Study on Possible Reductions of Gas Flaring in Algeria Final Report Commissioned by BGR Prepared by: 01 July 2019 Table of Contents 1.0 OVERVIEW OF THE PROJ ECT ................................ ................................ ............................ 3 2.0 OBSERVATIONS AND FIN DINGS ................................ ................................ ....................... 3 3.0 COUNTRY CONTEXT ................................ ................................ ................................ ......... 5 4.0 GAS FLARING IN ALGER IA ................................ ................................ ................................ 6 4.1 Magnitude and direction of gas flaring and GHG emissions ................................................................ 6 4.2 Specific Upstream Gas Flare Reduction Projects ................................................................................. 8 5.0 STRUCTURE OF THE ALG ERIAN OIL AND GAS SE CTOR ................................ ................... 10 5.1 Principal Actors and Stakeholders ......................................................................................................... 10 The Ministry of Energy and Mines ................................................................................................................... 11 Sonatrach ......................................................................................................................................................... 11 Regulators ........................................................................................................................................................ 12 Private O&G Companies ................................................................................................................................... 13 5.2 The Gas Market ..................................................................................................................................... 14 5.3 Legal and Regulatory Framework for Gas Development and Valorization ............................................. 14 6.0 GEOLOGICAL AND PRODU CTION TECHNICAL ISSU ES ................................ ..................... 16 ANNEX 1: MAP: OIL AND GAS INFRASTRUCTU RE IN ALGERIA ................................ .................. 17 ANNEX 2: NOTES AND ILLUSTRATIONS ................................ ................................ ..................... 18 Note 1: Flared Gas vs. Gas Production ........................................................................................................... 18 Note 2: Issues Related to Algerian Gas Production ........................................................................................ 18 Note 3: Key Stakeholders on Flaring in the Algeria’s O&G Sector ................................................................. 19 Note 4: Planned Gas Projects -- 2016 ............................................................................................................ 20 Note 5: Major Sources ................................................................................................................................... 21 2 1.0 Overview of the Project This report was commissioned by Federal Institute for Geosciences and Natural Resources (BGR) to assess the potential of German Technical Cooperation (TC) in the area of gas flaring reduction in Algeria. Specifically, the Terms of Reference requests: • Research on the legislative and regulatory framework on gas flaring as well as its status of implementation; • Analysis of the geological, geographic and economic conditions towards the usage of associated gas (AG); • A stakeholder analysis on the subject for Algeria; • Demonstration of other donor’s engagement in this area. The preliminary report was submitted to BGR in August 2017, and this was to be followed by a mission to Algeria. Due to various scheduling difficulties, the mission was not held until October 2018. This document is the final project report that includes the interim findings, additional research, and the results from the in-country mission. 2.0 Observations and Findings The principal points established by this project are: • The legislative and regulatory framework is largely in place. Flaring is prohibited by law, but exceptions can be, and are, made. The regulatory agency Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (ALNAFT) has the responsibility for issuing exceptions. A substantial fee of 20,000 Algerian dinars (approximately 150€) per 1000 meters is payable on flared gas. As flaring on new fields is prohibited and appears to be strictly enforced, almost all flaring occurs in older fields directly operated by Société nationale pour la recherche, la production, le transport, la transformation et la commercialisation des hydrocarbures (SONATRACH), the state-owned, oil company. Thus, while private oil companies are often operators on newer fields, flaring of AG occurs almost always from older Sonatrach operations. As Sonatrach has substantial political and economic influence, it was not possible to determine if Sonatrach has a de facto or de jure exemption on flaring and if any fine is assessed on their flaring. Discussions with Sonatrach representatives during the mission suggest that the company is currently paying at least some fines for flaring. Sonatrach reports directly to the Ministry of Energy and Mines. • From a geological standpoint, oil production (and thus AG) primarily comes Paleozoic (Cambrian-Ordovician and Lower Devonian) and Triassic reservoirs and is dominated by the Sonatrach operated Hassi Massaoud. AG flaring tends to occur at smaller fields distant from the principal fields and connecting gas infrastructure which makes the connection costs relatively high. This is true of all three fields that were identified as potential projects during the mission. Wet natural gas production in Algeria is processed to extract NGLs and the bulk of this processing takes place in the Sonatrach operated Hassi R’Mel field -- the largest gas field and principal gas hub. 3 Once stripped, the gas is partly re-injected to maintain stable reservoir pressure and avoid retrograde condensation. The excess dry gas is then supplied to the domestic and export markets. Some studies suggest that due to the declining trends in both AG production and the increasing volumes of gas needed for re-injection, the system may be short enough raw gas to operate at an optimum level. While new non-associated gas (NAG) production covers the decline in the older fields, the ability to maintain gas production is an ongoing challenge and the cost per unit of gas produced is increasing. • The most important player in the O&G sector is the Ministry of Energy & Mines 1 to which Sonatrach directly reports. Sonatrach as the principal O&G source for the state is the major funder of the Algerian national budget and as such has immense importance. Any major initiative on gas flaring would require the support of Sonatrach and the tacit consent of the Ministry of Energy. • The major donor involved on flaring issues in Algeria has been the World Bank/GGFR, which sponsored a major flaring project in 2003-2005. In 2018, Sonatrach has endorsed the WB/GGFR “Zero Routine Flaring by 2030” Initiative (ZRF 2003). The country’s National Determined Contribution (NDC) under the Paris Accord sets a target of no more than 1% flaring by 2030. As regards technical assistance , during the October 2018 mission, the Ministry brought forward three flaring sites as candidates for technical assistance -- the flared AG at the oil fields; TFT, In Amenas and Ohanet. These three fields are the same ones which the WB/GGFR provided assistance on options to reduce flaring in 2003-2005. The preferred technical option, both then and now, continues to be to capture the AG and take it to market. Since the WB/GGFR study, the gas infrastructure in the region has expanded substantially, but this relates to NAG production and the flaring sites have not apparently been affected. The issue in 2003-2005 was financing the flaring investment and this appears to still be the main barrier. Importantly since the initial studies, the marginal economics of the flare projects has most likely declined due to natural decline in the AG production (thus increasing costs per unit of gas captured.) In considering options for technical assistance, areas that could be viable include: • In Algeria, gas flaring appears to be systemic within the sector and its minimization should be viewed within the context of how policy priorities could be changed to reduce flaring (e.g. giving AG priority over NAG in meeting demand) and strengthening the enforcement by regulatory authorities over flaring. • As the Paris Accord requires limits on Algeria’s GHG emissions, analysis and capacity building on how those GHG limits should be integrated into the investment and operating decisions in the O&G sector, especially for Sonatrach and for the appropriate regulatory agencies. • While data is thin, the WB/GGFR data suggests that substantial flaring exists within the overall process and transportation components of the O&G sector, not just at the oil fields. Considerable knowledge could be added by making an accurate GHG footprint of the sources and volumes of GHG throughout the sector so as to focus on GHG reduction priorities. To do so would require the full cooperation of the Ministry and Sonatrach. • Technical assistance on individual flaring projects appears to add little value. The three projects identified have