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Reduction of gas flaring in Ecuador and Peru
Final report
Reduction of gas flaring in Ecuador and Peru 1
This report was prepared by Carbon Limits AS.
Project title:
Reduction of gas flaring in Ecuador and Peru
Client: Federal Institute for Geosciences and Natural Resources (BGR)
Project leader: Torleif Haugland
Project members: Valentin Vandenbussche, Mariel Juarez
Finalized: 09/10/2017 (draft)
Øvre Vollgate 6
NO-0158 Oslo
Norway
carbonlimits.no
Registration/VAT no.: NO 988 457 930
Carbon Limits is a consulting company with long standing experi-ence in supporting energy efficiency measures in the petroleum industry. In particular, our team works in close collaboration with industries, government, and public bodies to identify and address inefficiencies in the use of natural gas and through this achieve reductions in greenhouse gas emissions and other air pollutants.
Reduction of gas flaring in Ecuador and Peru 2
Table of contents
Table of contents...................................................................................................................................... 2
List of figures ............................................................................................................................................ 3
List of tables ............................................................................................................................................. 4
1 Introduction ....................................................................................................................................... 5
2 Ecuador ............................................................................................................................................. 8
2.1 Oil and gas production and flaring situation ............................................................................. 8
2.2 Stakeholders .......................................................................................................................... 11
2.3 Framework conditions ............................................................................................................ 13
2.4 Initiatives to reduce flaring ..................................................................................................... 14
2.5 Barriers to flaring reduction .................................................................................................... 16
2.6 Opportunities for further flare reduction in Ecuador ............................................................... 19
3 Peru ................................................................................................................................................ 22
3.1 Oil and gas production and flaring situation ........................................................................... 22
3.2 Stakeholders .......................................................................................................................... 26
3.3 Framework conditions ............................................................................................................ 28
3.4 Initiatives to reduce flaring ..................................................................................................... 29
3.5 Barriers to flaring reduction .................................................................................................... 30
3.6 Opportunities for further flare reduction in Peru ..................................................................... 32
4 Conclusions – possibilities for German DC in both countries ......................................................... 34
4.1 The rationale for engaging in flare reduction efforts .............................................................. 34
4.2 Recommended follow up in Ecuador ..................................................................................... 35
4.3 Recommended follow up in Peru ........................................................................................... 36
Appendix 1 – Abbreviations list .............................................................................................................. 37
Appendix 2 – Literature and sources ..................................................................................................... 38
Appendix 3 – Maps and further documentation for Ecuador ................................................................. 41
Appendix 4 – Maps and further documentation for Peru ....................................................................... 43
Appendix 5 – Additional information about flaring ................................................................................. 45
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List of figures
Figure 1: Left: Global flaring of associated gas and crude oil production (1996-2016). Right: Change in
the volumes of gas flared in the top 8 countries (2012-2016) ................................................................. 6
Figure 2: Flare volume and flare intensity by country (2016) .................................................................. 6
Figure 3: Oil and gas fields in Ecuador .................................................................................................... 8
Figure 4: Left: Oil production and consumption in Ecuador. Right: Gas production and consumption in
Ecuador. 1980-2016. Source: BP, 2017 .................................................................................................. 8
Figure 5: Fate of the associated gas in Ecuador, NGL production from associated gas is included ...... 9
Figure 6: Left: Flare volumes and oil production in Ecuador [includes upstream and downstream
flaring]. Right: Split between associated gas and downstream flares, 2015 ........................................... 9
Figure 7: Size distribution of flares and number of flares in each category (2015), associated gas flares
only ......................................................................................................................................................... 10
Figure 8: Distribution of the volumes flared, by company (2015) based on satellite data, associated gas
flares only ............................................................................................................................................... 10
Figure 9: GHG emissions from flaring of associated gas in Ecuador, split between CO2 and CH4. ..... 11
Figure 10: Black carbon emissions from flaring in Ecuador .................................................................. 11
Figure 11: Hydrocarbon production figures per company, as reported by ARCH for 2016 ................... 12
Figure 12: CO2 savings from the project. Source: Petroamazonas EP ................................................. 15
Figure 13: Satellite view of the Oriente Basin (centre) and detailed view on two areas. Left: remote
flare sites located south of the Basin. Right: flare sites in the centre of the Basin ................................ 16
Figure 14: Installation of a gas collection line at an unknown location in the Oriente Basin
(Petroamazonas EP, 2016). ................................................................................................................... 17
Figure 15: Fuels and other power sources for the operations of Petroamazonas (Petroamazonas EP,
2016). ..................................................................................................................................................... 18
Figure 16: Oil and gas regions and blocks in Peru ................................................................................ 22
Figure 17: Left: Oil production and consumption in Peru. Right: Gas production and consumption in
Peru. 1980-2016. Source: BP, 2017 ...................................................................................................... 22
Figure 18: Use and disposal of associated gas in Peru......................................................................... 23
Figure 19: Left: Flare volumes and oil production in Peru in BCM per annum [includes upstream and
downstream flaring]. Right: Split between associated gas and other flares, 2015 ................................ 23
Figure 20: Flare volumes for the three flare sites offshore Northern Peru ............................................ 24
Figure 21: Size distribution of flares and number of flares in each category (2015), associated gas
flares only ............................................................................................................................................... 25
Figure 22: Distribution of the volumes flared, by company (2015), associated gas flares only, satellite
data ........................................................................................................................................................ 25
Figure 23: GHG emissions from flaring of associated gas in Peru, split between CO2 and CH4. ......... 25
Figure 24: Black carbon emissions from flaring of associated gas in Peru. .......................................... 26
Figure 25: Organigram of the main institutions related to flaring in Peru. ............................................. 27
Figure 26: Hydrocarbon production figures per company, as reported by PERUPETRO for 2016 ...... 27
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Figure 27: Illustration of some of the associated gas flare sites in Peru. Left: offshore Tumbes Basin.
Center: Talara Basin. Right: Marañon Basin. ........................................................................................ 31
Figure 28: Geographical flare distribution illustrated from satellite estimates (2015) ............................ 41
Figure 29: Geographical flare distribution illustrated from satellite estimates (2015) ............................ 43
List of tables
Table 1 Sample of projects ready for investment within the OGE&EE program ................................... 20
Table 2 Flaring levels in each region ..................................................................................................... 42
Table 3 Flaring levels in each region ..................................................................................................... 44
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1 Introduction
This report summarizes the findings from the project assignment “The Potentials of German
Development Cooperation in the Area of Gas Flaring”, conducted by Carbon Limits for the German
Federal Institute for Geosciences and Natural Resources (BGR). The main objective of the study is to
determine whether and how the German Development Cooperation can contribute to reduced flaring
and venting of associated gas in Ecuador and Peru. From the perspective of international climate
change mitigation, the study also includes some generic and brief considerations on the cost-efficiency
of using public funds in support of flare reduction.
Flaring and venting take place when gas is not used for productive/energy purposes, due to lack of
market outlets or for safety reasons. A distinction is made between associated and non-associated gas
flaring. Associated gas is gas produced as a by-product of the production of crude oil and was
historically considered as a waste product. Non-associated gas reserves, on the other hand, are
developed primarily to produce gas. Associated gas flaring and the flaring of non-associated gas have
different causes and solutions, and the main focus of this report is associated gas. Flaring can occur at
production sites (upstream), or refineries or processing plants (downstream). This report focuses on
upstream flaring.
Gas flaring and venting represent a waste of resources and have negative environmental impacts.
Utilization of otherwise flared and vented gas has an economic value being used for productive
purposes and significantly reduces emissions of greenhouse gases when gas substitutes more
polluting fuels. Local air pollution from flaring can have negative public health effects and reduce
agricultural yields.
Globally, it is estimated that 160 BCM of gas was flared in 2016 (GGFR, 2017a). This represents ca.
1.2% of the world GHG emissions (World Resource Institute, 2017), or 2 times the annual natural gas
consumption of Germany (BP, 2017). Gas flaring is therefore a global issue that is being addressed at
three main levels.
First, private and public companies around the world have increased focus on flaring from their own
operations. With the development of gas markets and infrastructures, gas is no longer considered as a
waste but as a valuable resource that can increase companies’ profits. Flaring also represents direct
costs for operations in countries where there is a tax or other penalties to flaring or related emissions.
Second, national authorities are increasingly formulating and implementing policies and regulations to
tackle the flare problem, albeit with mixed results. Initially this emerged from a broad recognition of
flaring as a resource waste, while over the last few years climate change considerations have come to
the forefront.
Third, gas flaring has over the past 10 to 15 years attracted much attention with international
organizations (governmental and non-governmental) and has been addressed in both bilateral and
multilateral development cooperation. Important initiatives are the Global Gas Flaring Reduction
Partnership (GGFR), formed in 2003, managed by the World Bank and with 18 governments and 13
international oil companies as partners. Linked to the GGFR, the "Zero Routine Flaring by 2030"
initiative was launched in 2015, with 25 governments, 31 oil companies and 15 development
institutions having endorsed the target and made other commitments under the initiative (see Appendix
5 for further information).
Despite all of this, the global level of flaring has remained virtually stable since 2010, after a decline for
a decade before that. It should be noted however that crude oil production has steadily increased so
that the flare intensity (flaring per unit of oil production) has gone down. Over the 20 years period from
1996 to 2016 the global flare intensity was reduced by 32%.
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Figure 1: Left: Global flaring of associated gas and crude oil production (1996-2016). Right: Change in
the volumes of gas flared in the top 8 countries (2012-2016)
Note: The flare data in these figures are only upstream directly related to crude oil production, total 147 BCM in 2016.
A relatively small number of countries account for the major part of global flaring. Russia, Iraq and Iran,
currently account for 40% of global flaring, having been top flare countries for decades.
In the period 2012-2016:
Flaring has increased in almost all countries in the top 8, except for USA and Nigeria.
The flare intensity has increased most in Iran, Venezuela, Algeria, and Mexico.
The flare levels as presented in Figure 2 are estimated from satellite images and for some countries
(notably Russia, Kazakhstan) these estimates are considerably above nationally reported data (see
Appendix 5 for more information on uncertainties).
The two countries studied in this report have relatively low flare levels and also flare intensity rates that
are significantly below the average of the top 20 flaring countries (see Figure 2). On the other hand,
Algeria (covered in the other study commissioned by BGR) is among the top ten flare countries, and
has a flare intensity almost twice higher than average.
Figure 2: Flare volume and flare intensity by country (2016)
Causes for this diversity in flare levels and flare intensities are complex and cover site and region
specific geological and technical factors as well as company awareness, strategies, political
Reduction of gas flaring in Ecuador and Peru 7
characteristics and regulatory conditions. Whether international development cooperation can play a
catalytic role in flare reduction efforts can only be assessed on the basis of a good understanding of
current drivers and barriers to these efforts and the contexts where these drivers and barriers exist. In
this study we will primarily refer to five categories of drivers/barriers:
1. Technical and geographical: Typically, a large number of flare sites with low volume of
associated gas production is an important barrier. In some countries, the sites are also
scattered across remote locations away from gas infrastructure or local markets. In addition,
difficult terrain can make it a challenge to build gas gathering lines. By the same token,
technological improvement is a powerful driver because it opens new opportunities for
monetization of gas. Another driver is the availability of new infrastructure developed for other
purposes (i.e. highways, expansion of power grids).
2. Structural barriers. Different ownership to product/flare sites and gas infrastructure, including
processing facilities and transport lines, often hinder gas being brought to markets. On the
other hand, the availability of public-private financing schemes (commonly used in other
sectors of the economy) that could allow State Owned Entities to leverage private sector
investment constitutes a potential driver which is worth exploring.
3. Economic and financial. This refers to economies-of-scale and external economic parameters
such as gas and power prices, as well as taxes and other public schemes, which may impact
the financial viability of associated gas investments. Low-price periods hinder investment in
non-critical operations, whereas high-price periods may be more auspicious for flare reduction
initiatives. Similarly, lower cost of financing (achievable with blended financing, for example)
could translate into higher profitability for existing projects that currently show IRRs below the
hurdle rates of companies for capital allocations, triggering their implementation.
4. Regulatory. The absence of regulations on flaring or weak and/or inconsistent enforcement
mechanism can be an important barrier. Unrealistic and broad-based targets and prescriptive
approaches can also hinder efforts for flare reduction. Symmetrically, enhanced regulatory
capabilities could speed up the achievement of solutions that translate into lower associated
gas waste.
5. Awareness, priority and policy. Companies may not always have knowledge about viable gas
utilization options or may, even when the investments are profitable, rather prioritize larger
investments targeted at crude production increases. Absence of flare reduction as a policy
target is a barrier because of the effort and political capital the policy maker must devote to
reverse the situation. Policies that are directly or indirectly aligned with the objective of flare
reduction (i.e. NDCs, fuel switch objectives in energy matrices) are drivers for increased gas
utilization.
The occurrence of such barriers in Ecuador and Peru will be the central theme of this study and in turn
lead to an assessment of the relevance of external development cooperation to reduce the barriers,
and specifically the possible role of German Development Cooperation. This requires a review and
analysis of geological, techno-economic, institutional and regulatory/political aspects which determine
the conditions for flare reduction investments. This review and analysis is presented separately for
Ecuador and Peru in Chapter 2 and Chapter 3 of this report.
Chapter 4 then summarises key findings and presents key considerations which are important related
to a decision to engage in flare reduction efforts, in particular those that represent potential drivers for
flare reduction efforts. This is followed by recommendations for follow up activities in Ecuador and
Peru.
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2 Ecuador
2.1 Oil and gas production and flaring situation
Ecuador produces mostly oil, in the Oriente Basin
The hydrocarbons production in Ecuador is dominated by oil, which accounts for 92% of the domestic
energy production. Ecuador’s proven crude oil reserves are currently assessed to be about 8.0 billion
barrels (BP, 2017), stable since 2014. This places Ecuador with the third largest oil reserves in the
South and Central-Americas region, next to Brazil, and far behind Venezuela (0.5%, 0.7% and 17.6%
of the world reserves, respectively). Proven natural gas reserves are more limited, at around 212
billion cubic feet (bcf) (EIA, 2017), and Ecuador has a small natural gas market.
Oil reserves are primarily in the Oriente Basin, located in the Amazon. Gas is produced in the Tumbes
Basin, south-west Ecuador, at the offshore Amistad field.
Figure 3: Oil and gas fields in Ecuador
The country is exporting increasing amounts of oil to China. At the same time, Ecuador is a net
importer of refined oil products such as gasoline, diesel and LPG, mainly from the United States and
from China.
Figure 4: Left: Oil production and consumption in Ecuador. Right: Gas production1 and consumption in
Ecuador. 1980-2016. Source: BP, 2017
Ecuador continues developing oil resources in the Oriente Basin, including from the Ishpingo-
Tambococha-Tiputini (ITT) fields close to the Yasuní National Park. Oil exploration and production in
this area were subject to a moratorium until 2013, but activities started up again a few years ago (The
1 Note: although not reported in the BP Statistical Review, Ecuador produces all the gas it consumes.
Reduction of gas flaring in Ecuador and Peru 9
Guardian, 2016). Oil production in Ecuador is expected to plateau over the next few years, and
potentially decrease by 2020 (Trading Economics, 2017).
Most associated gas is flared
The Ministry Coordinator of Strategic Sectors (2016) reports official statistics on the oil and gas sector,
including data on associated gas. The statistics show that the majority of associated gas is flared
(expressed as “non-utilized” in the document); 56% on average for the period 2012-2016. About 22%
of the associated gas has been used for power generation in the oil and gas sector. There is no re-
injection of associated gas in Ecuador.
Figure 5: Fate of the associated gas in Ecuador, NGL production from associated gas is included
Flaring has been increasing over the past 5 years, there are large uncertainties
In addition to statistics from the Ministry Coordinator of Strategic Sectors, the NOAA VIIRS Global Gas
Flaring Observed from Space project (GGFR, 2017a) provides another source of data. NOAA
estimates indicate that the flare level has increased from 0.8 to 1.2 BCM over the past five years. As a
whole, the satellite estimates suggest that Ecuador had the 27th highest flare level in the world in 2015
(in volume of gas flared). The country ranks number 28 in terms of oil production. It is below average
when it comes to flare intensity (gas flared per unit of oil produced), being at the same level as Russia,
Mexico and Peru (in 2015) but higher than Saudi Arabia, China and Canada.
Figure 6: Left: Flare volumes and oil production in Ecuador [includes upstream and downstream
flaring]. Right: Split between associated gas and downstream flares, 2015
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The correlation between reported numbers and the satellite estimates is rather good for the period
2012-2014, although the reported data are 22 to 37% below satellite estimates. There is a larger gap
between the two sources for 2015 (42%). The exact causes for the discrepancies are not known to the
authors of this report, but it is most likely the combination of two factors: i) underreporting by
companies, ii) flares identified and estimated from satellite images which are not flaring associated
gas. In addition methods for converting satellite data to estimated volumes of flaring have its
uncertainty level (±9.5% as reported by NOAA). The latter factor can contribute to larger or smaller
discrepancies.
Since the country produces mostly oil, almost all flaring is associated gas upstream, and downstream
flaring accounts only for 3% of the total. The satellite images identified 69 flare sites in 2015 (versus 71
in 2014). 11 different companies were operating the relevant fields, based on an overview of the
licences in Ecuador from the Ministry of Environment. Most of the flaring (99% in 2015) happens in the
Oriente Basin since this is where all of the oil is produced. It should be noted that although non-
associated gas is produced in the Tumbes Basin, no flaring was detected in that area in 2015. A
detailed map is provided in Appendix 3.
A limited number of flare sites are responsible for the majority of the flaring
Only 9 sites out of 66 are responsible for almost 40% of the volumes of gas flared in 2015.
Figure 7: Size distribution of flares and number of flares in each category (2015), associated gas flares
only
Petroamazonas is by far the company flaring the most, with 1 BCM (92% of the total volume). Each of
the other companies flares 2% or less of the total volume.
Figure 8: Distribution of the volumes flared, by company (2015) based on satellite data, associated gas
flares only
Flaring represents ca. 4% of the national GHG emissions
GHG emission factors were calculated based on the composition of the associated gas in Ecuador
(Petroamazonas, 2017 and DGH, 2005). Emissions based on gas volumes from satellite estimates are
presented in the figure below. The emissions range from ca. 2.74 MtCO2e in 2012 to 3.95 MtCO2e in
2016.
Reduction of gas flaring in Ecuador and Peru 11
Figure 9: GHG emissions from flaring of associated gas in Ecuador, split between CO2 and CH4.
Based on the national inventory of GHG emissions in 2010,
the country emitted ca. 91.5MtCO2e and absorbed 16MtCO2
(Ministry of Environment, 2016). The breakdown is
presented in the figure to the right. The calculated emissions
from flaring of associated gas represent ca. 4% of the
national emissions in 2010. Within the energy sector, flaring
represents ca. 8% of the emissions. This is higher than the
world average. From a climate mitigation strategy
perspective there are reasons to believe that flare reduction
actions are among the options with the lowest abatement
costs since many investments in capture and use of
associated gas are reported to have only a pay back of a few
years (see section 2.4 below).
Black carbon emissions are estimated based on the flare gas volumes and an emission factor for BC2.
That emission factor is calculated based on the estimated higher heating value of the gas flared.
Emissions increased from 1 200 tBC in 2012 to 1 707 tBC in 2016.
Figure 10: Black carbon emissions from flaring in Ecuador
2.2 Stakeholders
The Ministry of Hydrocarbons is the main institution in the sector
The Ministry of Hydrocarbons is responsible for planning, managing and evaluating the sector's
regulations and policies. The ministry was formed in 2015 as a result of the division of the former
Ministry of Non-Renewable Natural Resources into two entities: the Ministry of Hydrocarbons and the
Ministry of Mines.
2 Conrad B.M., Johnson M.R., 2017. Field Measurements of Black Carbon Yields from Gas Flaring. DOI:
10.1021/acs.est.6b03690
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The Hydrocarbons Secretariat (Secretaría de Hidrocarburos del Ecuador, SHE) reports to the Ministry
of Hydrocarbons. SHE is responsible for the management of the oil contracts with public and private
companies, including national oil companies (NOCs) and international oil companies (IOCs). In some
cases, the activities are subject to special provisions by the Ministry of Environment.
The Hydrocarbons Regulation and Control Agency (Agencia de Regulación y Control Hidrocarburífero,
ARCH) also reports to the Ministry of Hydrocarbons, and is in charge of regulating technical and
operational activities. Among the main objectives for ARCH is contributing to the efficient use of the
hydrocarbon resources in each segment of the industry.
The Ministry of Environment monitors and audits the environmental management of industrial
activities. The Undersecretary of Climate Change (Subsecretaría de Cambio Climático, SCC) serves
as the coordinating and facilitating unit of climate finance mechanisms, among other responsibilities.
Petroamazonas EP dominates the upstream segment
Petroamazonas EP is the state-owned company created in 2007 in order to manage production and
focus on exploration of hydrocarbons on behalf of the state of Ecuador. The company is in charge of
the large majority of the hydrocarbons production in the country. The company is not a commercial
enterprise in a traditional sense but is more of an instrument for the purpose of the authorities broader
policy objectives for the oil and gas sector.
Petroecuador is the state-owned company in charge of transportation, storage, refining and
commercialisation of hydrocarbons.
There were 14 companies operating in the upstream hydrocarbon industry in Ecuador in 2016,
according to production figures from the ARCH. Petroamazonas EP is the dominant player with 78% of
crude oil production. Other companies are international, such as Andes Petroleum (6% of the
production, owned by CNPC and SINOPEC), Repsol YPF (4%), SIPEC (2,5%, subsidiary of China
Petroleum & Chemical Corporation), AGIP (2%), and PetroOriental (2%, owned by CNPC and
SINOPEC).
Figure 11: Hydrocarbon production figures per company, as reported by ARCH for 2016
The World Bank and the Inter-American Development Bank have dialogue and cooperation with
the authorities
Both the World Bank (primarily through GGFR) and the Inter-American Development Bank have
dialogue and cooperation with the authorities of Ecuador on flaring issues. The engagement process of
the Inter-American Development Bank in a large investment program for gas capture and utilization in
the Amazon (the “OGE&EE” program) is probably the most important and relevant for issues being
discussed in the report (see further discussion of the OGE&EE program below).
NGOs and communities are active on the topic of oil exploration and production
Reduction of gas flaring in Ecuador and Peru 13
CIP-Ecosocial (2009) reports that there are two main types of actors in the ecological movement in
Ecuador: NGOs on the one side, and social organisations on the other side which are linked to
indigenous organisations.
The involvement of NGOs and local communities in Ecuador is linked to several social and
environmental aspects of the petroleum sector. The main topics seem to be the development of
petroleum activities in preserved areas (as in the Yasuní area), the social impacts of petroleum
activities on the local communities, and the protection of the environment. Flaring is addressed in the
latter, even though the main focus is on the preservation of biodiversity, and protection against ground
and water contaminations.
Petroamazonas declares supporting the local communities, but it is unknown to which degree the
initiatives are generalised or anecdotic. GIZ is also involved with the communities in the Amazon
region, through the ProCamBío II program for the conservation of forests and biodiversity, as well as
for mitigation of and adaptation to climate change.
2.3 Framework conditions
Resources are owned by the state, and service contracts prevail since 2010
The principal law regulating the petroleum activities is the Law on Hydrocarbons, from 1978, although
it has been revised since, including as part of a major reform in 2010.
Hydrocarbons resources in Ecuador are exclusively owned by the state. However, the country allows
foreign oil and natural gas companies to invest in the sector through bidding rounds for technical
service contracts. Before the reform of the Hydrocarbons Law in 2010, the companies could hold
Production Sharing Agreements (PSA), but in 2010, all enterprises had the obligation to migrate to
services contracts for exploration and production of hydrocarbons.
Service contracts require the contractor to invest the capitals and use the necessary equipment to
carry out exploration and production activities. When resources are produced the contractor is entitled
a payment per barrel of net oil produced and delivered to the State. This compensation is contractually
fixed.
Exploration contracts last up to four years. Production contracts can last up to 20 years, renewable by
SHE. For contracts related to natural gas, the production period can last up to 25 years3.
Gas venting is not addressed in Ecuador
There is no mention of gas venting in the regulations. During the interview, Petroamazonas declared
that there is no venting at their operations.
Gas flaring is allowed under certain circumstances
Associated gas is regulated under article 11 of the Hydrocarbon Operation Rules (Reglamento de
Operaciones Hidrocarburiferas, Ministerial Agreement No. 389, 2015). The natural gas produced in
association with oil production belongs to the state. It can be used locally for production-related energy
purposes local or for re-injection. According to the regulations, an authorisation is required for this use
and the contractor needs to pay fees established by the Ministry of Hydrocarbons. However, the
interviewees at the Ministry mentioned that this is not applied. Companies do not pay fees for using the
gas nor when flaring it.
SHE may also require the contractors to deliver associated gas to the state-owned Petroecuador,
which is in charge of mid- and downstream activities. Petroecuador then uses the gas for producing
LPG, for generating electricity, or for commercialisation. The regulations mention compensation for the
costs linked to collection and transport of the gas to Petroecuador. The level of compensation is not
stated in the regulations, and was not clarified during the interviews.
3 Article 23 of the Hydrocarbons Law
Reduction of gas flaring in Ecuador and Peru 14
Further, the Environmental Rules for Hydrocarbon Activities (Reglamento Ambiental de Actividades
Hidrobarburiferas, Executive Decree 1215, 2010) also addresses gas flaring. The text stipulates that
associated gas has to be used in priority for re-injection and enhanced recovery. Otherwise a techno-
economic analysis should determine the best use of the gas, preferably for electricity generation.
According to the text, a techno-economic justification must be provided to the Hydrocarbons
Secretariat when none of the above solutions are feasible. The operator must ensure that the flaring
conditions are optimal to ensure a complete combustion of the gas4. These are functional
requirements, and the regulations do not stipulate technical requirements for the flare characteristics.
In addition, the operator must minimise the consequences of flaring on the local environment (soil,
vegetation, fauna).
Flaring is not directly monitored. Flared volumes are calculated based on the production figures and
the volumes of gas used for power production (or liquids production). Gas flowrates in general are
either measured with sensors or estimated based on GOR and other production characteristics. The
companies report the production and consumption figures to the Ministry of Hydrocarbons.
2.4 Initiatives to reduce flaring
The two main initiatives for flare reduction in Ecuador are:
the use of associated gas for power generation in the Oriente Basin, and
the production of LPG from associated gas.
Use of associated gas for power generation in the Oriente Basin
The main initiative on flare reduction in Ecuador is the Petroamazonas EP program for the use of
associated gas for power generation in the Amazon area (Oriente Basin). The program is called
“Optimization of Electrical Generation and Energy Efficiency in the interconnected oil system”
(OGE&EE). It consists of a number of distinct projects and gas utilization options, including power
generation from associated gas and using the electricity at the production sites. This will allow
replacing the traditional use of diesel with gas that would be otherwise flared. The program also
includes projects for connecting the power system to the national interconnected system, which allows
providing power to the local communities and also providing the system with hydropower.
This program is considered important at the national level. It is mentioned in Ecuador’s Intended
Nationally Determined Contribution (INDC), and within the Nationally Appropriate Mitigation Actions
(NAMAs) in the country biennial update report (Ministry of Environment, 2016). In addition, it is also
mentioned as the third objective in the Ministry of Hydrocarbons strategic plan 2016-2017.
Technically, the program includes more than 120 individual projects for the capture and handling of
associated gas, its transportation infrastructure, power generation facilities, waste-heat recovery units,
and the required substations and power distribution facilities. Many of these projects are ready for
investment.
The overall investment required for the entire program is almost USD 1.2 billion. As of September
2017, USD 672 million had already been invested (58%). At the time of this writing, the savings have
already exceeded the investments made in the program. The savings are not re-invested in the
OGE&EE program, but accrue directly to the State, as reduced costs of fuel (diesel) for operations
carried out by Petroamazonas. There is evidence that many of the projects which have been
implemented have had a payback time of less than 5 years. The financial viability of projects not yet
financed and implemented is not known to the authors of this report.
At its current state of implementation, the program allows using ca. 20% of the associated gas that
would otherwise be flared. In addition, 27MW of hydropower are now being used to support the oil and
gas production activities. Projects not yet funded or implemented will further increase the volumes of
4 Note: an incomplete combustion of the flare gas releases methane and other gases directly to the atmosphere.
Methane is a much more forceful GHG than CO2, and it is therefore better for the climate to burn the methane.
Reduction of gas flaring in Ecuador and Peru 15
associated gas used. It is also expected that electrical interconnection projects will significantly
increase the use of hydropower for oil production in the area.
The expected emission reductions from the project are two-fold:
use of gas instead of diesel, up to 672 kt CO2 saved per year from 2020 on, and
use of hydropower energy from the national grid instead of diesel, up to 1 191 kt CO2 saved
per year from 2022 on.
Figure 12: CO2 savings from the project. Source: Petroamazonas EP
Petroamazonas mentioned that private oil companies, such as Repsol and Andes Petroleum, are also
using some of the associated gas for power production. It is unknown to which degree these
companies make use of the associated gas.
Production of LPG from associated gas
This project aims at increasing the domestic LPG production in Ecuador from associated gas. Ecuador
is reliant on imports for most of its LPG consumption: in 2015, 86% of the LPG consumed was
imported (Ministry Coordinator of Strategic Sectors, 2016). Most of the consumption is within the
residential sector. LPG is locally produced at two oil refineries (Esmeraldas and La Libertad), and at
the industrial complex in Shushufindi, which was not used to its full potential (Escuela Politecnica
Nacional, 2013). By collecting rich associated gas from the Oriente Basin and transporting it to
Shushufindi complex, Ecuador could decrease its reliance on imports, and improve the gas utilization.
Part of the OGE&EE program mentioned above relies on an agreement between Petroamazonas and
Petroecuador, where Petroamazonas uses the waste gas and excess gas from the production of LPG
at the Shushufindi complex.
In 2007, Petroindustrial listed 12 collection stations, of which 7 were already in operation, and 5 were
potential projects at that time. The company estimated that ca. 11 MMcf/d of gas were collected at the
7 existing installation, and that an additional 13.9 MMcf/d could be collected from 5 new projects.
Statistics from the Ministry Coordinator of Strategic Sectors (2016) show that national production of
LPG increased in the period 2007-2012, but has decreased since then. This decrease is due to a fall of
the production at the Esmeralda refinery, linked to an upgrade of the refinery. It is expected that the
production will increase again once the upgrade work is completed.
As a side note, Ecuador also has a project of providing electrical induction cooking plates to some of
its inhabitants, in an effort to reduce its reliance on imports for LPG (Ministry of Environment, 2016),
however, the national consumption of LPG keeps on increasing.
Petroamazonas EP commitment to Zero Routing Flaring by 2030
Petroamazonas was the 6th oil and gas company to endorse the “Zero Routine Flaring by 2030” (ZRF)
initiative, out of a current total of 27 companies. Petroamazonas states that the initiative is a good
Reduction of gas flaring in Ecuador and Peru 16
match for the company’s OGE&EE program since both initiatives have similar objectives. Clearly
Petroamazonas has the capability to report on flaring and actions as required by the initiative. Still, it
would give flare reduction efforts further momentum if also the Government of Ecuador endorsed ZRF.
More information on the Zero Routine Flaring initiative is provided in Appendix 5.
Flaring reduction at Repsol
In their year-end report for the Sustainability Plan 2015, Repsol indicates a reduction of 23% of the
volume of gas flared at their operations in block 16 for 2015. They mention that this reduction is the
result of “operational optimization” but do not provide additional information.
Collect data on venting
In Ecuador’s plan for improving the national inventory of greenhouse gas emissions, the Ministry of
Environment mentions an improvement point related to gas venting in the energy sector (2016). The
improvement consists in collecting data related to volumes of gas vented, which would allow a follow-
up and an improvement, similarly to what is done for flaring.
There is currently no information available on venting from the oil and gas industry in Ecuador.
2.5 Barriers to flaring reduction
Technical and geographical barriers
The geographical barriers are important in Ecuador since most of the associated gas flaring happens
in the Oriente Basin, in the Amazon jungle.
The political and geographical situation in the Oriente Basin makes the logistics difficult. The region
close to the border is politically unstable with the presence of rebel groups. Security is a serious issue
and trucks have to be accompanied by military escort. Transportation of fuel is considered extremely
risky due to the attractiveness of the product transported, and transport by night is not possible. As
illustrated in the figure below, some of the flare sites are located in remote jungle areas, with mediocre
road access. Other sites are located in a combination of rural and jungle terrain (right side on the figure
below).
Figure 13: Satellite view of the Oriente Basin (centre) and detailed view on two areas. Left: remote
flare sites located south of the Basin. Right: flare sites in the centre of the Basin
The construction and operation of the gas collection and power transmission infrastructure may disturb
the local environment in areas where no other infrastructure is present. This may lead to a barrier for
the gas utilization projects if the disturbance is not accepted by local populations or by the authorities.
It should however be noted that the OGE&EE project by Petroamazonas was subject to a detailed
Environmental Impact Assessment in 2014 where both the environmental and social impacts were
assessed and managed (Petroamazonas, 2014).
Reduction of gas flaring in Ecuador and Peru 17
67 flare sites were detected by satellite in this area in 2015. Most sites are located 3 to 5 kilometres
from each other, but some sites are more remote, up to 30 to 50 kilometres away from other
installations. Distances between sites and low volumes make it challenging to collect and gather the
associated gas.
There was until recently no gas collection infrastructure in the area. However, some gas collection and
power lines were installed as part of the Petroamazonas OGE&EE project (see also section 2.4). The
picture below illustrates the installation of the gas collection lines.
Figure 14: Installation of a gas collection line at an unknown location in the Oriente Basin
(Petroamazonas EP, 2016).
Technical constrains are also important in Ecuador, as flared volumes of associated gas at each site
are relatively limited and with fluctuations in production over time, which can make local solutions
unattractive (Petroamazonas, 2016). This causes limitations in the sizing of power generators, which
has to take into account the future decline in gas production at the flare sites. The composition of the
associated gas also varies over time: on some fields the gas contains significant amounts of CO2, with
concentrations varying between 10 and 40% for single flare locations over the course of a day. In
addition to those variations, the CO2 content itself is a challenge since transport and combustion
equipment may be sensitive to the gas composition. Indeed, the CO2 in the gas may freeze depending
on the pressure and temperature conditions, or may lead to corrosion in the equipment. Selection of
more resistant equipment may drive the costs up and make solutions less financially attractive.
One of Petroamazonas projects under the OGE&EE program (not yet implemented) consists in
transporting the gas in trucks instead of pipelines. This “virtual pipeline” solution was technically
validated by Carbon Limits in 2015. It allows overcoming some of the limitations linked to gas volumes
and infrastructure. The emissions from gas compression, transport and heating where included in the
assessment of greenhouse gas savings.
Petroamazonas chose to use a mix of crude oil and gas as fuel for some of the generators, for more
flexibility over time. This was a technical challenge at the beginning of the program, which was since
overcome.
Structural barriers
The Hydrocarbon Operation Rules states that the associated gas belongs to the state. The contractors
therefore have weak if any incentives to seek explore gas utilization options and monetization of the
gas. An authorisation is required for Petroamazonas and contractors to use the associated gas which
is provided by the State of Ecuador, through Petroecuador. When the gas is used for LPG production,
Petroamazonas reached an agreement with Petroecuador for using the waste gas (remaining after
LPG separation).
In addition, there is no fee applied when flaring the gas, although this should be implemented
according to regulations.
Reduction of gas flaring in Ecuador and Peru 18
Economic barriers
Savings on the fuel costs (diesel) was already an incentive for implementing flare gas utilization
projects at the beginning of the OGE&EE program more than ten years ago. At that time diesel was
subsidised, except for private companies. In 2013 the subsidies on diesel were removed for the entire
hydrocarbons sector, which increased even more the incentive to replace diesel with gas or crude.
According to PowerLatinAmerica, the petroleum sector consumed more than 950 000 m3 of diesel for
its operations in 2014. Diesel used to be the main source of power for operations in the Oriente Basin,
until Petroamazonas started using more gas and crude than diesel around 2015-2016.
Figure 15: Fuels and other power sources for the operations of Petroamazonas (Petroamazonas EP,
2016).
The use of crude oil for power generation is valued at zero cost in Ecuador (Petroamazonas, 2016),
despite its high alternative value in the market. This is an important barrier to associated gas utilization
and represents a loss of revenues from hydrocarbon operations. Petroamazonas and other companies
will, as long as such conditions prevail continue to use crude oil for own use, with an ensuing
economic loss both to the state and companies.
The price of LPG is regulated and kept at a level below supply costs in Ecuador (Troncoso et al.,
2017). As noted by GGFR in 2004, the low LPG price acts as a disincentive to Petroecuador to supply
LPG to the local market, as the domestic price did not even cover costs for storage, bottling,
wholesale, and retail transport. The difference between purchase price and costs have been
somewhat reduced over the past few years (Center For Economic and Business Research, 2017).
Although the government is promoting the use electricity for cooking instead of LPG (Ministerio de
Electricidad y Energia Renovable, 2014), the use of LPG at the national level keeps on increasing
(Ministry Coordinator of Strategic Sectors, 2016). Ecuador is therefore still reliant on ca. 85% imports
of this fuel for its domestic consumption. A further reduction in subsidies could provide better
incentives for Petroeucadors projects to use the associated gas for the production of LPG, however
this has little public acceptance. It is therefore considered unlikely that subsidies will be removed in the
near future.
Prices for petroleum products and the lack of internal pricing for local use of crude oil represent
important barriers to the utilization of associated gas and, beyond this, entail major economic losses to
the state and the country as a whole.
Reduction of gas flaring in Ecuador and Peru 19
Regulatory barriers
Although some regulations on flaring are in place in Ecuador, the feedback from interviews indicated
that there are shortcomings in compliance by the industry and in enforcement by the authorities. The
close relation between the state-owned Petroamazonas and the Ministry of Hydrocarbons could
explain the fact that there is little emphasis on regulations. Therefore, key elements such as the fee on
flared volumes of gas are present in the regulations but not implemented in practice.
In terms of flaring reduction, the OGE&EE program is the priority for both Petroamazonas and the
Ministry of Hydrocarbons, and this is where efforts are concentrated. It is unlikely that there will be a
change in the regulations or in their enforcement before the OGE&EE program is completed.
Awareness and priority barriers
The interviews indicated that Petroamazonas is focusing on cost reductions since the fall of the oil
price and the increase in diesel costs. Due to the fuel savings achieved, the OGE&EE program is well
perceived in the company. As mentioned above, the program is now a priority for Petroamazonas and
the Ministry of Hydrocarbons.
As in many countries, the lack of an energy efficiency culture is also a barrier in the private and public
companies. As mentioned by Petroamazonas (2016), energy efficiency implementation is not
considered essential and has little impact on the company financials. Therefore, there is little focus put
on saving energy, including optimising the use of flared gas. Successful energy efficiency projects are
the ones where the whole company is engaged in the process and top management is supporting the
initiative. Petroamazonas reports that most oil companies have not empowered a group of people, with
resources and budget, to develop energy efficiency projects. In addition, Petroamazonas reports that
the OGE&EE program leads to change in the operational culture, which is sometimes a challenge for
operations personnel.
2.6 Opportunities for further flare reduction in Ecuador
Petroamazonas OGE&EE program
Currently, the main opportunity for further flare reduction in Ecuador is linked to the OGE&EE program.
During the interviews, both the Ministry of Hydrocarbons and Petroamazonas stressed their openness
for foreign investments, including from the German Development Cooperation.
A number of specific projects within the program are developed in terms of detailed technical feasibility
work and techo-economic investment analysis. Petroamazonas states that they are ready for
investments. A list of project, presented during the interview with the Ministry of Hydrocarbons is listed
below.
Reduction of gas flaring in Ecuador and Peru 20
Table 1 Sample of projects ready for investment within the OGE&EE program
Project name Investments
needed [USD million]
Gas volume [scfpd]
Estimated CO2 emissions reduction
[t CO2/year]
Scope
MSAG Pilot Project (Monetizing Stranded
Associated Gas) 3.6 622 500 11 154
Loading and unloading station, multiphase mobile container
4 x 1 MW + Gas handling system CPF Block 15
9.46 1 058 933 21 024 Generation units, gas
compressor
3 x 3 MW Gas power modules Block 61
21.6 2 382 600 47 304
Gas conditioning and handling system, power
generation, electrical distribution
3 MW Gas power generation Cuyabeno Phase 2
7.2 794 200 15 768
Gas conditioning and handling system, power
generation, electrical distribution
4 MW Gas power generation Sacha Central
9.6 1 058 933 21 024
Gas conditioning and handling system, power
generation, electrical distribution
4 MW Gas power generation VHR
9.6 1 058 933 21 024
Gas conditioning and handling system, power
generation, electrical distribution
7 MW Gas power generation Auca Sur 47
16.8 1 853 133 36 792
Gas conditioning and handling system, power
generation, electrical distribution
7 MW Gas power generation Aguarico
16.8 1 853 133 36 792
Gas conditioning and handling system, power
generation, electrical distribution
Support reforms which can reduce barriers to flaring
Beyond the OGE&EE program, a broad set of institutional improvements and reforms to the framework
conditions for gas capture and utilization can help the situation in Ecuador. Barriers to flare reduction
efforts were summarized in section 2.5 and policy actions to remove such barriers are from an
economic point of view a cost-efficient way of dealing with the flare problem.
Many of the barriers are rooted in broader structural features with policy making, regulatory functions
and commercial operation of the oil and gas sector. Changing such structures will take time and
require political support and motivation at the national level. External institutions of development
cooperation can only play a supporting role, primarily of a technical nature, and they would have to
recognize that such processes take time.
Nevertheless, there are also opportunities to engage in more targeted activities which can help reduce
barriers, and specifically help improve regulations within the current broad structures. Examples of
such potential activities are:
Analyzing the present situation (production, reserves and resources) and future potential of
Ecuador’s natural gas production with special emphasis on associated gas from oil fields
Improvements to the current Technical Service Contracts in order to improve the economic
incentives for contractors to capture and utilize associated gas
Establish rules and procedures for operating companies (including Petroamazonas) to monitor
and report on flaring and venting of associated gas
Consider to establish a clear and transparent system for granting of flare permits, and
predicable and impartial enforcement processes possibly including a flare fine
Reduction of gas flaring in Ecuador and Peru 21
Consider changes the fuel prices operators are faced with, in order to enhance the economic
incentives for gas capture and flare reduction
Improve the collection of flaring and venting data by the government
Support the utilization of financing solutions that could allow Petroamazonas to fund projects
with internal resources (with the direct support of the government given their lack of capacity to
take debt on their balance sheet) in order to accelerate the implementation of existing flaring
reduction projects
Support the ability of the government to engage in structures that leverage private sector
resources (i.e. through project finance or similar arrangements) in order to accelerate the
design, preparation and implementation of flare reduction projects
Assess the attractiveness of flaring and venting reduction efforts to suppliers of blended
financing, both local and international
Promote more transparency in the award of long term contracts and project finance solutions
through open bidding processes
Reduction of gas flaring in Ecuador and Peru 22
3 Peru
3.1 Oil and gas production and flaring situation
Peru focuses more and more on gas, the oil production is decreasing
Crude oil production peaked around 1980 at about 200 thousand barrels per day, dropped to half this
level by turn of the century and has now recovered to about 150 thousand barrels per day. Proven
crude oil reserves are currently assessed to be about 1.2 billion barrels (BP, 2017), much of it located
onshore in the Amazon region. The country ranks number 6 in terms of oil reserves in the South and
Central-Americas region. The main regions of oil production in Peru are: Talara (73%), Marañon
(15%), Tumbes (7%), and Ucayali (6%).
Gas reserves are estimated at 15 trillion cubic feet (Tcf) in 2015, fourth in the region after Venezuela,
Mexico, and Brazil, according to EIA. Domestic gas deliveries to the market have increased from 0.06
bfc/d in 1980 to 1.4 bcf/d in 2016. The large majority of the gas and NGL production happens in the
Ucayali Basin (97%) and the remaining gas is produced in the Talara Basin. The Madre de Dios Basin
is believed to contain large reserves of gas, and although there has been exploration in this region
over the past few years, there are currently no plans for producing the resources (El Comercio, 2017).
Figure 16: Oil and gas regions and blocks in Peru
Peru is a net oil importer of both crude oil and products, as domestic petroleum consumption is
increasing. Much of Peru’s crude oil imports come from Ecuador. With a relatively small domestic gas
market, Peru exports about 50% of its gas production. LNG exports from the Pampa Melchorita
terminal reached 610 MMcf/d in 2016, close to maximum capacity. In 2017, Peru exported LNG to
Mexico, Europe, Taiwan and South Korea.
Figure 17: Left: Oil production and consumption in Peru. Right: Gas production and consumption in
Peru. 1980-2016. Source: BP, 2017
According to EIA (2017), oil exploration in Peru's Amazon rainforest is limited because of social
conflicts and environmental permit delays. On the other hand, more and more gas resources are
Reduction of gas flaring in Ecuador and Peru 23
discovered in the Camisea area. It is likely that gas and NGL remain the main focus for future
developments in the country, although there are delays on the construction of the gas infrastructure in
the south of the country. Resources offshore in the north part of the country could be further
developed: in September 2017, the company Anaderko Petroleum was granted exploration rights in
blocks Z-61 to Z-63 (Andina, 2017).
Most associated gas is re-injected or sold
Perupetro reports official statistics on the oil and gas sector, including data on associated gas (2012-
2016). The statistics show that most associated gas is re-injected, sold, or used for power. According
to this source of data, about 8% of the associated gas produced in the period 2012-2016 has been
flared or vented, which in international comparison is relatively low.
Figure 18: Use and disposal of associated gas in Peru
The figure shows data as reported to the producing companies to Perupetro, NGL production is not included.
Flaring has varied a lot over the past 5 years, there are large uncertainties
In addition to statistics from Perupetro, the NOAA VIIRS Global Gas Flaring Observed from Space
project (GGFR, 2017) provides flaring data. The satellite estimates suggest that Peru had the 44th
highest flare level in the world in 2015 (in volume of gas flared), it ranks number 38 in terms of oil
production, and it is below average when it comes to flare intensity. Peru has a flare intensity at the
same level as Russia, Mexico and Ecuador (in 2015) but higher than Saudi Arabia, China, and
Canada.
Figure 19: Left: Flare volumes and oil production in Peru in BCM per annum [includes upstream and
downstream flaring]. Right: Split between associated gas and other flares, 2015
Reduction of gas flaring in Ecuador and Peru 24
The correlation between reported numbers and the satellite estimates is rather good for 2012-2014,
with only 10 to 15% difference in volumes. However, there is a large gap between the two sources for
2015 and 2016. When looking into details for those two years, the gap is mostly due to discrepancies
between satellite detection and reported numbers for three flare sites located offshore Northern Peru.
According to the NOAA data, these are responsible for most of the associated gas flaring (75% in
2015-2016). The figure below shows the discrepancy for these three sites only.
Figure 20: Flare volumes for the three flare sites offshore Northern Peru
The three flare sites are located on two fields being developed since 2007. Permits for extended well
tests have been granted from 2009 until at least 2014 (Subsea IQ, 2017). This could be the reason for
the relatively large amounts of gas being flared on those locations, although the installations have re-
injection facilities. The flared amounts in 2015-2016 might also be linked to issues with the gas
injection wells or the injection compressors, as there are no gas export facilities at those fields.
However this does not explain the discrepancy between flaring detected by satellite and the reported
data.
In 2015 the majority of the flaring was from associated gas upstream (76%), followed by downstream
flares (21%), and non-associated gas (3%). This is representative of Peru’s oil and gas sector, with
both oil and gas production, and with several downstream sites, including LNG and NGL production.
The satellite images identified 20 flare sites in 2015 (versus 22 in 2014). 11 different companies were
operating the relevant fields or installations, based on an overview of the licences in Peru (PeruPetro,
2017).
Flaring of associated gas in Peru happens in three main areas. The first is the northern coastline,
within the Tumbes Basin (77% in 2015). The Talara Basin accounts for 16% of the associated gas
flaring, and the remaining 7% of the flaring occurs at the Marañon Basin oil fields, in the Amazonian
jungle. A detailed map is provided in Appendix 4.
A limited amount of flare site are responsible for the majority of the flaring
When looking at associated gas flares, only 4 flare sites out of 12 are responsible for more than 85%
of the volumes of associated gas flared in 2015. Of those 4 flares, 3 are located in the Tumbes Basin,
and one in the Talara Basin.
Reduction of gas flaring in Ecuador and Peru 25
Figure 21: Size distribution of flares and number of flares in each category (2015), associated gas
flares only
In 2015 BPZ Exploracion & Produccion SRL was the company flaring the most in Peru, with 0.16 BCM
(76% of the total volume). Other companies flaring significant amounts of associated gas in 2015 are:
SAPET Development Peru INC and Pacific Stratus Energy Del Peru S.A.
Figure 22: Distribution of the volumes flared, by company (2015), associated gas flares only, satellite
data
Note: BPZ Exploracion & Produccion SRL is no longer operating since 2015, BPZs fields are now operated by Zedd Energy
Hold and Frontera Energy.
Flaring represents a very small share of the national GHG emissions
GHG emission factors were calculated based on the composition of the associated gas in Peru
(OSINERGMIN, 2008). Greenhouse gas emissions based on both reported and satellite values are
presented in the figure below, the difference is marked with a green colour and pattern. Emissions
range from ca. 350 000 tCO2eq in 2012 to ca. 290 000 tCO2eq in 2016, with a peak in 2014, and with
large uncertainties since that year.
Figure 23: GHG emissions from flaring of associated gas in Peru, split between CO2 and CH4.
Reduction of gas flaring in Ecuador and Peru 26
Based on an inventory of Peru’s national greenhouse gas
emissions, the country emitted ca. 171.3MtCO2e in 2012
(Ministerio del Ambiente, 2013). The breakdown is
presented in the figure to the right. The calculated
emissions from flaring of associated gas in 2012 represent
ca. 0.2% of the total national emissions. Within the energy
sector, flaring represents ca. 1% of the emissions.
Black carbon emissions are estimated based on the flare
gas volumes and an emission factor for BC5. That emission
factor is calculated based on the calculated higher heating
value (HHV) of the gas flared. Emissions increased from
ca. 35 tBC in 2012 to a peak at ca. 59 tBC in 2014, and then decreased to ca. 29 tBC in 2016. Note:
there are large uncertainties due to the discrepancies between reported values and what is detected
by satellite.
Figure 24: Black carbon emissions from flaring of associated gas in Peru.
3.2 Stakeholders
The Ministry of Energy and Mines is the main institution in the sector
The Ministry of Energy and Mines6 (MINEM) is responsible for designing the hydrocarbons policy as
well as for carrying out promotion and regulatory activities. In particular, the Hydrocarbons Directorate7
(DGH) keeps the rules and norms for the hydrocarbons sector updated, conceding authorizations and
concessions to private investors. It is the DGH that reviews applications for flaring and venting permits
and that grants them (see also section 3.3). The Directorate for Energy Efficiency8 coordinates the
work on NDCs across sectors and therefore has an interest in flaring reduction in the hydrocarbons
sector, although the directorate is not yet involved in this topic. During the interview, the directorate
expressed their intention to follow-up on this issue in the future, in an NDC perspective.
The Supervisory Agency for Private investment in Energy and Mining (OSINERGMIN) is in charge of
overseeing the legal and technical aspects of the hydrocarbons activities carried out in the national
territory. The institution carries out inspections of the technical and safety conditions of the productions
sites on a regular basis.
The Ministry of Environment9 (MINAM) is relatively new, created in 2008. The Environmental
Assessment and Inspection Agency (OEFA) was created the same year and is in charge of
inspections of the environmental conditions at production sites, including air quality and ground
5 Conrad B.M., Johnson M.R., 2017. Field Measurements of Black Carbon Yields from Gas Flaring. DOI:
10.1021/acs.est.6b03690 6 Ministerio de Energia y Minas - MINEM
7 Dirección General de Hidrocarburos – DGH
8 Dirección General de Eficiencia Energética
9 Ministerio del ambiente - MINAM
Reduction of gas flaring in Ecuador and Peru 27
pollution. In 2012 the National Environmental Certification Service for Sustainable Investments
(SENACE) was created. It took over the responsibility for reviewing Environmental Impact
Assessments from MINEM. The Directorate for Climate Change and Desertification10
at MINAM
publishes national inventories of GHG emissions on a regular basis (2000, 2005, 2010, 2012),
including emissions from gas flaring.
Figure 25: Organigram of the main institutions related to flaring in Peru.
Perupetro (PERUPETRO S.A.) is the state-owned company responsible for promoting the investment
of hydrocarbons exploration and production in the country. As a state representative, this company
negotiates, signs and supervises hydrocarbons contracts and technical evaluation agreements. Among
other topics, Perupetro inspects the fiscal metering on gas production sites. It also reports annual
statistics on the upstream oil and gas industry: production, own use, flaring, venting and re-injection.
PETROPERU is the state-owned company dedicated to the transportation, refining and
commercialization of hydrocarbons and its derivates.
Pluspetrol dominates the upstream segment
There were 15 companies operating in the upstream hydrocarbon industry in Peru in 2016, according
to production figures from PERUPETRO. However, the segment is dominated by one main company,
Pluspetrol, which produces more than 77% of all the hydrocarbons in the country. Pluspetrol is an
international company present throughout the Americas, in Angola and in the Netherlands. Other
leading upstream producers in Peru are Repsol (9%), CNPC (4%) and Savia (3%).
Figure 26: Hydrocarbon production figures per company, as reported by PERUPETRO for 2016
There is currently little cooperation on the topic of gas flare reduction
IDB is active in providing support to MINEM in their review of the Law of Hydrocarbons and related
regulations, where flaring is a topic among others. The institution also works with regulatory and safety
aspects of oil and gas pipelines (including flaring), in collaboration with US Department of Energy.
10
Dirección General de Cambio Climático y Desertificación - DGCCD
MINEM
Hydrocarbons Directorate
Directorate for Energy Efficiency
MINAM
Directorate for Climate Change and
Desertification
OSINERGMIN OEFA SENACE
Reduction of gas flaring in Ecuador and Peru 28
GIZ is now in the second phase of the ProAmbiente program which purpose is to contribute to the
national environmental goals: environmental management, biodiversity conservation and sustainable
forest management. GIZ supported SENACE (part of the Ministry of Environment) in establishing a
more structured approach to ensure consistency in the evaluation of Environmental Impact
Assessments of hydrocarbons projects. Flaring is typically a topic addressed in EIAs, although it is not
addressed explicitly in the manual that SENACE produced in cooperation with GIZ.
Although Peru endorsed the Zero Routine Flaring 2030 initiative, there is currently no awareness of
nor ownership to the initiative in the country (see also section 3.4).
3.3 Framework conditions
Peru has both licensing contracts and service contracts
The Peruvian Hydrocarbons Law (No. 26221) establishes that the activities of exploration and
production of hydrocarbons will be carried out in the form of licensing contracts (PSAs) or as service
contracts (TSCs) between Perupetro and the contractor. These contracts are awarded by direct
negotiation or by bidding rounds.
For licensing contracts, Perupetro transfers to the contractor the property rights of the extracted
hydrocarbons (both oil and gas), and the contractor pays a royalty in cash to the State. The contractor
shall provide and be responsible for all technical and financial resources required for the execution of
the operations.
For service contracts, the contractor carries out exploration and production of hydrocarbons in the
contract area and receives compensation depending on the volumes produced. The contractor is
responsible for transporting the products from his contract area to the place where the parties agree.
The contractor may re-inject the associated gas, use it for power production, flare it (requires a permit),
or commercialise it.
Exploration contracts last up to 7 years. Production contracts for oil last up to 30 years, including the
exploration phase. For production of non-associated natural gas and condensate it is a total of 40
years including the exploration phase.
Only emergency venting is allowed
The decree 048-2009-EM, approved in 2009, stipulates that venting of natural gas is not permitted,
unless under specific conditions:
“The venting of natural gas is prohibited in all hydrocarbon activities, such activity constitutes an
infraction sanctionable by OSINERGMIN11
, with the exception of the inevitable venting in cases
of contingency, emergency and operational venting, qualified as such by the Hydrocarbons
Directorate (DGH), following a report from OSINERGMIN.”
In case of venting for emergency purposes, the operator is required to report the location, volume,
duration of the venting, and actions undertaken to limit it after the event took place. DGH and
OSINERGMIN then determine if it qualifies as contingency or emergency.
In case of venting for operational purposes (e.g. maintenance, start-up, shutdown), the operator is
required to ask for authorisation prior to the operations, with a description of the reasons for the
venting, why no alternative exists, volume and duration of the venting, and actions to prevent or limit
further venting.
Decree 048-2009-EM also provides a quantitative definition for venting: volumes of gas higher than
0.11 cubic feet per second (ca. 98 000 cubic meters per year). Finally, the decree requires all
hydrocarbon activities to have facilities for the prevention of venting, or for the collection, re-injection,
storage or flaring of the gas.
11
Osinergmin: Supervisory Agency for Private investment in Energy and Mining, see also section 3.2
Reduction of gas flaring in Ecuador and Peru 29
It is assumed that this regulation on venting was established for safety and resource management.
Gas flaring is allowed but a permit is required
Article 44 of the Organic Law for Hydrocarbons (law no. 26221, 1993) allows flaring in principle,
provided an authorisation from the Ministry of Energy and Mines:
“The natural gas which is not used in the operations may be marketed, reinjected into the
reservoir, or both, by the Contractor. To the extent that the natural gas is not used, marketed or
reinjected, the Contractor, after prior authorization by the Ministry of Energy and Mines, may
flare the gas.”
In practice, applications for authorisations are addressed to the Hydrocarbons Directorate (Dirección
General de Hidrocarburos – DGH). DGH reviews the technical justification for the planned flaring, its
timeline and the expected volumes.
Flaring is allowed for maintenance, start-up, shutdown, and well testing operations. In principle,
permits would not be issued for continuous operational flaring.
If the flaring is considered necessary, DGH delivers an authorisation for gas flaring (Autorización para
la quema de gas) (National Superintendence of Customs and Tax Administration, 2017). DGH also
notifies OSINERGMIN and OEFA so that they can carry out inspections at the flare site. According to
DGH, flare permits are limited in time and usually range from a few days to a few months only.
Feedback from a private company producing hydrocarbons in Peru indicates that DGH is consistent in
its assessments, and work according to transparent criteria.
As a side note, excessive flaring and venting are considered as waste in the supreme decree D.S.
032-2002-EM, which was approved in 2002. The decree contains a glossary of terms for the
Hydrocarbon Subsector, and the definition for waste (desperdicio) includes the following:
“The unnecessary flaring of combustibles and the escape of hydrocarbons to the air from a
productive well, in excess of the reasonable and necessary quantities for the efficient
development of a reservoir or production of a well.”
The companies are required to monitor and report the volumes of gas they flare
Monitoring is done by the producing companies, using monitoring equipment such as ultrasonic
sensors and/or measuring the pressure difference across a restriction orifice. The latter is standard
equipment, although not recommended due to safety concerns. Some of the ultrasonic sensors are
verified by Perupetro on a regular basis (fiscal metering).
Companies report the flared volumes on a daily basis to OSINERGMIN and Perupetro, and also send
a monthly summary to DGH. DGH carries out a follow-up, comparing the reported volumes to the
permit conditions. If a company flares for emergency purposes (unplanned), they report the volumes
and reasons for the flaring to the authorities (this was confirmed both by a private company and by
DGH during interviews).
Perupetro publicly reports the volumes of gas flared and vented in their annual statistics (see also
reference list in Appendix 2: Perupetro 2012-2016).
3.4 Initiatives to reduce flaring
There is currently no gas infrastructure in northern Peru
BPZ Energy (2011) mentions a proposal for a Northern gas pipeline from Tumbes to Talara and further
south. This pipeline could allow reducing flaring at the offshore fields in the Tumbes area (0,10 BCM in
2016, decreasing from 0,16 BCM in 2015), and potentially also at some of the Talara fields. There is
no further information available on the status of this project. There have also been discussions
between Peru and Ecuador for sending Peruvian gas north to produce power in Ecuador. It is unclear
to the authors of this report if the discussions are still ongoing.
Reduction of gas flaring in Ecuador and Peru 30
A gas infrastructure is being developed in south Peru
Peru is developing gas and NGL infrastructures in the southern part of the country as part of the
development of the gas resources in the Camisea area. Only non-associated gas is produced in the
region, and it contributed to 21% of all the gas flared in the country in 2015. A first phase included the
construction of a gas pipeline and an NGL pipeline towards the coast south-west of the Camisea area.
The gas pipeline supplies an LNG plant located on the coastline and operated by PeruLNG12
. The
plant has been in operation since 2010.
A gas pipeline (Gasoducto Sur Peruano) construction started in 2014 in order to supply power plants
and other consumers in the southern part of the country. A corruption case was revealed, involving the
Brazilian construction company Odebrecht which was in charge of part of the project (PeruReports,
2017). At the time of writing, the project is on hold at ca. 30% completion. This limits the capacity for
gas export from the Camisea fields, and part of the gas is re-injected after NGL separation.
Peru endorsed the “Zero Routine Flaring by 2030” initiative, but is not actively following up yet
Peru has endorsed the “Zero Routine Flaring by 2030” initiative. During the interviews at the Ministry of
Energy and Mines there did not seem to be awareness and ownership about the initiative within the
Hydrocarbons Directorate nor the Energy Efficiency Directorate. The interviews revealed that
responsibilities are not set for following up on the initiative and ensuring that Peru meets its reporting
commitments starting 2017.
In reality, the competence and responsibility on flaring issues are spread across ministries and
directorates:
- DGH has the technical and regulatory knowledge about flaring,
- the Energy Efficiency Directorate has the climate and energy knowledge, and coordinates
establishment of NDCs across sectors (the initiative could be a candidate for an NDC),
- the Ministry of Environment is in charge of questions related to climate at the national level.
There may be a need for capacity-building on the aspects linked to climate impacts of flaring and
flaring reduction initiatives (see also section 3.6).
More information about the Zero Routine Flaring initiative is provided in Appendix 5.
Other initiatives
IDB is providing support to the Ministry of Energy and Mines in their review of the Law of
Hydrocarbons and related regulations (reglamentos). Flaring is a topic within the regulations
for exploration and production and for environmental protection, both of which are also being
reviewed.
In addition, IDB and the US Department of Energy organize a workshop for government
agencies on regulatory and safety aspects of oil and gas pipelines in Peru. This workshop will
take place on Nov. 2-3 2017 and flaring was included as part of the agenda.
GIZ supported SENACE in Peru for establishing a manual for a consistent review of
Environmental Impact Assessments in the hydrocarbons sector. This could allow for a closer
follow-up of flaring as a topic during the project phase of new production installations.
3.5 Barriers to flaring reduction
Peru has specific technical and geographical barriers
Associated gas is flared in three distinctive areas in Peru, and each has specific technical and
geographical challenges.
In the Tumbes Basin, offshore Peru, there are three flare sites and each site corresponds to an
offshore production installation on the Corvina and Albacora fields. These fields contribute some 70%
12
Consortium of Hunt Oil Company (50%), SK Energy (20%), Shell (20%), and Marubeni (10%)
Reduction of gas flaring in Ecuador and Peru 31
of all associated gas flaring in Peru, according to satellite data. There are no facilities at the fields to
bring the gas to onshore demand centers. On the other side of the border, at the Ecuadorian Amistead
field in the Tumbes Basin, gas is being exported to an onshore power plant. A few years ago there
were plans for developing a gas export pipeline from the Corvina and Albacora fields, but it appears to
have been stopped (see also section 3.4). This could be linked to the fact that the operator of those
fields filed for bankruptcy in late 2015.
In the Talara Basin, on the coastline north-west Peru, there are 9 associated gas flare sites,
responsible for 16% of the flaring in 2015. Those sites are located between 8 and 35 km from the
Talara refinery, in an arid area. The refinery is currently being modernised for additional processing
and conversion units, as well as a co-generation plant. There is very little information available about
the infrastructure in the area. Reporting from Perupetro (2016) shows that all fields use gas for power
production, and half of them re-inject and/or export the associated gas. Flaring is reported for most of
the fields. Companies such as Petrobras and CNPC have been implementing projects for collecting
the gas and re-injecting it or producing power. Based on available information on the associated gas
composition in the area, there are no technical barriers linked to the gas composition (Osinergmin,
2008).
Finally, there are 5 flare sites in the Marañon Basin, close to the border to Ecuador in the Amazon
jungle. The sites are located between 16 and 100 km from each other. Some of the logistical and
geographical challenges faced in the Oriente Basin in Ecuador are also found in the Marañon Basin in
Peru. Transportation is a challenge and there is no gas infrastructure in the area. In addition, there are
far fewer production sites in Peru compared to Ecuador, the flares are relatively small, and all of them
are located in dense jungle. Finally, the local political situation is a challenge, with protests from the
indigenous populations against the oil sector in the area.
Figure 27: Illustration of some of the associated gas flare sites in Peru. Left: offshore Tumbes Basin.
Center: Talara Basin. Right: Marañon Basin.
Structural and organisational barriers
Regulations and institutions are in place in Peru to allow for an adequate follow-up of flaring and
venting activities from a safety and technical perspective. However, the topic is not addressed from a
climate point of view, which could be explained by the fact that flaring is a very small contributor to the
national emissions. There seems to be a lack of awareness and capacity on the climate aspects of gas
flaring and venting and of the oil and gas sector in general. The current organisational divide between
the Hydrocarbons Directorate and the Energy Efficiency Directorate with the former focusing on safety
and operations and the latter on climate and energy efficiency knowledge implies that there may be a
need for more contact and collaboration in relation to flare reduction efforts.
Two ongoing initiatives could allow for more focus on the climate impacts of gas flaring and the need
for further flare reduction:
- Peru endorsed the Zero Routine Flaring initiative and will need to establish responsibilities for
the follow-up of commitment to the initiative.
Reduction of gas flaring in Ecuador and Peru 32
- The Ministry of Energy and Mines is coordinating an initiative to establish NDCs across
industrial sectors, establishing and NDC on gas flaring reduction may participate in setting
focus on the topic.
The personnel in the Ministries rotates on a regular basis, which has benefits for cooperation across
organisations, such as the increased ownership of the Environmental Ministry on EIAs. This is also a
barrier, since competence and follow-up are sometimes lost in the transition.
Economic barriers
The interviews and an evaluation of current regulations leave the impression that further economic
incentives to flare reduction might be effective. The interviewees mentioned that a fee on flaring was
once considered, but not implemented. There is only a small fee linked to permit applications, but it is
not significant. Production statistics and interviews showed that most of the associated gas is re-
injected or sold, and that companies are already using the gas for power production. It is unknown to
what degree diesel, crude or other fuels are also used for power production in the sector. There are no
subsidies on diesel or other fuels in Peru.
Since there is a lack of gas infrastructure in the north of the country, market outlets for the associated
gas are very limited and gas is not considered as a valuable product.
Regulatory barriers
From a regulatory perspective, the adequate elements of permitting, monitoring and reporting are in
place for addressing both flaring and venting of associated gas. Interviews show that the regulations
are, by and large, complied with and enforced. Relevant institutions are generally active both during
the permitting and follow-up of operations.
Questions remain around the situation in the north on what seems to be relatively large flare volumes
not being reported. It is not clear whether these are temporary problems related to well testing and/or
ownership changes to the concessions, or whether there are longer term problems with utilization of
the gas.
One uncertainty remains: to which degree is flaring tolerated in specific operational conditions, such as
the offshore production north of Peru. This aspect could become more and more important as the
authorities have recently approved exploration on three additional offshore blocks in the north.
In addition, currently the Ministry of Energy and Mines is the one regulating and following-up on gas
flaring and venting. The Ministry of Environment has only limited ownership on the topic, through the
review of EIAs, and through the topic of air quality.
3.6 Opportunities for further flare reduction in Peru
Capacity building on the climate effects of gas flaring and the Zero Routine Flaring by 2030
initiative
The lack of system and responsibilities for the follow-up of the Zero Routine Flaring by 2030 initiative
could be an opportunity for the German Development Cooperation to support capacity building at the
Ministry of Energy and Mines or the Ministry of Environment. GIZ already has a good working
relationship with the Ministry of Environment, which could facilitate further cooperation. There is also
commitment at the higher level to work on the issue, as indicated by the Vice Minister of Energy and
Mines.
The improvement opportunities could include:
- Supporting the Ministry of Energy and Mines and the Ministry of Environment in assigning a
focal point for the coordination of the work on Zero Routine Flaring initiative,
- Capacity building on the effects of flaring on climate and of flare reduction initiatives,
- Support for improved cooperation on the topic of flaring between the Hydrocarbons
Directorate, the Directorate of Energy Efficiency, and the Ministry of Environment.
Reduction of gas flaring in Ecuador and Peru 33
Review of the regulations
Although there is already a good utilization rate of associated gas in Peru, it may be feasible to further
improve it by revising the regulations on flaring for more reduction incentives. In particular, it could be
considered to implement a fee on the flared volumes, which would provide an economic incentive for
implementing further utilization projects.
Reduction of gas flaring in Ecuador and Peru 34
4 Conclusions – possibilities for German DC in both countries
4.1 The rationale for engaging in flare reduction efforts
It follows from the analysis above that flaring of associated gas represents a significant resource
waste, with large emissions of greenhouse gases and pollutants which create ecological and public
health problems. With regards to climate mitigation flare reductions are typically very effective in terms
of emission reductions relative to the money spent on investments. For example, projects under the
OGE&EE program for the utilization of flare gas for power generation in Ecuador create on average 38
tonnes CO2e of emission reductions per US$ spent13
, while a solar and power investments are well
below this level, typically in the range 10 to 20 tonnes CO2e of emission reduced per US$ spent.
Further, it can be concluded that there is globally a large potential to undertake flare reduction projects
at low, and in many cases negative, abatements costs14
. In Ecuador the OGE&EE investment program
includes a large potential of such opportunities. It follows from this that companies and national
government in flare countries should do more to achieve flare reductions. Clearly there are important
barriers which may prevent action despite stated commitments by many countries and companies to
address the problem pro-actively.
For German Development Cooperation the question is whether it can “make a difference” for a
problem which primarily requires action from national governments and oil companies. Should
German Development Cooperation engage, it would be on the basis of an assessment of its possible
contribution to eliminate barriers or enhance the drivers to flare reduction. This project assignment has
sought to identify areas where international support of the sort offered by German Development
Cooperation can make a difference. Three broad categories of support are envisaged: i) activities
related to reform processes and building of institutional capacity to achieve flare reduction objectives;
ii) activities aimed towards the design and preparation of flare reduction projects; and (iii) direct
support to flare reduction projects.
Engagement from German Development Cooperation is, as we understand it, largely motivated by
climate change considerations. The success of a support program would therefore be measured by its
ability to offer costs-efficient climate change mitigation results. As noted above, flare reduction
investments can be very effective in terms of emission reductions per US$ spent, but this is of course
not a sufficient condition for engaging. Emission reduction varies from project to project depending
local circumstances and/or technologies being applied. To the extent that German development
cooperation offers support to specific projects or investment programs it is important that both the short
term and long term emission reduction impacts are considered. For example, projects that are
perceived as being detrimental to a longer term low-carbon energy system transformation should be
avoided.
Detailed consideration should be given to the economic and financial context where flaring reduction
activity takes place, in particular those aspects that affect “last mile” decisions from public and private
agents. Finally, public fund cost efficiency should be carefully considered. Most of the specific projects
reviewed as part of this assignment seem to be financially viable; many with a pay-back of five years
or less. Concessional finance from public funds is therefore justified if they directly help remove
barriers to project financing and implementation. It should be noted however, that international
financing of this sort normally is in the form of a relative moderate co-financing in order to leverage
funding from other sources. Indeed, multilateral development banks engaged in financing of flare
reduction projects have as an explicit condition that the investments in question are “bankable”.
13
Capital expenditures and discounted operational expenditures 14
Implying that the revenues from sales of the captured and treated gas exceed the costs, at a commercial discount rate.
Reduction of gas flaring in Ecuador and Peru 35
4.2 Recommended follow up in Ecuador
As presented in Chapter 2 above there currently exist important barriers to flare reduction in Ecuador,
but at the same time there is a very clear pipeline of projects, institutional commitment to use the
associated gas and an experienced team working on flare reduction for the last 8 years. Hence, there
is significant potential for flare reduction if barriers are removed. German development cooperation can
engage both in supporting reforms and capacity building, supporting the design and preparation of
flaring reduction projects or the introduction of new technologies, as well as through direct support
projects under the OGE&EE program. The program includes a number of specific projects (see above)
for which detailed techno-economic feasibility studies exist. Several projects can therefore be
developed relatively quickly for demonstration purposes. The subsequent challenge is to have in place
a finance mechanism structure in line with requirements from lenders (in particular German lenders),
both to the government and to private sector sponsors. The Inter-American Development Bank has for
quite some time worked with the relevant public institutions in Ecuador in the sector to establish a
financing mechanism that would allow to attract private sector lending for projects of the OGE&EE
program, including a Project Finance structure that allows both public and private sector entities to
engage under a long term contractual framework. It is our understanding that political conditions
(impending elections) were not conducive to the closing of the financial mechanism last year, but now
at the beginning of a new administration it could be possible to reinvigorate this process and take
advantage of the advances already achieved by the Inter-American Development Bank.
Therefore, if German Development Cooperation considers it relevant to engage in the OGE&EE
program, for example by co-financing a pilot project, it is recommended that preparatory steps for this
are taken in close consultation with the Inter-American Development, and desirable that a financing
mechanism which can serve as a platform for German support is developed jointly in collaboration with
the Inter-American Development and the Ecuadorian counterparts. Carbon Limits during meetings in
Quito with the Ministry of Hydrocarbons and Petroamazonas presented a number of projects which
might serve as pilot projects” for German support. Co-financing with private sector entities and the
Inter-American Development could be a workable model for several of these projects. Before a project
selection is made it is recommended that a thorough scrutiny is done into the environmental and social
impacts of the projects, and further that there are high prospects of replicability which can be achieved
from implementation of the pilot project.
As also noted in Chapter 2 many barriers to flare reductions in Ecuador are rooted in institutional and
legal/regulatory framework which can only be solved through broad reform processes which will
require time, political will and determination and should exceed the scope of the type of German
development cooperation being considered in this report. Nevertheless, there are, within the current
structure, specific areas of support which could contribute to reduction of barriers:
Analyzing the present situation (production, reserves and resources) and future potential of
Ecuador’s natural gas production with special emphasis on associated gas from oil fields
Improvements to the current Technical Service Contracts in order to improve the economic
incentives for contractors to capture and utilize associated gas
Establish rules and procedures for operating companies (including Petroamazonas) to monitor
and report on flaring and venting of associated gas
Consider to establish a clear and transparent system for granting of flare permits, and
predicable and impartial enforcement processes possible including a flare fine
Consider changes the fuel prices operators are faced with, in order to enhance the economic
incentives for gas capture and flare reduction
Improve the collection of flaring and venting data by the government
Support the utilization of financing solutions that could allow Petroamazonas EP to fund
projects with internal resources (with the direct support of the government given their lack of
capacity to take debt on their balance sheet) in order to accelerate the implementation of
existing flaring reduction projects
Reduction of gas flaring in Ecuador and Peru 36
Support the ability of the government to engage in structures that leverage private sector
resources (i.e. through\ project finance or similar arrangements) in order to accelerate the
design, preparation and implementation of flaring reduction projects
Assess the attractiveness of flaring and venting reduction efforts to suppliers of blended
financing, both local and international
Promote more transparency in the award of long term contracts and project finance solutions
through open bidding processes
In the process of selecting specific areas of support we would recommend German Development
Cooperation to seek advice and possibly cooperate with the Inter-American Development Bank, and
also inform the GGFR of the World Bank, who manages the Zero Routine Flaring initiative, about a
possible engagement. The regional presence of the Inter-American Development Bank can make them
an effective partner for specific deployment of German cooperation in Ecuador. To the extent that co-
financing of specific projects is considered, cooperation with the private sector arm of the Inter-
American Development Bank (the recently revamped Inter-American Investment Corporation) is
relevant. The Inter-American Investment Corporation evaluated last year the project finance structure
for the flaring reduction projects in Ecuador.
4.3 Recommended follow up in Peru
The possible scope for cooperation with Peru is considered to be smaller than for Ecuador. The
country has a relatively well developed system of flare regulation which seems to be managed well in
terms of compliance and enforcement. Flaring is limited to a small number of sites and it has not been
identified that international support is relevant for these.
However, as noted in section 3.6 above, there is a lack of clear responsibility for follow-up on the
commitments the country has made by endorsing the Zero Routine Flaring by 2030 initiative and,
unlike the situation in Ecuador, flare reduction efforts seems not be incorporated in climate policies and
reporting requirements under the Paris Agreement. There might therefore be a need for
institutional/capacity building support in the form of:
Assistance to the Ministry of Energy and Mines and the Ministry of Environment in assigning a
focal point for the coordination of the work on Zero Routine Flaring initiative,
Integrate climate change consideration into flare reduction regulations, notably by addressing
more pro-actively the problem with relatively high volumes of direct emission of methane by oil
and gas companies. Support for improved cooperation between the Hydrocarbons Directorate,
the Directorate of Energy Efficiency, and the Ministry of Environment is relevant in this context.
It is noted that GIZ has an ongoing support with the Ministry of Environment. This may serve as a
platform for further cooperation as listed here.
Reduction of gas flaring in Ecuador and Peru 37
Appendix 1 – Abbreviations list
Abbreviations
APG Associated Petroleum Gas
ARCH Hydrocarbons Regulation and Control Agency (of Ecuador)
BBL/D Barrel per day
BCF Billion Cubic Feet (10^9 cubic feet, ca. 0,028 x 10^9 Sm3)
BCM Billion Cubic Meter (10^9 Sm3)
DGH Hydrocarbons Directorate (of Peru)
GHG Greenhouse Gas
GOR Gas to oil ratio
IOC International Oil Company
LNG Liquefied Natural Gas (methane, ethane)
LPG Liquefied Petroleum Gas (propane, butane)
NDC Nationally Determined Contributions (to the Paris Agreement on climate)
NGL Natural Gas Liquids (most of the gas content from the well, except methane)
NGO Non-Governmental Organisation
NOC National Oil Company
PSA Production Sharing Agreement
SHE Hydrocarbons Secretariat (of Ecuador)
TCF Trillion cubic feet (10^12 cf, ca. 28x10^9 Sm3)
TSC Technical Service Contract
Terminology and constituents of natural gas:
Reduction of gas flaring in Ecuador and Peru 38
Appendix 2 – Literature and sources
BP, 2017. Statistical Review of the World Energy, 2016 data
GGFR, 2017a. GGFR dashboard on flaring volumes across the world. Available at:
http://dataviz.worldbank.org/views/GGFRDashboard06_30_2017/GasFlaring?%3Aembed=y&%3Asho
wShareOptions=true&%3Adisplay_count=no&%3AshowVizHome=no
GGFR, 2017b. GGFR flaring data. Available at:
http://www.worldbank.org/en/programs/gasflaringreduction#7
IEA, 2017a. Germany Final Consumption Energy Balance, 2013 data. Available at:
http://www.iea.org/Sankey/#?c=Germany&s=Final%20consumption
World Resource Institute, 2017. CAIT Climate Data Explorer. Available at: http://cait.wri.org
Ecuador
Center For Economic and Business Research, 2017. Boletin Estadistico del Sector de Hidrocarburos
Observatorio de Energia y Minas (in Spanish). Available at:
http://www.observatorioenergiayminas.com/archivos/boletin/petroleoaldia07.pdf
Ecuadors Ministry of Environment, 2016. Primer Informe Bienal de Actualización del Ecuador a la
Convención Marco de las Naciones Unidas sobre el Cambio Climático (in Spanish).
Escuela Politecnica Nacional, 2013. Estimacion del perjuicio al estado causado por el subsidio
otorgado al consumo del gas licuado de petroleo o GLP en el Ecuador (in Spanish). Available at:
http://bibdigital.epn.edu.ec/handle/15000/6741
GGFR, 2004. Flared Gas Utilization Strategy – Opportunities for Small-Scale Uses of Gas. Available
at:
http://documents.worldbank.org/curated/en/193801468779650307/pdf/295520Flared0G1on0Strategy0
1public1.pdf
The Guardian, 2016. Oil drilling underway beneath Ecuador's Yasuní national park. Available at:
https://www.theguardian.com/environment/2016/oct/26/oil-drilling-underway-beneath-ecuadors-yasuni-
national-park
The Financial Post, 2013. How China took control of Ecuador's oil. Available at:
http://business.financialpost.com/investing/how-china-took-control-of-ecuadors-oil-2/wcm/f5f64773-
845f-4cf6-b4a0-467bcf736615
Ministerio Coordinador de Sectores Estrageticos, 2015. Balance Energetico Nacional (in Spanish).
Available at: http://www.sectoresestrategicos.gob.ec/wp-
content/uploads/downloads/2016/01/Resumen-Balance-Energe%CC%81tico-20151.pdf
Ministerio Coordinador de Sectores Estrageticos, 2016. Balance Energetico Nacional (in Spanish).
Available at: http://www.sectoresestrategicos.gob.ec/wp-
content/uploads/downloads/2017/04/BALANCE-ENERGETICO-2016-PARTE-1.pdf
Ministerio de Electricidad y Energia Renovable, 2014. Informe – Rendicion de Cuentas (in Spanish).
Available at: http://www.energia.gob.ec/wp-content/uploads/2015/04/Informe_Rendicio%CC%81n-de-
Cuentas-2014_vf.pdf
Ministerio de Hidrocarburos – Plan Estrategico 2016-2017 (in Spanish). Available at:
http://www.hidrocarburos.gob.ec/wp-content/uploads/2016/12/PLAN-ESTRATEGICO-
INSTITUCIONAL-2016-2017.pdf
Reduction of gas flaring in Ecuador and Peru 39
Petroamazonas, 2014. Estudio de impacto y plan de manejo ambiental OGE&EE (in Spanish).
Available at: http://www.petroamazonas.gob.ec/wp-content/uploads/downloads/2014/04/Cap-
7_Evaluacin-de-impactos-OGEEE.pdf
Petroamazonas EP, 2016. Optimization of power generation and energy efficiency, presentation at the
NAMA Market Place LAC Carbon Forum, Panama, 2016. Available at:
https://unfccc.int/files/focus/mitigation/application/pdf/laccf-nama-ogeee-ecuador.pdf
Petroamazonas, 2017. Composition of the associated gas at block 18. Provided by Petroamazonas by
email.
PowerLatinAmerica, 2015. Alcance iniciativa publica-privada cambio matriz energetica proyecto
OGE&EE (in spanish). Available at: http://www.olade.org/wp-
content/uploads/2015/10/BerendVanDenBerg.pdf
Repsol, 2015. Sustainability Plan 2015 – Year-end report. Available at:
https://imagenes.repsol.com/es_en/Informe_cierre_2015_Ecuador_en_tcm11-734202.pdf
Trading Economics, 2017. Ecuador Crude Oil Production Forecast. Available at:
https://tradingeconomics.com/ecuador/crude-oil-production/forecast
Troncoso, K., Soares da Silva, A., 2017. LPG fuel subsidies in Latin America and the use of solid fuels
to cook. Energy Policy. Available at:
https://static1.squarespace.com/static/5633c4c2e4b05a5c7831fbb5/t/593069865016e17d26c06b1f/14
96344966795/CCAC+study+on+subsidies+for+promoting+LPG+in+Americas.pdf
Peru
Andina, 2017. Peru approves 3 contracts with Anadarko to explore hydrocarbons offshore (in
Spanish). Available at: http://andina.pe/agencia/noticia-peru-aprueba-3-contratos-anadarko-para-
explorar-hidrocarburos-el-mar-683399.aspx
BP, 2017. Statistical Review of the World Energy, 2016 data
BPZ Energy EP, 2011. Presentation at the Raymond James’ 32nd
Annual Institutional Investor
Conference. Available at:
https://www.sec.gov/Archives/edgar/data/1023734/000110465911013664/a11-7762_1ex99d1.htm
EIA, 2017. Country Analysis for Peru, 2015 data
El Comercio, 2017. Natural gas: Hunt Oil confirms to MEM that it will leave block 76 (in Spanish).
Available at: http://elcomercio.pe/peru/gas-natural-hunt-oil-confirma-mem-devolvera-lote-76-416281
GGFR, 2017. GGFR dashboard on flaring volumes across the world. Available at:
http://dataviz.worldbank.org/views/GGFRDashboard06_30_2017/GasFlaring?%3Aembed=y&%3Asho
wShareOptions=true&%3Adisplay_count=no&%3AshowVizHome=no
IEA, 2017. Country Energy Balance, 2014 data
Ministerio del Ambiente, 2013. Inventario Nacional de Gases de Efecto Invernadero (INGEI) (in
Spanish). Available at: http://infocarbono.minam.gob.pe/wp-content/uploads/2016/03/2012.pdf
National Superintendence of Customs and Tax Administration, 2017. Special Permits and / or Permits
of other sectors (in Spanish). Available at: http://www.sunat.gob.pe/exportaFacil/pasos/paso7.pdf
Oil and Gas journal, 2015. Petroperu advances Talara refinery modernization. Available at:
http://www.ogj.com/articles/2015/05/petroperu-advances-talara-refinery-modernization.html
OSINERGMIN, 2008. Operación de plantas de procesamiento de gas natural, 2008 (in Spanish).
Available at:
Reduction of gas flaring in Ecuador and Peru 40
http://gasnatural.osinerg.gob.pe/contenidos/uploads/GFGN/Operacion_Plantas_Procesamiento_de_G
as_Natural.pdf
OSINERGMIN, 2017. La industria de los hidrocarburos liquidos en el PeruLa industria de los
hidrocarburos liquidos en el Peru, feb. 2017 (in Spanish). Available at:
http://www.osinergmin.gob.pe/seccion/centro_documental/Institucional/Estudios_Economicos/Libros/Li
bro-industria-hidrocarburos-liquidos-Peru.pdf
PeruPetro 2012-2016. Estadística Petrolera (in Spanish). Available at:
https://www.perupetro.com.pe/wps/wcm/connect/Perupetro/site/Informacion%20Relevante/Estadistica
s/Estadistica%20Petrolera
PeruPetro, 2017. Map of petroleum blocks in Peru. Available at:
http://www.perupetro.com.pe/wps/wcm/connect/perupetro/site/Informacion%20Relevante/Mapa%20de
%20Lotes/Mapa%20de%20Lotes
PeruReports, 2017. Peru scraps Southern Gas Pipeline contract in Odebrecht fallout. Available at:
https://perureports.com/2017/01/23/peru-scraps-southern-gas-pipeline-contract-odebrecht-fallout/
Repsol, 2017. Peru – Presentation (in Spanish). Available at:
https://www.repsol.com/pe_es/corporacion/complejos/refineria-la-
pampilla/conoce_refineria_pampilla/presentacion/
Subsea IQ, 2017 – Offshore field development projects - Albacora. Available at:
http://www.subseaiq.com/data/Project.aspx?project_id=550
Subsea IQ, 2017 – Offshore field development projects – Corvina. Available at:
http://www.subseaiq.com/data/Project.aspx?project_id=447
Reduction of gas flaring in Ecuador and Peru 41
Appendix 3 – Maps and further documentation for Ecuador
Flaring sites
The satellite images identified 69 flare sites in 2015 (vs 71 in 2014). The size of each bubble indicates
the estimated volume of gas flared.
Figure 28: Geographical flare distribution illustrated from satellite estimates (2015)
Most of the flaring in Ecuador happens in the Oriente Basin, with 99% of the volumes flared in 2015.
The remaining of the flaring happens at a refinery and at an NGL plant on the coastline (1% of the
flared volume in 2015). It should be noted that although non-associated gas is produced in the Tumbes
Basin, no flaring was detected in that area in 2015.
Reduction of gas flaring in Ecuador and Peru 42
Table 2 Flaring levels in each region
Oriente Basin Tumbes Basin Installations on coastline
Type of gas Associated gas, and one downstream site
Non-associated gas Downstream
Share of flare total flaring (2015)
98.7% 0% 1.3%
Development from 2012 to 2015
Increasing none Decreasing
Reduction of gas flaring in Ecuador and Peru 43
Appendix 4 – Maps and further documentation for Peru
Flaring sites
The satellite images identified 20 flare sites in 2015 (vs 22 in 2014). The size of each bubble indicates
the estimated volume of gas flared.
Figure 29: Geographical flare distribution illustrated from satellite estimates (2015)
Note: The Southern Peru gas pipeline is presented entirely on the map although only 30% is currently
completed.
Reduction of gas flaring in Ecuador and Peru 44
Flaring in Peru happens in four main areas. The first is the northern coastline, within the Tumbes and
Talara basins which account for 58% and 14%, respectively, of the volumes flared in 2015. Those
basins consist of offshore oil and gas fields in Tumbes, and onshore oil fields in Talara. The second is
the Marañon Basin oil fields, in the Amazonian jungle (6% of the gas). The third area with flaring is the
Ucayali Basin with the Camisea gas fields, located in the southern-central part of the country, with 21%
of the volumes flared in Peru. The gas flared in this region is non-associated gas. The last area with
flaring is the receiving installations on the coastline around Lima. Those installations account for 2% of
the volumes flared in 2015.
Table 3 Flaring levels in each region
Coasline: Tumbes and Talara basins
Ucayali Basin Installations on
coastline Marañon
Basin
Type of gas Associated gas,
and one downstream site
Non-associated gas
Downstream Associated
gas
Share of flare total flaring (2015)
71.3% 21.1% 1.9% 5.6%
Development from 2012 to 2015
Increasing Increasing Increasing Decreasing
Reduction of gas flaring in Ecuador and Peru 45
Appendix 5 – Additional information about flaring
Uncertainties related to satellite estimates of flare gas volumes
It should be noted that there may be discrepancies between official sources and satellite estimates.
These can be explained by three broad factors, as identified in the Flaring in Four Countries Study15
:
Uncertainties in national statistics. National statistics are based on reports from oil and gas
companies which not always measure gas that goes to flares, but rather makes estimates of
associated gas production and flaring, based on gas-to-oil ratios and other (indirect)
parameters. Given that flaring is subject to regulations and penalties, there may also be a
tendency that flaring is systematically underreported.
Uncertainties in converting data from satellites to flare volumes. Conversion factors used
by NOAA, which are not calibrated specifically for Egypt, may overstate flare volumes. The
fact that satellite images are not continuous measurements but “snapshots” represents a
possible source of error.
Satellite images may include more than flaring of associated gas. Although this may not
be so much of a problem in Ecuador because flare sites mostly are at locations without other
sources of light. In general there are some challenges in distinguishing flaring of associated
gas from flaring of non-associated gas at gas processing plants or refineries.
Environmental impacts of gas flaring
Gas flaring is a source of greenhouse gases and other air pollutants. The main emissions from flaring
are: CO2, methane, black carbon (particulates), and pollutants such as NOX and SOX.
CO2 is the main greenhouse gas emitted from the combustion of associated gas at flares. Methane is
also released since the combustion is often incomplete. In general, a 98% combustion efficiency is
assumed. This means that about 2% of the associated gas is not combusted and is released to the
atmosphere. When compared to CO2, methane has a higher global warming potential, but lasts a
shorter time in the atmosphere. When looking at a 100 years perspective, it is considered that a ton of
methane is equivalent to 25 tons of CO2.
Black carbon (BC) is a component of particulate matter. It is formed through the incomplete
combustion of gas at the flare. BC has an effect on both human health and climate. It is considered
carcinogenic and a key component contributing to the adverse health effects associated with PM2.516
.
It also contributes to global warming and has been identified as likely the second-most important
atmospheric direct radiative forcer (after CO2)17
.
NOX (nitrogen oxides) and SOX (sulphur oxides) are two air pollutants. NOX contributes to the
formation of smog and acid rain, as well as tropospheric ozone. SOX also contributes to acid rain, but
also has effects on the respiratory system in humans.
15
Associated Petroleum Gas Flaring Study for Russia, Kazakhstan, Turkmenistan and Azerbaijan. http://www.ebrd.com/downloads/sector/sei/ap-gas-flaring-study-final-report.pdf 16
Conrad B.M., Johnson M.R., 2017. Field Measurements of Black Carbon Yields from Gas Flaring. DOI: 10.1021/acs.est.6b03690 17
Jacobson, M. Z. Short-term effects of controlling fossil-fuel soot, biofuel soot and gases, and methane on
climate, Arctic ice, and air pollution health. J. Geophys. Res. 2010, 115 (D14209), 1−24.
Reduction of gas flaring in Ecuador and Peru 46
Zero Routine Flaring by 2030 Initiative
The World Bank launched the "Zero Routine Flaring by 2030" initiative in 2015. The initiative brings
together governments, oil companies, and development institutions who agree to cooperate to
eliminate routine flaring no later than 2030. To date, 25 governments, 31 oil companies and 15
development institutions have endorsed the initiative. Some governments and companies also set
more ambitious targets for flaring reduction, towards 2020.
For governments, the endorsement means that they will provide a legal, regulatory, investment, and
operating environment that is conducive to upstream investments and to the development of viable
markets for utilization of the gas and the infrastructure necessary to deliver the gas to these markets.
This is meant to give companies the confidence and incentive as a basis for investing in flare
elimination solutions. Governments commit to require, and stipulate in their new prospect offers, that
field development plans for new oil fields incorporate sustainable utilization or conservation of the
field’s associated gas without routine flaring. Furthermore, governments commit to make every effort to
ensure that routine flaring at existing oil fields ends as soon as possible, and no later than 2030.
For oil companies, the endorsement means that they will develop new oil fields incorporating
sustainable utilization or conservation of the field’s associated gas without routine flaring, and that they
will implement economically viable solutions to eliminate legacy flaring (i.e. from existing fields) as
soon as possible and no later than 2030. In addition, oil companies will publicly report their flaring and
progress on an annual basis, starting 2017.
According to the UN Climate Initiatives Platform, there is no funding involved in the “Zero Routine
Flaring by 2030” initiative. Endorsers are responsible for their own commitment to the initiative.
More information is available at: www.worldbank.org/en/programs/zero-routine-flaring-by-2030