Climate change issues in

Oil & Gas Sector

A sectoral discussion on Environmental
issues, GHG emissions, GHG abatement
opportunities, Role of CDM

Contents

Environmental issues for the Indian Oil & Gas Sector

GHG Emissions from various industries & sectors

Climate Change Enhanced Greenhouse Effect

Flexibility Mechanisms under The Kyoto Protocol & CDM

Potential GHG abatement projects, CDM methodologies and

UNFCCC registrations

Carbon transactions

Way forward - Carbon footprint

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Climate Change issues in Oil & Gas Sector

Environmental issues for the Indian

Oil & Gas Sector

The Oil & Gas Sector has a variety of impacts on the

environment. These impacts depends upon the stage of the
process, the size and complexity of the project, the nature and
sensitivity of the surrounding environment and the effectiveness
of

planning,

pollution

prevention,

mitigation

techniques.

The major areas of environmental concern includes :

1.

Atmospheric Impacts

2.

Aquatic Impacts

3.

Terrestrial Impacts

4.

Ecosystem Impacts

5.

Potential Emergencies

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Climate Change issues in Oil & Gas Sector

and

control

Potential Environmental Impacts

Environmental Impact

Aquatic Impacts

Atmospheric
Impacts

Atmospheric issues are attracting increasing interest from both industry and government authorities
worldwide. The potential impacts mainly arises due to exploration & production, refining operations
etc. The primary sources of atmospheric emissions from oil and gas operations arise from:
Flaring,

venting and purging gases

Combustion
Fugitive

processes in diesel engines and gas turbines

gases from loading operations and tank and losses from process equipments

Airborne

particulates from soil disturbance during construction

Particulates

from other burning sources

The main areas of impact are ozone depletion, GHG emissions leading to increased global warming,
NOx and SOx emissions, SPM emissions etc.
The principal aqueous waste streams resulting from exploration and production operation are:
Produced

water

Drilling

fluids, cuttings and well treatment chemicals

Process

wash and domestic wastes

Cooling

water

Spills

and leakage

The major impact of the waste streams arise from the toxicity, high pH and salt content of chemicals
used as drilling fluids which may result in pollution of ground and surface waters. Impacts may result
particularly where ground and surface waters are utilized for household purposes or fisheries and
especially ecologically sensitive areas are affected.

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Climate Change issues in Oil & Gas Sector

Potential Environmental Impacts

Environmental Impact
Potential impacts to soil arise from two basic sources:

Terrestrial
Impacts

Physical

disturbance as a result of construction

Contamination

resulting from spillage and leakage or solid waste disposal

The potential impacts arising from the poor design and construction includes soil erosion due to soil
structure, changes in surface hydrology and drainage patterns, increased salination and habitat
damage, reducing the capacity of the environment to support vegetation and wildlife etc.
Plant and animal communities may be directly affected by changes in their environment through

Potential Emergency
Ecosystem
Impacts

variations in water, air and soil quality and through disturbance by noise. Such changes may directly

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affect the ecology: for example, habitat, food and nutrient supplies, breeding areas, migration routes
etc. The effect is upsetting of the nutrient balances and microbial activity of the soil.

The major environmental impact occurs in this case due to

Spillage of fuels, gases, oil, chemicals and hazardous materials
Oil or gas well blowout
Explosions
Fires
War & Sabotage
Natural disaster and their implication on operation e.g. flood, earthquake, cyclone.
The major impact of these emergency events include large GHG emissions, ozone depletion, changes
in soil structure and character, habitat and vegetative damage.
Climate Change issues in Oil & Gas Sector

Initiatives towards reducing

atmospheric impacts

Among all the different environmental impacts, the major focus lies on
Atmospheric Impact caused by Oil & Gas Industry.
One of the major sources of Atmospheric Impact caused by Oil and Gas
Industry is the flaring and venting of gases. So the principle target for
emission reduction is in this domain.
Various technological initiative have been introduced to reduce emissions as
a result of combustion process related to power production. More efficient
gas turbines have been developed together with improved turbine
maintenance regimes. Efficiency improvements may also result from gas
turbine optimization considerations. Other technologies to improve fuel
efficiency include: steam injection, combined cycle power generation, pump
and compressor optimization, waste heat recovery and the application of
energy conservation principles.
Improvements in the technologies have resulted in reduced emission from
the different sources. The reduction of GHG emissions directly leads to
reduction of global warming. These process improvement/energy efficiency
measures causing emission reduction can be directly accounted for and thus
can be considered as CDM projects.

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Climate Change issues in Oil & Gas Sector

GHG Emissions from various

industries & sectors

GHG emissions associated with industry (including energy utilization)

represent about 21% of world GHG emissions.

The Oil & Gas and Chemical industries are among the major emitters of
GHGs.
Source: CAIT, IEA, 2004a, Hendriks
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Climate Change issues in Oil & Gas Sector

Climate Change Enhanced

Greenhouse Effect

Human activities like deforestation or heavy fossil fuel use are increasing
the concentration of Greenhouse Gases (GHGs) in the atmosphere.

GHGs trap heat energy in the Earth's lower atmosphere, like a thick
blanket round the planet.

This enhances the green house effect, resulting in commonly known

Climate Change or Global Warming

Climate Change leads to:

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Rise in average global temperature (expected to go up by 1-4 Celsius in next

100 years)
Changes in vegetation
Increased storm surges
Sea level rise (parts of Maldives & Bangladesh might submerge in next 50 yrs)
Risks which will affect the profitability of the Oil & Gas industries

Climate Change issues in Oil & Gas Sector

Glimpse of Climate change Risks

Physical Risks

Global warming poses threat of sea level rise, hurricanes/ other natural calamities for
especially those situated in the coastal regions.
Coastal E&P facilities, Refineries can face huge damage due to cyclones and
hurricanes
Business Risks

Climate
Change
Risks for
Oil & Gas
Sector

Extreme weather conditions resulting in increased energy cost, higher contingency

requirement resulting in erosion of profit margins

Competitiveness Risks

Effect on Gross Refining Margin. As energy costs increase, Oil industries using
conventional and carbon intensive energy sources will see a reduction in the GRM.

Regulatory risks

Carbon tax implementation on states by Central government can affect profitability of

the Oil & Gas sector

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Climate Change issues in Oil & Gas Sector

Kyoto Protocol and CDM

Legally binding emission reduction targets for

GHGs only for Annex-1 (i.e., developed ) countries

Aim of reducing overall GHG emissions by at least

5.2% below 1990 levels in 2008-2012 commitment
period

Kyoto protocol - Establishes three mechanisms to

supplement national actions to achieve real, long term,
measurable and cost effective GHG reductions:

Clean Development Mechanism

(CDM)
International Emission Trading (IET)
Joint Implementation (JI)

Developed
Country
Govt/ Pvt.
Sector
Sale
proceed
s

Carbo
n
Credits

Developing
Country GHG
Abatement
Project

Carbon credits are measured in terms of Certified Emission Reduction (CER)

One CER equals 1 MT CO2 equivalent
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Climate Change issues in Oil & Gas Sector

CDM Process : Availing Carbon

Credits
1

Project
Implementation

Project
Identification

Project
Construction
Project
operation

Kyoto Approvals

CDM PROJECT
PROMOTER

CDM
Documentation*

Validation
by DOE

Endorsement
by DNA

Registration
with UNFCCC

CER Transaction

CER

ERPA

BUYER
OF CER

Generation of
Carbon credits
Verification/
Certification by DOE
UNFCCC / EB
Issues CERs

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Climate Change issues in Oil & Gas Sector

*PIN: Project Identification Note

*PDD: Project Design Document
ERPA: Emission Reduction
Purchase Agreement
DOE: Designated Operational Entity
DNA: Designated National Authority

Potential GHG abatement Projects in

Upstream
Oil & Gas Sector

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Climate Change issues in Oil & Gas Sector

Potential GHG abatement projects in

Upstream Oil & Gas Sector
1. Installation of Gas Recovery Facilities to prevent emission of methane/CO2 to the
atmosphere

Installation of compressors to recover low pressure (LP) gas and compress the same for further
distribution

Installation of ejector systems which uses the motive force to suck LP gases which were
previously flared

Installation of separators to separate gas at various pressures and recover very low pressure gas
that was previously flared

Up-gradation of process gas compressors (PGC)

Optimal utilization of gas for internal consumption in gas lift wells/ gas re-injection

Laying pipelines from gas rich areas to areas where there is scarcity of gas but greater demand
(by identifying potential consumers).

2. Common Grid of Power at Offshore

A common grid of power is setup by achieving interconnectivity across various process and well
platforms.

This interconnectivity can be achieved by laying submarine cables and transferring surplus power
(NG based) to the shore for sale.

The project replaces more carbon intensive power source (DG based) to relatively cleaner (NG
based) power.

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Climate Change issues in Oil & Gas Sector

Potential GHG abatement projects in

Upstream Oil & Gas Sector...(contd)
3. Recovering Vapors from Storage Tanks
Recovery and utilization of vapors, previously being vented
out from oil storage tanks, using ejector system.
4. Carbon Capture & Storage (CCS)
Capture of CO2 from large stationary sources, transportation
of the gas to an appropriate injection site where it is pumped
and stored into underground geological formations such as
natural gas and oil fields.

Storage may also be combined with Enhanced Oil Recovery

(EOR) or Enhanced Gas Recovery (EGR)

This also results in energy consumption reduction of oil and

gas recovery from the wells.

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Climate Change issues in Oil & Gas Sector

Other Potential GHG abatement

projects in Upstream Oil & Gas Sector

Facilities for reduction of gas flaring through

ejectors/compressors/separators/pipeline etc.

Waste heat recovery at oil production facilities.

Energy efficiency improvement in gas processing

plant

Power factor improvement at oil installations

Reduction in gas pipe leaks

Fuel switch from fossil fuels to other cleaner fuels

like natural gas

Captive power generation by utilizing natural gas

Oil tank head vapor recovery system

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Climate Change issues in Oil & Gas Sector

Potential GHG abatement projects in

Downstream Oil & Gas Sector

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Climate Change issues in Oil & Gas Sector

Potential GHG abatement projects in

Downstream Oil & Gas Sector
1. Energy efficiency Improvement measures in the
existing system

Steam generation and distribution system up-gradation

-Enhanced heat utilization through installation of centralized
flash steam recovery system to recover steam condensate
-Flash steam utilization in vapour absorption chiller to produce
refrigeration effect
-Better steam trap management to reduce heat loss
-Improvement in the cogeneration/ self generation efficiency

Steam optimization by installation of Dry-ejector system

instead of steam-jet ejector in VDU
In Dry-ejector system vacuum gas oil is used as motive liquid
and circulated in the system. This reduces generation of LP
steam which is required as motive fluid in conventional steamjet ejector. An unique technology.

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Climate Change issues in Oil & Gas Sector

Potential GHG abatenment projects in

Downstream Oil & Gas Sector &
Petrochemical Units
1.

Energy efficiency Improvement in the existing systemcontd

Installation of mist cooling tower instead of conventional cooling tower

A much lower cooling water temperature can be achieved through mist
cooling tower. This improves heat recovery and reduces cooling water
requirement hence lower pumping energy etc. Not a common practice in
large-scale hydrocarbon industries.

Heat integration through the application of state-of-the-art pinch technology

Energy efficiency improvement through optimization of heat exchanger
network in CDU/VDU/pre-heat train of distillation units etc. Optimization of
HEN is performed using Pinch Analysis.

New generation refractory

Replacement of conventional refractory with ceramic fibre insulation to
reduce heat loss in furnace

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Climate Change issues in Oil & Gas Sector

Few more potential areas in refinery

units where CDM may be applicable
2. Flare recovery system
utilization to cater to heat demand of refinery
utilization in boilers/ Gas Turbine
3. Fuel switch projects
Fuel switching in furnace, heater etc
Fuel switch in the thermal energy generation system/
cogeneration/ self generation equipments
Optimization in H2 recovery from off gases from CRU,
VGO hydro-treater etc
4. Application of Advanced Processes
Use of new generation catalysts which reduces coke
deposition on the catalyst
Application of energy-efficient Solvent De-asphalting
technology instead of energy-intensive
Cracking/Coking technology

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Climate Change issues in Oil & Gas Sector

Few more potential areas in refinery

units where CDM may be
applicable....
(contd)
Novel bio-catalytic processes with very low energy consumption

Application of membrane separation technology instead of conventional separation techniques

H2 generation in the refinery through natural gas reforming instead of naphtha reforming

Gas-to-Liquid (GTL) technology for production of petroleum fuel/Lube oil/Wax from Natural Gas

Integrated Gas Combined Cycle (IGCC) based power generation from vacuum residue/ petroleum
coke higher power generation efficiency with generation of H 2 as by product

Steam-injection in Gas Turbine

5. Alternative Fuels/ Energy

Bio-diesel

Efficient generation of H 2 and utilization

Renewable energy wind power/ hydro power/ solar power etc.

6. Transportation project

Changes in the mode of transportation of petroleum products e.g. from road to rail/ pipeline

Energy efficiency improvement in the intermediate pumping stations of crude/ product pipelines

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Climate Change issues in Oil & Gas Sector

CDM methodologies available for the

Oil & Gas Sector
AM0009

Recovery and utilization of gas from oil wells that would

otherwise be flared or vented

AM0018

Steam optimization systems

AM0037

Flare (or vent) reduction and utilization of gas from oil wells as a
feedstock

AM0055

Baseline and Monitoring Methodology for the recovery and utilization

of waste gas in refinery facilities

AM0077

Recovery of gas from oil wells that would otherwise be vented or

flared and its delivery to specific end-users

AMS-III.P

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Recovery and utilization of waste gas in refinery facilities

Climate Change issues in Oil & Gas Sector

Registered CDM projects in the Oil &

Gas Sector from India
Essar Oil Limited

GHG emission reduction through the installation of energy efficient

vacuum creating system in the vacuum distillation column of petroleum
refinery
Methodology used: AM0018

Oil and Natural

Gas Corporation
(ONGC) Limited

Flare gas recovery project at Uran plant, Oil and Natural Gas Corporation
(ONGC) Limited
Methodology used: AM0037
Flare gas recovery project at Hazira Gas Processing Complex (HGPC),
Hazira plant, Oil and Natural Gas Corporation (ONGC) Limited
Methodology used: AM0037
Up-gradation of Gas Turbine 1 (GT 1) and Gas Turbine 2 (GT 2) at cogeneration plant of Hazira Gas Processing Complex (HGPC) of Oil and
Natural Gas Corporation Limited (ONGC)
Methodology used: AMS.II-D
Waste heat recovery from Process Gas Compressors (PGCs), Mumbai high
south (offshore platform) and using the recovered heat to heat process
heating oil
Methodology used: AMS-II.D

Numaligarh
Refinery Limited

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NRL -Captive power generation by recovery and utilization of the

waste energy (thermal and pressure) of HP steam
Methodology used: ACM0004

Climate Change issues in Oil & Gas Sector

Registered CDM projects in the Oil &

Gas Sector from India
Bharat
Petroleum
Corporation
Limited

Bharat Petroleum Corporation Limited (BPCL)s Wind Power Project,

India
Methodology used: AMS.I-D

Indian Oil
Corporation
Limited

GHG emission reductions through pre-heat train optimization in the CDU

and VDU of Digboi Refinery,, Indian Oil Corporation Limited (Assam Oil
Division)
Methodology used: AMS-II.D
Flare Gas Recovery and Utilization of Recovered Flare Gas for process
heating requirements at IOCL, Haldia Refinery
Methodology used: AMS-III.P
Flare Gas Recovery system (FGRS) at Barauni Refinery of Indian Oil
Corporation Limited
Methodology used: AMS.III-P

Oil India Limited

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Oil India Limited (OIL) Greenhouse Gas Emission Reduction through

Recovery and Utilization of Flare Gas
Methodology used: AM0009

Climate Change issues in Oil & Gas Sector

Carbon transactions

Carbon transactions
carbon transactions are purchase contracts whereby one party
pays another party in exchange for a given quantity of GHG
emission reductions, either in the form of allowances or credits
that the buyer can use to meet its compliance objectives vis--vis
greenhouse gas mitigation.
Payment for emission reductions can be made using one or more of
the following forms: cash, equity, debt, or in-kind contributions such
as providing technologies to abate GHG emissions.

Carbon Transactions

Allowance based
Transactions (EUA)
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Project based
Transactions (CER,ERU)

Climate Change issues in Oil & Gas Sector

Carbon transaction options

Forward transaction

Ensures guaranteed carbon revenue

Advance possible, but modalities still uncertain

Could be fixed price or market-linked

Possible to put floor and ceiling

Guaranteed quantity or best effort basis

Spot transaction

Transaction on issuance of CERs

Till today, has resulted in better rate

Has been more popular in India so far

Combination of Forward and Spot

Usually when large quantum of CERs available

(say >100,000 p.a.)

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Climate Change issues in Oil & Gas Sector

Carbon Finance Opportunities

Project finance

Investors from Europe, Japan interested in

financing CDM, especially RE projects

Right on CERs (full / partial) imperative

Transaction cost finance

Buyers ready to pick up full/part of

transaction cost

CER price usually discounted

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Climate Change issues in Oil & Gas Sector

VER market.

Voluntary market

Essentially a non-compliance market

Driven by social responsibility

Market is emerging not stable yet

Transacted comodity: VER = Verified Emission

Reduction

From registered projects outside crediting

period

From non-registered projects

Prices lower compared to CERs

Opportunities are yet to be assessed

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Climate Change issues in Oil & Gas Sector

CDM Value Accretion

Curve
VALUE

Approximately 10 months, variable depending on type of project

100%

Key step

0%
1.
PIN Issued

PIN = Project Idea Note

Page 29

2.
PDD Prepared.

3.
Host Country Approval

PDD = Project Design Document

4.
PDD
Validation
finalised

5.
Registration
with
UNFCCC

6.
Construction

UNFCCC = United Nations Framework Convention on Climate Change

Climate Change issues in Oil & Gas Sector

7
Issua
CE

CDM Transaction Cost

Documentation cost
Expenses incurred in documentation, Consultants fee
Validation cost
Fee payable to DOE for validation
Registration fee to UNFCCC
For 15k CER/y : Nil
For > 15k CER/y : @ 0.1 USD for first 15k CERs
@ 0.2 USD for balance CERs
CER verification charges

Fee payable to DOE for verification (every time)

Share of Proceeds (SoP)
Charged by UNFCCC every time during issuance of
CERs, calculated same way as Regn Fee. Regn fee
paid, if any is adjusted
Adaptation Fund

2% CERs deducted by UNFCCC at issuance

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Climate Change issues in Oil & Gas Sector

Summary

Climate change and global warming: major threat to the Oil & Gas industries.

The Oil & Gas sector will be a significant part of an evolving solution to the CO 2
challenge and certainly drive the ushering of a cleaner hydro carbon age in
future.

Companies have already started pursuing strategies to position themselves in

the cleaner, more sustainable and low carbon growth trajectory by conscious
reorganization of their product portfolio and restructuring of their multi-location
operations.

Big Oil Companies like British Petroleum is planning to invest USD 8 billion in
low carbon power and alternative energy business over the next decade and
aims at USD 1 billion of operating profit by 2015 from this business only.

Adoption of the right strategy for mitigating long term climate change risks can
provide distinct competitive advantage.

Companies seeking to develop their strategies should first analyze their valueat-stake or value-at-risk under a variety of scenarios from current and
emerging policies to reduce carbon emissions.

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Climate Change issues in Oil & Gas Sector

Carbon footprint - key starting step

Carbon footprint has the power to influence all decisions on climate change strategy
Establishing carbon footprint
Map carbon
footprint

Determine
boundary

Develop
carbon
inventory

Capacity
building

Determine
carbon
emissions

Provide Training
on the
implementation
of inventory
manuals

Collecting
activity data and
emission data

Enablers

Identify key
sources of GHG
emissions

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Identify and
decide
Organizational
and Operational
Boundary

Select the GHG

emission
calculation
approach
Developing
customized
modules and
inventory
manuals

Climate Change issues in Oil & Gas Sector

Demonstrating
the use of
customized
modules

Applying
customized
calculation tools
for estimating
GHG emissions

WBCSD & WRI Protocol. The

framework for GHG Accounting
GHG ACCOUNTING & REPORTING PRINCIPLES

ACCURACY
ACCURACY
RELEVANCE
RELEVANCE

TRANSPARENCY
TRANSPARENCY

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Climate Change issues in Oil & Gas Sector

COMPLETNESS
COMPLETNESS

CONSISTENCY
CONSISTENCY

Determining Organizational Boundary

Approach
Company selects an approach for consolidating GHG emissions and
then consistently applies the selected approach to define those
businesses and operations that constitute the company for the purpose
of accounting and reporting GHG emissions.

Control approach

Equity share approach

A company accounts for GHG emissions from
operations according to its share of equity in the
operation.

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A company accounts for 100% of the GHG

emissions from operations over which it has
control.
Does not account for GHG emissions from
operations in which it owns an interest but has
no control (Financial or Operational).

Climate Change issues in Oil & Gas Sector

Determining Operational Boundary

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Climate Change issues in Oil & Gas Sector

Identifying and calculating GHG emissions

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Climate Change issues in Oil & Gas Sector

Key Performance Indicators

PRODUCTIVITY/EFFICIENCY RATIOS:
-Express the value or achievement of a business divided by its GHG impact.
-Increasing efficiency ratios reflect a positive performance improvement.
-Examples of productivity/efficiency ratios include resource productivity (e.g., sales per GHG)
and process eco-efficiency (e.g., production volume per amount of GHG).

INTENSITY RATIOS (normalized environmental impact data):

-Express GHG impact per unit of physical activity or unit of economic output.
-A physical intensity ratio is suitable when aggregating or comparing across businesses that
have similar products. An economic intensity ratio is suitable when aggregating or comparing
across businesses that produce different products. A declining intensity ratio reflects a
positive performance improvement.
-Many companies historically tracked environmental performance with intensity ratios.
-Examples of intensity ratios include product emission intensity (e.g., tonnes of CO 2 emissions
per electricity generated); service intensity (e.g., GHG emissions per function or per service);
and sales intensity (e.g., emissions per sales).

PERCENTAGES (Percentage Indicator):

-Ratio between two similar issues (with the same physical unit in the numerator and the
denominator).
-Examples of percentages are current GHG emissions expressed as % of base year GHG
emissions.

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Climate Change issues in Oil & Gas Sector

Thank you
Indra Guha
Senior Manager
Climate Change and Sustainability Services
Indra.Guha@in.ey.com
Mobile: 9871430769