CanadaAssociatedGasU/liza/onStudy

PerrineToledano,BelindaArchibong,JuliaKorostelevaThankstoTomMitroforhisthoughDulreview

Fiscalandlegalregula/onforAPGuse

Locallevelregulatoryagencies

Domes/cmarketforgas

Flaringfromoilsands

SummaryofFindings

S  Canadahasanextensive,efficientfiscalandlegalframeworkregardingtheuseofAssociatedPetroleumGas(APG)alsocalled‘solu/ongas’inCanada.

S  Na/onalstandardsaresetonthefederallevelforgasflaringandagainonthelocallevelwithagencieslikeAlberta’sEnergyResourcesConserva/onBoard(ERCB)tomeetlocalairqualityobjec/ves.ERCBalsoreliesoncompaniestoascertainwhetherAPGuse,flaringorven/ngismoreeconomicallyviable.

S  Arobustdomes/cmarketforgasexistswithfullwholesaleandretailcompe//oninthegasmarketallowinggasproducerstoeithersellAPGtogasbuyersorsupplyindustrialandretailcustomersintheirownright.

S  Increasedgasflaringinrecentyears,par/cularlyinAlberta,hasbeenaYributedtoanup/ckinheavyoilsandsproduc/onandlowgaspricesmakingAPGuseuneconomic.

Thesta/s/csofAPGflaringinCanada:Howbadisit?

Sta/s/csonAPGflaring

S  About978millioncubicmetersofgaswasflaredandventedin2012,anup/ckfrom2011levelsfollowinganincreasingtrendingasflaringsince2009.About94%ofAPGproducedwasusedin2012.

Source:Palanca,Gerald,FlaringandVen,nginAlberta,Canada.AlbertaEnergyRegulator.2014

GasFlaringinAlberta,Canada,1996-2012

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

S  Onthefederallevel,thefunc/onofregulatorsistolicensepipelineandnaturalgasopera/onsaswellasdesignandcollec/onofroyal/esonly(theCanadaPetroleumResourcesAct(CPRA)grantstherighttothefederalgovernmenttorestrictorhaltanyopera/onsincaseofenvironmentalproblems).

S  “EnvironmentCanada,”adepartmentofthefederalgovernmentsetstheNa/onalAmbientObjec/ve(NAO)fordifferentairpollutants,whichincludethosefromflaringandven/ng.

S  Allotherfunc/onsaredelegatedtoregula/onmakingauthori/esontheprovincelevel.Onthislevel,theagencyisresponsibleforgatheringandanalyzingofdata,repor/ngrequirementsforflaringreduc/on,complianceandenforcement.

S  Localairqualityobjec/vesaresetbyindividualprovinces.Provinciallevelauthori/esmightrequireflaringandven/ngreduc/onbeyondthelevelrequiredbytheNAO.

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

Fiscalframework

Provincial–LevelJurisdic8on Name FormofRegulatoryAuthority(IndependentAgencyorDepartmentofGovernment)

Bri8shColumbia OilandGasCommission IndependentAgency

Alberta EnergyResourcesConserva/onBoard

IndependentAgency

Saskatchewan SaskatchewanMinistryofEnergyandResources

MinistryoftheGovernment

Manitoba ManitobaScience,Technology,EnergyandMines

DepartmentoftheGovernment

NewfoundlandandLabrador(Offshore)

Canada–NewfoundlandandLabradorOffshorePetroleumBoard

IndependentAgency

NewfoundlandandLabrador(Onshore)

NewfoundlandandLabradorDepartmentofNaturalResources

DepartmentoftheGovernment

Non-AccordFederalLands Na/onalEnergyBoard IndependentAgency

Whatisthelegalandfiscalframeworkinplacetostopflaringandincen/vizeAPGuse?

Agencies

Legalframework

FiscalframeworkSources:Griffith,JohnO.,ImprovingEconomicsofFlareandVentReduc,onProjects,Gaffney,ClineandAssociates.2008;Informa/onLeYer(IL)99-19:OtherwiseFlaredSolu/onGasRoyaltyWaiverProgram,DepartmentofEnergy,June11,1999.

FiscalFrameworkforAPGuse

Descrip8on

OtherwiseFlaredSolu8onGasRoyaltyWaiverProgram

• Asof1998,theMinisterofEnergyannouncedaprogramofroyaltywaiversonotherwiseflaredassociatedgasasanaddi/onalincen/veforassociatedgasconserva/on• ThewaiverisindependentoftheenduseofAPGandlastsfor10years• Companiesareexemptfromtheroyaltyifgasproduc/onbecomesuneconomicduetoroyal/es• Also,anygasu/lizedforon-sitepowergenera/onisexemptfromroyalty

FocusonAlberta,Canada:toolsforregula/ngflaring

Agencies

Legalframework

FiscalframeworkS  Alberta’sEnergyResourcesConserva/onBoardregulatesflaringandven/nginAlberta’supstream

petroleumindustrywiththe“Direc/ve060-UpstreamPetroleumIndustryFlaring,Incinera/ngandVen/ng”foundattheAlbertaEnergyRegulator(AER)website.TheDirec/verequiresfirmstodoaneconomicanalysis,followingthestructureprovidedintheaboveDecisionTree,toascertainthenecessityforflaringwhereflaringisonlypermiYed(withincertainlimits)ifAPGuseisdeemeduneconomicasaresultoftheanalysis.

FlaringDecisionTree

Source:AlbertaEnergyRegulator(AER)

FocusonAlberta,Canada:Direc/ve060andcurrentflaring

Agencies

Legalframework

Fiscalframework

S  TheDecisionTreefromtheDirec/veaddsimportantstructuretotheeconomicanalysisperformedtodeterminewhetherornotgaswillbeflaredasopposedtousedformoreefficientpurposes.FollowingtheTree,theoperator’sfirstmandateistoaYempttocompletelyeliminategasflaring,consideringpublicandsocialconcernsandanyeconomicalterna/vesinitsflaringcalculus.Failingthat,itistoaYempttoreducegasflaringfollowingthesamecalculusandifthatisnotpossible,itshouldmeettheminimumperformancerequirementsforflaringasoutlinedinDirec/ve060.

S  Direc/ve060hasbeenlesseffec/veincurbingincreasedgasflaringinrecentyears,par/cularlyinAlberta,whereflaringisaYributedtoanup/ckinheavyoilsands(orbitumen)produc/onandlow/fallinggasprices($4/GJin2011versus$8.89in2005and$8.41/GJin2008)coupledwithlongdistancestogatheringinfrastructure,makingAPGuseuneconomic.

S  Alberta’sEnergyResourcesConserva/onBoardiscurrentlyengagedinconstruc/ngnewframeworkstoaddresstheincreasedflaringissuewhenAPGuseisdeemeduneconomicinthecontextoffallinggasprices,followingthedecisiontree.

FocusonAlberta,Canada:policiesandregula/onsascomparedtoNorway

Regula8on/PoliciesonGasFlaring/APGuse

Alberta,Canada Norway

TypeofOpera8on Over45,00oilwellsofmainlylowerproduc/vity.Smallnumberoflargeoilsandsprojects,allonshore.

Smallernumberoflargeoffshorefields

Regulator? IndependentAgency GovernmentDepartment

1-Universalflaringguidelinesorregulatedcase-by-case?2-Stakeholderconsensusindeterminingtheapproach?

1-Universal2-Yes

1-Case–by–case2-Yes

Annualna8onalflaringtarget/limit?

Maximumtotalindustryflaringvolume.Individualopera/onscomplywithregula/ons,notindividualflaringlimits.

No

1-Rou8neflaringallowedbylaw?2-Andpermitslimi8ngflaringforeachflaringfacility?

1-Onlyifnoteconomictouseandnoadverseoff-leaseimpact2-No.Excep/onsarecertainspecifictypesoffacility(H2Sflaringfacili/es,gasplants…)

1-No,butmaysecureawaiverinexcep/onalcases2-Yes

FieldDevelopmentPlansrequireapproval?

Onlylargemul/-wellprojectsdobuteachproposedflaringprojectmustbeevaluatedand,ifeconomic,u/liza/onismandatory(exceptverylowvolumes).Ifflaringgoesahead,economicviabilitymustbereassessedannually.

Yes.Approvalisgivenonlyifanacceptablesolu/onisincludedforassociatedgasu/liza/on

Source:WorldBank,2014

Agencies

Legalframework

Fiscalframework

FocusonAlberta,Canada:policiesandregula/onsascomparedtoNorway

Agencies

Legalframework

Fiscalframework

Regula8on/PoliciesonGasFlaring/APGuse

Alberta,Canada Norway

Criteria/parametersforeconomicevalua8onofgasu8liza8onop8ons?

Criteria/parameters/methodology(e.g.discountrate,opera/ngcosts)arespecified.Approvedsourcesforproductpriceforecastsarealsospecified

Notrelevant.Rou/neflaringisnotnormallyallowedunderanyeconomiccondi/ons.

EIArequired? Onlyrequiredforlargeprojects.Sourgasflaringpermitsrequiremodelingthatshowthathealth&environmentallimitsaremet.AnyEIAismadepublic.

Yes.TheEIAismadepublic.

FiscalIncen8ves IfAPGuseisnoteconomic,aroyaltywaivercanbeappliedfor.Nootherincen/vesapartfromthis.

Nospecificfiscalincen/vesforassociatedgasu/liza/on.

Taxes/finesonemission?

None CO2taxof$120per'000m3gasburnt(includingflared)atproduc/onfacility

Penaltyforviola8onofregula8on?

Risinglevelsofsanc/onsdependingonseriousnessofviola/onincludingproduc/onshut-inandorsuspensionofnormalabilitytohaveapplica/onsprocessed.Theul/matesanc/onisthesuspensionofproduc/onlicenseforviola/ngfacilitywithpossiblytheapplica/onofothercorporatesanc/ons.

Nopenal/esorul/matesanc/on

Source:WorldBank,2014

Note:Theregula/onsforCanadianeastcoastoffshoreproduc/onaresimilartothoseinNorwayexceptfortheCO2tax.“Annualpermissibleflaringvolumesarespecified.Penal/esforexceedingflaringpermiYedvolumesincludereduc/onofproduc/onvolumes.”(Source:WorldBank,2014)

WhataresomecurrentAPGuseprojectsthatcouldserveasblueprintsforfutureprojects?

PowerGenera/on(IPP)

Reinjec/on

S  Twoofthemoreinteres/ngAPG-useprojectstocomeoutofAlbertarecentlyhavebeenIPPprojectswithIPPcompanyGenaltaPowerincollabora/onwithShellCanadaandBaytexEnergyGroup.

S  GenaltaPowerisapar/cularlyinteres/ngcasehereasthecompany’sbusinessmodelinvolvestransformingwasteenergy,includingwastegas,topowerthatisthensoldintothedistribu/ongrid.

APG-usecasestudy:GenaltaPower/Baytex

PowerGenera/on(IPP)

Reinjec/on

S  ProjectPar8cipants:o  GenaltaPower,BaytexEnergyGroup

S  ProjectDescrip8onandMo8va8on:o  In2013,Genaltasigneda10-yearagreementwiththeBaytexEnergyGrouptothe

effectthatmostofthesolu/on/associatedgasassociatedwithBaytex’sPeaceRiverregionheavyoilproduc/onattheThreeCreeksitewouldbetransferredtoapowergenera/ngfacilitybuiltbyGenaltainthesameregion.

o  Theprojectisexpectedtogenerate12MWofpower,equivalenttodailyenergyneedsforover14,000Albertahomes.

o  Baytexwouldbuildapipelinejoiningitsexis/ngintegratedgascollec/onsysteminHarmonValleyandWestHarmonareastotheGenaltafacility.

o  Mo/vatorsoftheprojectincludeo  Producershavingvolumesofgashighenoughtosustainalong-termprojecto  Qualityofgaswasgoodenoughtoavoidcostlyprocessingo  Perceivedsocialvalueoftheprojectfromthelocalcommunitythatwas

complainingaboutflaringo  Allelectricitycouldbesoldtothedistribu/ongrid,whichisGenalta’ssourceof

revenue

S  ProjectLoca8on:o  GaswillbesoldfromBaytex’sThreeCreeksitenearPeaceRivertoGenaltafora

neighboringpowergenera/ngfacility

S  AssociatedGasUse:o  AssociatedgasfromBaytex‘sThreeCreeksite,nearitsPeaceRiverfield

APG-usecasestudy:GenaltaPower/Shell

PowerGenera/on(IPP)

Reinjec/on

S  ProjectPar8cipants:o  GenaltaPower,ShellCanada

S  ProjectDescrip8onandMo8va8on:o  InMay2014,GenaltaPowerreporteditsdecisiontoincreasethe

genera/ngcapacityofitsPeaceRivergenera/onfacili/es,enteringanagreementwithShelltogenerateanextra5MWfromShell’sPeaceRiverbitumenAPG.

o  ThefirstagreementwithShellwassignedin2012andpermiYedGenaltaPowertogenerate4MWofelectricityfromShell’sAPG.

o  The2newgenera/ngfacili/esareexpectedtojointlygenerateenoughelectricitytoprovidepowerfor‘theequivalentofover10,000homesinAlberta’(CNW,2014).

o  Mo/vatorsoftheprojectareaspresentedinthepreviousslide.

S  ProjectLoca8on:o  TheShellPeaceRiverComplexissituatedonshoreinnorthernAlberta,

some40kmnortheastofPeaceRiver

S  AssociatedGasUse:o  APGfromShellCanada’sPeaceRiverbitumenproduc/onfacility

APG-usecasestudies:GenaltaPower/Baytex

Loca/onofPeaceRiverOilSandsandBaytexLeases

Source:hYp://seekingalpha.com/ar/cle/1504532-carbonate-triangles-peace-river-investment-guide-baytex-edi/on

References

S  "BaytexSignsDealwithGenaltaforAlbertaWasteGasPowerPlant-CanadianManufacturing."CleantechCanada.CleantechCanada,5Mar.2014.Web.01July2014.

S  CanadianFaringandVen/ngRegula/onsForum

S  "CarbonateTriangle'sPeaceRiverInvestmentGuide:BaytexEdi/on."-BaytexEnergyCorp.(NYSE:BTE).Web.01July2014.

S  ‘Direc/ve060’EnergyResourcesConserva/onBoard(ERCB).October,2013

S  "GenaltaPowerEntersAgreementwithShelltoGenerateanAddi/onal5MWfromPeaceRiverSolu/onGas."GenaltaPowerInc.GenaltaPowerInc.,8May2014.Web.01July2014.

S  Griffith,JohnO.ImprovingEconomicsofFlareandVentReduc,onProjects,Gaffney,ClineandAssociates.2008

S  Healing,Dan.“Flaringofgaswasteonrise:LowpricesblamedasAlbertacompaniesflareorventmoregas”.CalgaryHerald,28September2012.

S  Informa/onLeYer(IL)99-19:OtherwiseFlaredSolu/onGasRoyaltyWaiverProgram,DepartmentofEnergy,June11,1999

S  Palanca,Gerald.FlaringandVen,nginAlberta,Canada.AlbertaEnergyRegulator.2014

S  VanLoon,Jeremy."Alberta'sOilSandsRaiseFlaringEmissionsasRulesLag."Bloomberg.com.Bloomberg,18June2013.Web.01July2014.

S  WorldBankGlobalGasFlaringReduc/on-PrivatePublicPartnershipImplementa/onPlanforCanadianRegulatoryAuthori/es,June2008

S  WorldBank,2014,hYp://siteresources.worldbank.org/EXTGGFR/Resources/578068-1258067586081/Alberta_Norway_regula/ons_comparison.pdf