Reduction of gas flaring in Ecuador and Peru · Reduction of gas flaring in Ecuador and Peru 4...

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.


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


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


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


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%.


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


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.


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.


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


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.


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


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


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


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.


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


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).


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.


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.


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.


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



4 MW Gas power generation Sacha Central

9.6 1 058 933 21 024



4 MW Gas power generation VHR

9.6 1 058 933 21 024



7 MW Gas power generation Auca Sur 47

16.8 1 853 133 36 792



7 MW Gas power generation Aguarico

16.8 1 853 133 36 792



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


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


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


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


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.


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.


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


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


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


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.


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%)


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.


- 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.


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.


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.


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


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.


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:


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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:

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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.


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


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.


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


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.


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

http://www.worldbank.org/en/programs/zero-routine-flaring-by-2030

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