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Economic Drivers in Gas Flare Projects – CDM/JI

Economic Drivers in Gas Flare Projects – CDM/JI. Paul J. PARKS . ECON Carbon. European company with broad experience in energy and environment Strong theoretical and project basis Experience in key regions and projects "Anchor" projects – In Russia, West Africa, and Middle East

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Economic Drivers in Gas Flare Projects – CDM/JI

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  1. Economic Drivers in Gas Flare Projects – CDM/JI Paul J. PARKS

  2. ECON Carbon • European company with broad experience in energy and environment • Strong theoretical and project basis • Experience in key regions and projects • "Anchor" projects – In Russia, West Africa, and Middle East • Single focus on carbon – both policy and projects

  3. How Carbon Credits Build Value on a Project Basis • First the overall project design and economics must be considered • Gas Flare projects almost always will be marginal • Market conditions • Infrastructure limitations • Project speficic considerations

  4. Understanding Barriers MACRO MARKET OWNERSHIP FISCAL REGIMES SECTOR Barriers INFRASTRUCTURE ACCESS PROJECT COMMON PRACTICE ECONOMICS TECHNOLOGY CONTRACTS

  5. Utilize the Gas • Electricity, but assc. gas has limited declining volumes. Requires assc. gas as base load coupled with non-assc. gas • Requires a functioning electrical system • Connect to domestic grids – often domestic prices or capacity limits • Connect to LNG facilities – requires access and spare capacity • Reinjection

  6. Make an Economically Rationale Project • Connection of the gas – domestic/ international – question of price and logistics • Extraction of liquids – liquid content of gas and distance from markets • Enhanced Oil Recovery (often already maximized)

  7. Why Carbon Credits Matter • Carbon credits essentially a bi-product of the gas investment • High profit margin compared to gas and liquids • Hard currency • If reinjection, carbon credits can be viewed as a carrying cost of investment

  8. Why Carbon Credits Carry the Project Gas Revenue Shares Developer Transport Taxes & Royalties Capex Taxes Developer Carbon Credit Revenue Shares

  9. Contribution to Project Gross Revenues

  10. Contribution to After Tax Cash Flow 180 160 140 120 100 $ millions 80 60 40 20 0 Energy Fines Carbon, Carbon, 10 Kyoto yrs

  11. Distribution of Profits to Govt, with and without CDM

  12. Conclusion • Tendency to undervalue carbon credits – they can be the primary economic contributor • Need an integrated project approach • Companies (including state companies) should approach it for a portfolio basis

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