan: Regulations
New legislation in 2010 greatly strengthened gas flaring regulations
gas flaring is only permitted for reasons of safety or on a temporary basis.
Any operator wishing to flare gas is required to have a gas flaring permit
and an ecological permit determining allowed CO2 emissions
operators must process (use commercially) gas unless it is shown not to
be economically viable, in which case they can utilise the gas (eg, for reinjection). Studies must be updated every three years and approved by
MEP and MOG
The 2010 legislation also made associated gas the property of the State
Government can now access associated gas for free, if the operator is not
processing or utilising it
failure to process or utilise associated gas can be penalised at the
resulting revenue losses to the Government

43

Kazakhstan: Enforcement

Targets such as the elimination of flaring by 2004 have not been met (there is now an
indicative target of 95% utilisation by 2012)
Comparisons of officially reported flaring data and NOAA estimates suggest some
under-reporting of flaring
7

Where penalties are applied, these are

generally insignificant despite high fines
being applicable in theory (equal to the
foregone revenue)

actual fines paid totalled $120,000 in

2008 and $114,700 in 2009

NOAA Data

6.2
6

5
Volume in billion m3

Offical MEP Data

3.8

4
3.1
3

44

MEP charged operators $115 million in

2009, compared to estimated damages
(lost revenues) from flaring of $3 billion

1.7

0
2006

2007

2008

2009

2010

Kazakhstan: Lessons learned

Previous targets (elimination of flaring by 2004) were overly-ambitious and
ineffectual
Enforcement appears to have been weak (fines much less than potential
penalties and apparent systemic under-reporting of flaring)
2010 legislation should greatly strengthen powers of Government to ensure
use of associated gas, but creates its own problems
can Government credibly commit to enforcing flare processing
requirements in absence of developed downstream markets?
will penalties be enforced in this case?

45

Algeria

46

Algeria: Flaring performance

Gas (bcm)

Flared gas (bcm)

90

10
Flare data available for 1994-2008 only

Total gas exports

80

Flare volume

70

Bettioua LNG plant

commssioned

60

Mahgreb-Europe gas
pipeline commissioned

50

LNG capacity

40

4
30

TransMed gas pipeline

commissioned

Pipeline capacity

20

47

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0
1968

0
1966

1964

10

Algeria: Institutional, regulations and enforcement

Prohibition on flaring reported to have been in place since 1966

Sonatrach has set objective of recovering 93% of associated gas by 2008-09 and
100% by 2010, but seemingly not achieved

2005 Hydrocarbon Law and 2006 Ordinance introduced the following

prohibition of flaring, except where prior authorisation from ALNAFT (National
Agency for the Development of Hydrocarbon Resources)
authorisations to flare limited to durations not to exceed 90 days
permitted flaring subject to a tax of 8,000 DZD per 1,000 Nm (~US$110 per
Nm), modified each year at a fixed rate

48

Taxes are estimated to costs operators in excess of US$600 million annually

Algeria: Lessons learned

Algeria appears to take a tough stance on gas flaring

prohibition on flaring in law since 1966 and reconfirmed in 2005

one of only three countries (with Nigeria and Norway) that taxes flaring
current level of flaring tax similar to that levied in Norway.

However, the ongoing high level of flaring (50-100 Sm per Sm oil; maybe more
than half of all associated gas produced) suggests that the strong legal framework
is ineffective in practice

Lack of evidence of monitoring, reporting, and tax collection. This may in part be
attributable to the political power of Sonatrach.

Has one of the few operational CCS projects in the world, injecting CO2 removed
during sweetening into a saline formation (Salah Gas)

49

Qatar

50

Qatar: Flaring performance

BCM pa

Start of Al Shaheen Block 5

gathering system, delivering
associated gas for domestic
market (0.6 BCM pa)

Flared gas

3.5
Source: NOAA / BP

000 boe pd
3,500

3.0

3,000

2.5

2,500

Gas production

2.0

1.5

Oil production

2,000

1,500

1.0

1,000

0.5

500

0.0

51

Qatar: Lessons learned

52

Qatar has been very successful in reducing flaring intensity, despite dramatic
expansion of oil and gas production (intensity is seen by Qatar as a better measure
than absolute volumes given this growth in output)
The primary causes appear to be a commitment at the highest levels of
Government to manage the environmental impacts of Qatars energy sector, and its
Governments ability to rapidly and effectively implement this committment
Qatar is now looking to formalise its control of flaring. A Health and Safety
Executive was created in 2005 within Qatar Petroleum (although still in the process
of staffing itself). A regulation on flaring is being drafted by HSE, with assistance
from GGFR
Qatars circumstances are probably unique and difficult to replicate elsewhere