MexicoAssociatedGasU/liza/onStudy

PerrineToledano,BelindaArchibongThankstoTomMitroforhisthoughAulreview

Energysectorreformandmandatorytechnical

guidelines

Fallingflaringfigures

Growingdomes/cdemand

Needformoreinvestmentininfrastructureand

technology

Summaryoffindings

S  Mexico’sreformofthestate-ownedoilcompany,PetroleosMexicanos(PEMEX)in2013alongwiththecrea/onofthehydrocarbonregulatoryagency,ComisionNa/onaldeHidrocarburos(CNH)in2008isagamechangerfortheoilandgasindustry.ThelatestmandatorytechnicalguidelinesofJanuary2016areaddressingmanyofthechallengesthatCNHhasencounteredsofarinregula/ngflaringandven/ng.

S  Fallingflaringandven/ngfiguressince2008havebeenlaudedasaresultofeffortsfromtheMexicangovernmentincludingthe2008EnergyReform.Significantinvestmentsingashandlingandreinjec/ontechnology,par/cularlyattheCantarellfieldbyPemex,isalsodrivingmuchoftheflaringreduc/onsince2008.

S  Growingdomes/cdemandforgasforpowergenera/oncouldmo/vateanincreaseinAssociatedPetroleumGas(APG)useinMexico.

S  Howeveritwillrequiretheconstruc/onofmoregatheringfacili/esandgastransmissionlinesunlessGreyryock’stechnologiesofsmallscalegastoliquidsarewidelyadopted.Failingthis,moreflaringisexpectedinthefuturesincethegasreinjec/onprogramswon’tabsorballtheAPG.

0510152025303540

bcmflared

in2011

Top20gasflarersintheworld(2011)

Sta/s/csonAPGflaring

Onthecompaniesinvolved

S  GasflaringinMexicohasrecentlycometotheforefrontofthecountry’spetroleumindustrydiscourse,asthecountryholdsthe/tleofthe15thforemostgasflarergloballyasof2011.

Source:NOAAsatellitedata

Thesta/s/csofAPGflaringinMexico

Thesta/s/csofAPGflaringinMexico

Source:RoldanandPena,CNH,2014

Sta/s/csonAPGflaring

Onthecompaniesinvolved

S  FlaringandVen/ng(F&V)from2004-2013

S  Chartdepictsrisinggasflaringun/lthe2008Energyreform,followedbydecliningflaringpostreformyears

mmcfd

S  Theabovefigureshowsvalueofflaredgasfrom1999to2009withPemex’sCantarellfield(largestoilfieldinMexicobyoverallproduc/on)(top)andwithoutCantarell(bodom):clearlyCantarellisthebiggestfieldcontribu/ngtoflaring.

S  Valueofgasflaredandventedin2009stoodat14,050millionpesos(overUS$1billion)whichwasabout46%ofthevalueofoverallAPGproduced.

Thesta/s/csofAPGflaringinMexico

Sta/s/csonAPGflaring

Onthecompaniesinvolved

Source:EstradaEstrada,CNH,2011

S  ThechartabovedepictsAPG(blue),NAG(green)producedandgasflared(red)from1960-2009inmmcfd.Notethatmostofthegasproducedinthecountrysince1979hasbeenAPG.

S  Asof2009,gasflaredmadeup26%ofAPGproduced,downfrom31%in2008butsignificantlyhigherthansingledigitfiguresbetween2004and2006.

S  Thechartinthenextslideshowsanetimprovementpost2008.S  Infact,thecurveofgasflaredfollowsthelifeoftheCantarelloilfield(with

exploita/onthatstartedin1979andadeclineofoil-to-gasra/othatstartedin1997)andPemex’seffortstoreduceflaring.Seeslide8forfurtherexplana/on.

Associated,NonAssociatedgasproduc/onandgasflared1960-2009

Thesta/s/csofAPGflaringinMexico

Sta/s/csonAPGflaring

Onthecompaniesinvolved

Source:EstradaEstrada,CNH,2011

Flaring–past,currentandforecast

Thesta/s/csofAPGflaringinMexico

Sta/s/csonAPGflaring

Onthecompaniesinvolved

Source:EstradaEstrada,CNH,2011

mmcfd

S  Since1979,oneofthemainreasonsforCantarell'sprolificoilproduc/onratewastheexistenceofagiantnaturalgascapthatmaintainedpressureoverthereservoirun/labout1997.Whenthereservoirpressurestartedtofall,Pemexdecidedtousenitrogentoenhancetheoilrecovery–aprogramthatstartedin2000.Thatworkedwellun/l2006.Then,injec/ngnitrogenwasnolongerenoughandsoPemexhadtoincreasetheextrac/onofAPGintheso-called,transi/onzonebetweengasandoil,inthefieldtomaintainthelevelofoilproduc/on.However,thegaswaspollutedwithnitrogenandcouldneitherbesoldnorre-injectedsoin2004PEMEXbegantheconstruc/onofanitrogenplantthatreachedacapacityof420MMCFDin2008.Thatcapacitywass/llbelowtheneedsgeneratedbythequan/tyofextractedAPGso,in2008,theflaringfromthefielddras/callyincreased.Tocopewiththeincreasingtrendinflaring,andunderthepressureofCNHsetupin2008,Pemexinvestedincompressionequipmenttoincreasethere-injec/on(seefurtheron).

FlaringanduseofAPGattheCantarellfield

Sta/s/csonAPGflaring

Onthecompaniesinvolved

Thesta/s/csofAPGflaringinMexico:WhoisInvolved?

S  ThemainplayerintheoilindustryinMexicoisstate-ownedPetroleosMexicanos(PEMEX).

S  PemexownsMexico‘slargestfield,Cantarellfield,whichissituatedsome80kmoffshoreintheBayofCampecheandconsistsof4mainfields:Akai(thelargest),Nohoch,ChacandKutz.

S  Thena/onaloilcompany,PEMEX,isthelargestinMexico,andbymandateofthelate2013EnergyReform,ithasendeditsmonopoly,allowingforeigninvestment,althoughitremainsthestate-ownedcompany.

Sta/s/csonAPGflaring

Onthecompaniesinvolved

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

Governmentins<tu<onsinvolvedinregula<onofoilproduc<on/flaring

Descrip<on

ComisionNacionaldeHidrocarburos(CNH)

Regulatorinenergysector,newlyestablishedin2008tosupportregulatorymandateofSENER

SecretariadeEnergia(SENER)

TheMinistryofEnergy,chargedwithmanagingandregula/ngallenergyresourcesinthecountry

SecretariadeHaciendayCreditoPublico(SCHP)

TheSecretariatofFinanceandPublicCredit,regulatesfiscalmaderswithrespecttohydrocarbonuse,includingAPG

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

S  Priortothe2008establishmentofCNH,previousregula/onconsideredgasflaringasaneededprac/ce.

S  Therewasalackofspecificregula/onfortrackingtechnicalthresholdsforgasflaringandven/ngissues.

S  Anyobliga/onsassumedbyMexicoweretheconsequenceofinterna/onalcommitmentsandwithoutanylegalcommitments.

S  A‘ProgramtoReduceGreenhouseGasesMexico(GEIMexico)’was,ineffect,promotedbyajointcollabora/onoftheMinistryofEnvironmentalProtec/on(SEMARNAT),theWorldResourcesIns/tute(WRI),theWorldBusinessCouncilforSustainableDevelopment(WBCSD),andtheMexicanBusinessCouncil(CCE).

Regula<on/PoliciesonGasFlaring/AGuse

Descrip<on

2008EnergyReform/Ongoingreforms

Aseriesofpolicychangesintheenergysectoroccurredaround2008.TheCNHhasissuedtechnicalguidelinesfortheavoidanceandreduc/onofnaturalgasflaringandven/ng.AlthoughtheseguidelinesareonlymandatoryforPemex,Pemexincludesthenecessaryprovisionsinitscontractswithprivatecontractorsensuringthattheycomplywiththeseguidelines.Energyreformsarecurrentlyinprogresswithimproved,strictergasflaringregula/onexpected.

Resolu<onCNH.06.001/09 CNHpublishestechnicalspecifica/onstoreduceflaringandven/ngofgasinE&Poilandgasopera/ons.Non-compliancewiththosespecifica/onstriggercorrec/veproceduresandpossiblysanc/ons.

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

Regula<on/PoliciesonGasFlaring/AGuse

Descrip<on

TechnicalprovisionsfortheuseofAPGintheexplora<onandextrac<onofhydrocarbons–January2016

InJanuary2016CNHissuedmandatorytechnicalguidelinesforthemaximiza/onoftheuseofAPG.CNHrequiresfromtheoperatorstoincludeaplanfortheuseofAPGwithinthedevelopmentplanfortheexploita/onofhydrocarbons.Thisplanwillestablishayearlyobjec/vefortheuseofAPGfromexplora/ontoclosuretobecalculatedaccordingtoaprescribedformulaandtobeapprovedbyCNH.Preferablywithin3yearsofexploita/on,theuseofAPGneedstoreach98%.Theguidelinesexplainthattheoperatorsmustperformallac/onsandinvestmentstoputinplacethetechnicalandopera/onalcapacitynecessarytoobtainmaximumu/liza/onandconserva/onoftheAPG.TheguidelinesspecifythattheoperatorwillbeabletoexploittheAPGforauto-consump/on,opera/onswithintheareaof��contractualassignment,fuelforturbines,compressors,motors,amongotherspneuma/cdevicesorinanyotherwaytogeneratepowerforthebenefitsoftheoperator.Thesolu/onfortheuseofAPGwillhavetoproceedfromaneconomicandtechnicalanalysistakingintoaccountthecomposi/onandvolumeofAPG,theproximityoftheprocessing,transporta/onanddistribu/oninfrastructure,thevalueofthegasandthevalueofthenecessaryinvestmentstousetheAPG.Inaddi/onits/pulatesthefollowingmeasurestobeadoptedbythecontractor(Fluenta,2016):•  Thecapacityofflareandventgasmetersmustbesizedaccordingtotheexpectedamount

ofgastobeemidedorflared;•  Themaximumallowablemeasurementuncertaintyforgasflaring/ven/ngmeasurement

systemscannotexceedplusorminusthreepercent;•  Indirectes/ma/onofgasvolumesmustbemadeinaccordancewithgasoilra/oaccoun/ng

orbyusingsystembalanceorsimula/on.Theinstalla/onofallgasandventmetersshouldbeincompliancewithmanufacturerspecifica/ons;

•  Measurementandmonitoringofflareandgascomposi/onmustbeconductedeitherbysamplingforlaboratoryanalysisorwithinstalledcon/nuousanalysers;

•  Whenthereisasignificantamountofliquidinthegasesbeingvented,operatorsmustinstallaseparatoralongsidealiquidmeter.

Accordingtotheseguidelines,incoopera/onwithCNHPemexwillhavetoreworkonallitsplansfortheuseofAPG.Thenon-compliancewiththosespecifica/onswillbesanc/onedaccordingtothedisposi/onsoftheHydrocarbonsLawsorthespecificcontracts.

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

FiscalFrameworkonGasFlaring/AGuse

Descrip<on

Nonelisted

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

APG-usecasestudy:Cantarell

S  In2008,Pemexinvestedalmost$3bninnewwellinstalla/onanddesalina/onanddehydra/onplantsdesignedtoregulateitsdecreasingoilproduc/on.Atthesame/me,gasflaringreduc/onturbocompressors,gasreinjec/on,andanitrogenrecoveryunitwereinstalledattheCiudadPemex,TabascoGasProcessingCenter,contribu/ngtothereduc/oninflaringfromtheCantarellsite,inpar/cular,post2008–aninvestmentofmorethan$1.6billionfrom2005to2012.

S  APGusewasaccomplishedthroughop/miza/onofinfrastructureand“distribu/ngthegasstreamforar/ficialliu,reservoirreinjec/onanddeliveryforindustrialconsump/on”(Lozano,2012).

S  Reportedly,thecompanyiscurrentlyinves/nganextra$976milliontowardsitsgasflaringreduc/onefforts.

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

CNH’sstrategy:theCantarellCaseExample

Source:EstradaEstrada,CNH(2011)

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

ImprovedtechnologyatCantarell

Source:Lozano,2012

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

Pemex’sinvestmentsforsustainedgasu/liza/on

Source:Lozano,2012

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

Risinggasu/liza/onandimprovedcapacitysince2008

Source:Lozano,2012

S  Gasu/liza/onincreasedby24%,from74%in2008to98%in2012,duetoPemex’ssignificantinvestmentsingashandlingandreinjec/oncapacity.

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

APG-usecasestudy:Perseus/Greyrock

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

S  ProjectPar<cipantso  CompañiaPetroleraPerseusS.A.deC.V.(Perseus),anindependentMexicanoilandgas

explora/onandproduc/oncompany,andGreyrockEnergy,Inc.,aspecialistintransformingflaregas,bio-gas,naturalgasornaturalgasliquidsintodieselfuelthatcanbeusedlocallyorcanbeeasilytransportedtomarket.

S  ProjectDescrip<onandMo<va<ono  InMay2016,PerseusandGreyrocksignedajoint-venturetocollaboratetoprovide

solu/onsforflaringusingGreyrock’sFlare-to-Fuels™systems.

o  InJuly2016GreyrockwasrecognizedbytheWorldBank’sGlobalGasFlareReduc/on(GGFR)Partnershipas“thetopsolu/onforelimina/onofflaregasworldwide”(Greyrock).

S  AssociatedGasUseo  Greyrockdevelopedasystemtoconvertflaregasintodieselfuel.

o  “Greyrocksystemsaremodular,easilytransportableandremotelycontrolledfortheproduc/onof5to50barrelsperdayofcleanfuelsfromflaregas.Systemscanbedeployedinparallelasneededtoprocesslargerflaregasvolumes”(Greyrock).

o  AccordingtoGreyrock,thissystemreduces“thecomplexityandcostsassociatedwithtradi/onalnatural-gas-to-liquidsprocessesbybypassingtheintermediatehydrocarbonwaxthatnormallyneedstoberefinedintofinishedproducts”(Greyrock).

o  Thesesystemsaretobelocatedatthewellpad.Thefuelsproducedcaneitherbeblendedwithoilatthewellpadorprocessedfurther.Thedieselthatisproduced“featureshighcetane,nosulfurandgoodlubricity.”AccordingtoGreyrock,thesedieselfuelsdonotrequirefurtherrefiningandupgradingasopposedtothosecomingfromFischer-Tropschbasedtechnologies.

Whatenergyneedscouldtheflaredgassa/sfy?

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

S  Mexico’suseofAPGhasbeenmainlyinreinjec/onbutthismightchange.

S  Drivingdomes/cdemandforgasisthedemandforpowergenera/oninacountywherefossilfueledpowerplantsprovidemostofthegenera/oncapacity.

S  Andmo/va/nggas-basedpowerdemandareprivateandindependentlyoperatedpowerplants,whosegasconsump/onisan/cipatedtoincreaseata7.9%averageannualrate,from1.6Bcf/din2012to4.9Bcf/din2027,accordingtoaU.S.EnergyInforma/onAdministra/on(EIA)report.

S  Inlightofthisgrowingdemand(asMexicohasbegunimpor/nggas-impor/ng1.8Bcf/dasof2013)andtheSecretaryofEnergyIntegralFuelpolicystressingtheuseofdomes/cgas,partlythroughtheconstruc/onofgasfiredcombinedcyclepowerplants,APGhasthepoten/altomeetasignificantamountofMexico’sgasneedsincomingyears.

S  Howevermoreinvestmentingasgatheringfacili/esandgastransmissionlinesisneededtoconnecttheSouth/Southeastfieldstothefarconsump/oncentersintheNorth/Northeast.

Challengesandopportuni/es:Newchallengesincurrentlyproducingoilfieldsandfuturechallenges

S  Project-relatedchallengesforflaringandAPGuseiden/fiedbyCNH:S  ChicontpecBasin(petroleumsystemoffieldsscaderedovera

3800km2areainthestatesofVeracruz,PueblaandHidalgo):Controllingthelargeamountsofflaredgasatthisgroupofsparselydistributedoilfieldsrequiresmoregatheringsystemsandsolu/onstousetheAPGinplaceorforthesurroundingcommuni/es.Giventhetechnicalandgeologicalchallengesofthisbasin,thecurrentoilproduc/onishowevernotatcapacity.

S  Withthe2016technicalguidelines,CNHisseekingtoimplementnewmethodsofmeasuringtheflaringandven/ngofAPG,toimprovethecertaintyandmeasurabilityforthehandlingofgasandtomovetowardspreven/veregula/onspromo/ngtheu/liza/onofgasbeyondreinjec/onthatcannotabsorballtheAPGgeneratedbynewfields.

Reinjec/onandEnhancedOilRecovery(EOR)

GastoLiquids

PowerGenera/on(IPP)

Challenges

References

S  "CantarellOilfield,GulfofMexico,Mexico."OffshoreTechnology.com.Web.26Oct.2014.

S  CNH.Disposicionestécnicasparaelaprovechamientodegasnaturalasociado.Jan.2016

S  EstradaEstrada,Javier.CNH.“ExperiencewithRegula/onsofGasFlaringandVen/nginMexico.”Nov.30,2011.

S  “GasFlaringRegula/ons:Mexico”.Fluenta.July22.2016

S  Greyrock‘swebsite:hdp://www.greyrock.com

S  Hurtado,Raul.Statoil.“DevelopingCDMFlaringReduc/onProjects.TheCaseof‘TresHermanos’.”Feb.11-12,2010.

S  LozanoSerrano,JoseR.PEMEX.“GasU/liza/onprojectintheCantarellfield,Mexico.”GGFRPresenta/on.London.Oct.24-25,2012.

S  "Mexico:CantarellOilFieldProduc/onMayBeStabilizing."Energy-pediaNews.26Oct.2014.

S  “PublicaCNHdisposicionestécnicasparaaprovechamientodegasnaturalOilandGas.”OilandGasMagazine.9Jan.2016

S  PEMEX,“MethanetoMarkets:MethaneEmissionsinPEMEX:ATargetedApproachforReducingFlaringandGreenhouseGasEmissions.”Feb.12,2010.

S  Pena,EmmaandRoldan,Oscar.CNH.“FlaringandVen/ngofGasinMexico.”Houston,Texas.Jan.28,2014.

S  "U.S.EnergyInforma/onAdministra/on-EIA-IndependentSta/s/csandAnalysis."Mexico.Web.24Oct.2014.