2nd international gas flaring conference Forward Gas Markets, Utilization and Innovation  

Prentation of David NAGEL, President and COE, BP Algeria

Hotel El Djazair. Algiers. 10th May 2004

 

Mr. Chairman,
Your Excellencies,
Ladies and Gentlemen  

Good morning.

It is indeed a pleasure and an honour to join this most distinguished panel today.

I would like to sincerely thank both the World Bank and our Algerian hosts, in particular His Excellency Minister Khelil, for organising this important conference.

The Global Gas Flaring Reduction initiative is a project of utmost importance for both our industry and our environment.BP is honored to play a part.

As I listened to the presentations this morning, I was struck by the immense potential of this partnership between the public and private sector – a partnership embodied in this energy initiative, and so well represented here today in Algiers.

The Energy Sector in Society – A Solution

The public and private sector – each has a critical and complimentary role to play.As those of us in the energy sector seek to create shareholder value, we want to ensure that the business we are doing is sustainable.

We know that we cannot exist in isolation.We have a deep interest in the economic health and prosperity of the countries and communities in which we work.

Therein lie the dimensions of a key paradox – the same energy that provides society with heat, light and mobility, and that fuels economic growth and development, simultaneously presents us with serious environmental and social challenges.

So, we look for solutions to these issues which at the same time enable what we might call “good business”. The Global Gas Flaring Reduction initiative is an excellent example of this in action.

Current Approach:Supply Side (Emissions Reduction)

Many industrial operators are active in addressing emissions.

At BP we have embraced what some might call “green” and made it an integral part of our business. We learned that we can make a profit and also protect the environment.“No harm to the environment” is today fully enshrined in our HSE policy.And so we have set out to reduce emissions at source.

Emissions Reduction – BP’s Targets

Let me cite just a three examples.The first is target setting.BP has aggressively pursued a viable programme of sustained reductions in gas house gases.

In 1998, BP set an ambitious target to reduce its CO2 emissions by 10% below its 1990 level.By 2002, just four years later, we achieved that – and considerably earlier than expected.We have set a new internal performance target:to hold our net emissions flat at the 2001 level.It is yet another ambitious target, particularly since oil and gas production is growing more rapidly than global demand.

We achieved this reduction not by increasing costs – but instead by adding $650 million dollars of value to our business.

Perhaps most importantly, we also realised that the greatest impact on our business was the way in which this target energised our people to bring forward remarkable and innovative ideas.

Emissions Reductions -- Gas Flaring

A second example is reduced flaring of associated gas.We were able to do this across our global operations by 34 % when measured on a per unit of production basis.

Here in Algeria, and in partnership with Sonatrach, we have significantly reduced flared volumes at our joint venture oil production project at Rhourde el Baguel to just 0.83 % of produced gas.This was done largely through operational efficiencies such as plant modification, equipment upgrades, and concerted maintenance of flare systems.We would be happy to share the details with anyone who is interested.

Emissions Reductions – Re-injection at In Salah

My third example is perhaps the most innovative and, for me, personal one -- the CO2 re-injection scheme at In Salah Gas in Algeria.In partnership with Sonatrach, we have invested in a CO2 re-injection scheme that will store geologically 1mmtpa of CO2 that would otherwise have been vented to the atmosphere.

To put that in perspective -- it is the equivalent to taking 200,000 cars off the road.

In Salah Gas is the world’s first industrial-scale project to store CO2 in a gas field.My colleague, Iain Wright, will offer more details about this and other projects in a separate session tomorrow morning.

I cite In Salah Gas for three reasons.One, it is an example of the unique benefits of public-private cooperation about which Minister Khélil and Peter Woicke spoke this morning. Two, the technological innovation of CO2 Capture and Storage can contribute significantly toward the stabilisation of atmospheric CO2.   Third, this is not a theoretical project -- first production at in Salah is expected in a matter of days. 

The Next Challenge:Demand (Gas Markets and Infrastructure)

These examples -- lower green house gas emissions, reduced gas flaring, and CO2 re-injection – demonstrate what can be done and is being done at source – on the supply side

But the real challenge is to go beyond emissions reductions, beyond operational performance, and beyond simple compliance with the many political, regulatory and fiscal measures that exist.

We in the energy sector have the responsibility to look forward and develop market-based solutions to the “energy – growth – environment” paradox that I mentioned earlier.If we can do this, we will create further business opportunities for us and our stakeholders - and, further benefits for those societies and local communities where we operate.

As we worked the supply side, we realised that there need not be a trade off between growth and environmental performance.We have now begun to look at ways of extending this concept to the demand side, to examine the opportunities created by structural or behavioral changes in the way energy is consumed.  In short, to examine the path to a “low carbon economy”.

In part, it is about the efficient use of energy.  Indeed, probably about 80% of the energy we consume is unmanaged, that is, non-optimised for efficient use.  For example: energy-intensive sectors, such as refineries or metal processing, where energy is a significant part of the cost of production. Or automobiles: where increasing consumption of petrol and diesel constitute major environmental hazards.Or power generation: where “dirty” coal remains the energy of choice. Or even buildings: which account for at least a third of energy related emissions in the developed world.

BP has active and aggressive programmes -- and numerous projects -- aimed at improving energy inefficiencies in these sectors, and at promoting research and development that we hope will lead to a low carbon economy.Hydrogen, natural gas, solar, cleaner burning fuels, zero emission buildings, hybridization, etc.

Reduced energy wastage in the markets can be an important complement to reducing greenhouse gas emissions in the oil and gas fields.

Next Challenge – Associated Gas

Looking further ahead, a low carbon economy will depend in equal measure on the efficient use of energy and on the access to energy-efficient resources.

Natural gas is the best energy source for this.Demand for gas continues to increase rapidly, as does its uses.For power generation, for heating and cooling of buildings and residences, etc.

This leads us to our next challenge in our public-private partnership:to find economically feasible ways to bring gas and associated gas to the market.

There are several options.Let me cite a few.

Earlier, we heard about gas reforms in Nigeria and its approach to flaring. For its part, BP is working with Sonangol and other partners in the development of an LNG scheme for associated gas in Angola.

The principal challenge around LNG for associated gas is really scale and continuity of supply. The plant required to process associated gas is more expensive, largely due to bigger front end treatment, unit cost of storage, and other diseconomies of scale.Yet, it comes with a significant oil revenue stream.And, support from non-associated gas sources can enable the plant to run at a steady production.

These technologies offer solutions which are particularly relevant to associated gas use. For example, for remote field use where access to infrastructure often means oil is produced whereas gas is flared.

At present, GTP and GTL remain relatively costly options and not fully competitive with other energy sources.

The LNG industry is now entering a new phase of growth that may double the volume of LNG supplied over the next ten years or so.Moreover, four trends are emerging that will create new opportunities for LNG and establish a truly global trade in LNG. Specifically --

 

This combination - open trade, lower cost, and flexibility -- heralds a new era where LNG can access any market is no longer considered only a premium make-up fuel. LNG now competes with indigenous sources of pipeline gas in the major markets of North America, Europe and Asia.

The essential pre-requisites for competitiveness will remain:to produce low-cost gas, and to continue to extract cost from the different components of the LNG chain.

This will be no different for associated gas.

In my view, Sonatrach is particularly well-suited to the new dynamic of LNG for associated gas and markets.

And so is BP. We are actively involved in sending gas to destinations that offer attractive short-term prices while simultaneously fulfilling long-term contracts by “backfilling” from other supplies.

In this light, Sonatrach and BP took a bold approach just a few months ago.Together, we signed a landmark gas marketing joint venture that also won access rights to the newly expanded Isle of Grain terminal located east of London.The JV will supply 5% of UK demand, beginning in 2005.Over time, this 50/50 JV will take on and skillfully manage new forms of risk through innovation and partnership.

Other firms are also expanding their LNG positions.So there is reason for optimism in the LNG business.

Looking Forward:Barriers to Associated Gas and Gas Markets

Unfortunately, this is not quite enough.The market tells us that there is a non-level playing field for associated gas.

In my view, a focus on associated gas, and incentives to assist associated gas, development will result in more efficient use of energy resource.This will require an integrated

approach in regulations, commercial terms, and production sharing contracts, touching many stakeholders.Until this is done, full utilization of associated gas will be hampered.

CONCLUSION

Mr. Chairman, Your Excellencies, I opened my presentation with the reference to the immense potential of a partnership between the public and private sector concerned with energy.That both the public and private sector have an equally important and complimentary role to play.

That, as we pursue the important goals of the Global Gas Flaring Initiative, we shouldoperate at all times and in all circumstances on the basis of long-term mutual advantage.

We have all achieved considerable progress in just the few first years of the initiative, and BP is indeed honoured to play a part.

To date, most of our efforts have focused on the supply side, specifically flaring and emissions reductions.The next steps – those that address the market - will be no less challenging, and I am certain no less rewarding.

Our challenge will be to help remove the inhibitive barriers and reinforce the trends toward a more energy-efficient source of supply.

This is also the challenge for our industry – to make good business out of environmental progress.

Thank you for your kind attention.I would be pleased to respond to your questions.