Nowadays, the problem of energy efficiency and energy saving stands in the forefront of the global agenda. Each of us is engaged in the process of conserving resources. We save electricity by installing high-efficient LED lamps, power production companies purchase new generation equipment in order to increase the coefficient of performance of the plants and engineers are continuously working to make fuel consumption in our cars more effective. However, have you ever thought how much of these natural resources is wasted without any use? In this article I will try to cover the problem of associated petroleum gas flaring.
I am sure everyone knows that natural gas is one of the major energy sources. Associated petroleum gas (APG), or associated gas, is a form of natural gas as well. It is found with deposits of petroleum, either dissolved in the oil or as a free “gas cap” above the oil in the reservoir under high pressure reservoir conditions (1). When oil is extracted, the pressure decreases and associated gas separates from the oil. However, traditionally this gas is considered as a waste product and is simply burnt off in gas flares. This process is called flaring and when it occurs this gas is referred to as flare gas. Taking example of Russia, which is one of the largest producer of oil and gas in the world, currently for each tonne of oil produced in Russia about 150 cubic metre of associated gas is released and this value is rising each year (2). This situation can be explained by the fact that oil production in Russia is moving to the east and north of the country. In such regions average gas/oil ratio is higher than in traditional production regions and can reach several hundred cubic meters per tonne of oil.
However, not all amount of APG is flared. Major share, that is 60% approximately, is sent from the oil field to gas processing plants and to other consumers. APG is usually separated to stripped gas (methane, or general natural gas) and NGL (natural gas liquids, which commonly consist of propane, butane and other heavy gas fractions). Further, natural gas can be used for wide range of needs, while NGL is commonly used as a raw material in chemical industry.
In Russia NGL is usually purchased by chemical companies for polyethylene and polypropylene production. 22% Of associated gas is used for oil field’s own needs, that includes utilizing APG for electricity and heat generation in steam or gas turbine power plants, and pumping APG to the reservoir in order to support extraction pressure. Also, associated gas can be used for synthetic fuel production on site via GTL (Gas-To-Liquid) conversion, however, there is almost no experience of this method application in Russia so far. Finally, 17% of APG is flared, and losses accounts for remaining 1% (2).
It should be taken into the consideration, that these figures are average among Russia and regions around it. In some states APG efficient use is almost equal to 100%, while in others it barely exceeds 50% (3). Low APG utilization levels are observed in the oil fields that are situated in remote underpopulated areas with severe climate and weather conditions. In such regions APG transporting from the field is very expensive and does not pay back. The use of associated gas for oil field’s own needs is limited. The main problem is that APG extraction is not constant, its variation is significant during the project lifetime, and coefficient of performance and other parameters of power plants are usually low at part loads. Furthermore, expensive gas pre-treatment facility must be installed in order to purify APG from sulphur, nitrogen and other harmful compounds. Such investment also can be unsustainable for medium and small scale oil production facilities. So, these factors causes flaring of significant APG amount without any use.
It is worth noting, that today efficient associated petroleum gas utilization level is rising every year in the country (2). Nevertheless, Russian Federation still takes the first place in the world in terms of gas flaring according to Worldbank. Each year Russian oil extraction industry flares up to 17 billion cubic meters of APG according to official Russian statistics (2). In order to show you how significant this value is, I would like to note that this can be compared to annual natural gas consumption of a typical European country. However, Worldbank estimates total gas flaring in Russia (what is mainly associated gas flaring) at much higher value: 35 billion cubic meters annually (4).
Associated gas flaring is not only a huge resource waste. It causes water, soil, air, and thermal pollution in the neighbourhood. When APG is utilized at flare facility about 10% of its value is vented directly into the atmosphere. As methane (the major component of APG) has global warming potential (GWP) coefficient 21 times more than CO2 (5), such 10% vented volume accounts for greenhouse gas emissions equivalent to CO2 emissions from remaining 90% of APG burned completely. On the basis of official Russian statistics on APG flaring in 2014, it can be estimated that flaring in Russia accounts for 30 million tonnes of annual CO2 emissions. This value can be compared to the total CO2 emissions generated annually by an entire European country such as Sweden or Norway. Among the emissions, apart from methane leaks and CO2, harmful components such as sulphur, nitrogen oxides, carbon monoxide, soot, benzyl, phosgene, toluene, heavy metals (mercury, arsenic, chrome), sulphuric anhydrite, and others are also present (6).
But how can we deal with such enormous resource waste? Is there any possibility to avoid loosing precious natural resource?
Firstly, I would like to discuss current situation in oil and gas production in Russia. Today as I already noticed oil and gas production shifts to the north and east of the country, to Western Siberia and Far East, and new exploration fields are mainly medium or small. Traditionally, such oil fields are supplied with energy from diesel generators. However, the fuel is usually very hard to deliver in remote areas. For example, in many regions helicopter is the only one mean of transportation. Hence, diesel fuel cost rises up to several times during the delivery process. This situation calls for the need of reliable energy generation methods using available local fuels. In this respect, APG would be a very attractive source of energy.
If we take into account high gas-oil ratio in new exploration regions, it turns out that electricity production from APG from turbines exceed power consumption value by several times. Such energy excess is hard to utilize in remote areas. Moreover, this methods does not solve the problem of fuel supply for vehicles that are working continuously on the field. Good option could be the use of associated gas partly for electricity production and partly for other needs. After conducting analysis of different APG utilization methods, it was concluded, that GTL conversion plant can be good solution for effective associated gas utilization in remote areas on small and medium scale facilities. What is special about GTL method is the possibility to use heat of the conversion reaction to produce electricity, which covers own needs of the plant and oil field’s as well. Also, significant amount of synthetic liquid hydrocarbons is produced. Part of it can be used for high quality diesel fuel generation which can be further consumed by cars and other vehicles in the oil field. The remaining can be mixed with recovered oil and send to the pipeline. This is very attractive method, don’t you think so? But there has to be catch. Why this solution is not applied at Russian oil fields? The answer is simple: no experience of implementing this technology and high capital and operating investments. Although today modern small scale GTL cost effective technologies have started to appear and surely they will play important role in solving the problem of gas flaring.
I hope that in the future we would utilize finite natural sources more carefully and the term «gas flaring» will remain only as an relic of the past.
1. Glossary of Terms Used in Petroleum Reserves/Resources Definitions. – 14 p. – http://www.spe.org/industry/docs/GlossaryPetroleumReserves-ResourcesDefinitions_2005.pdf.
2. Российский статистический ежегодник 2015. [Russian Statistical Yearbook 2015]. – 728 p. – http://www.gks.ru/free_doc/doc_2015/year/ejegod-15.pdf
3. Регионы России. Социально-экономические показатели. [Regions of Russia. Socio-economic Indicators]. – 1266 p. – http://www.gks.ru/free_doc/doc_2015/region/reg-pok15.pdf.
4. Worldbank. Global Gas Flaring Reduction Partnership (GGFR) Top 20 gas flaring countries. – http://www.worldbank.org/content/dam/Worldbank/Programs/GGFR%20Presentation%20March%202015.pdf
5. Climate Change 1995, The Science of Climate Change: Summary for Policymakers and Technical Summary of the Working Group I Report. – 572 p. – https://www.ipcc.ch/ipccreports/sar/wg_I/ipcc_sar_wg_I_full_report.pdf.
6. Попутный нефтяной газ в России: «Сжигать нельзя, перерабатывать!» [Associated Petroleum Gas in Russia: «Do not Flare, Utilize!»]. – 88 p. – https://www.wwf.ru/data/pub/oil/wwf_png_net_corrected.pdf.
Fears of a 2019 European Economic Slowdown Loom
Although the spotlight is on the trade war between the United States and China, one aspect that is currently ignored by the media is represented by signs of weakness in the European continent.
Germany slows down
After posting a -0.3% GDP contraction in the third quarter of 2018, the economic indicators released from Germany in 2019 cannot support a positive economic picture. The manufacturing sectors continue to show signs of weakening, with the Markit PMI Composite now at 51.6, down from 52.3.
Industrial Production had been contraction by 1.9% in November, and both imports and exports had been down by 1.6% and 0.4%, respectively. DAX trading had also suggested there is growing concerns among investors and the main German stock index peaked out in July 2018, being now down by 15%.
Germany relies mostly on exports, being the third exporter in the world, only surpassed by the United States and China. That is why the weakness we see in Germany is actually a symptom of what’s happening in other European countries as well.
Italy and France not too encouraging
The new populist government in Italy, formed by La Lega and The Five Star Movement faced a serious challenge to get the EU’s approval for the 2019 budget, as the already high debt-to-GDP ratio (currently at 131.8%) raises concerns on whether the country will be able to meet its debt obligations in the future.
There are also serious concerns about the banking sector, which despite mergers and acquisitions, and huge capital available from the ECB, were unable to solve their problems which emerged after the 2008 financial crisis. The future of Italy is very uncertain, and analysts predict that the new government will not be able to meet their economic promises, given that we are at the end of a business cycle.
Speaking of France, the problems are social at the present time. President Macron was unable to stop the “Yellow Vests” protests, despite promises to increase the minimum wage and the overall standard of living for the very poor. France’s debt-to-GDP ratio currently stands at 97%, but given the latest promises, there are concerns whether the country will manage to keep the budget deficit below 3% in 2019, as the European treaties demand.
Although there’s a single currency in Europe, in terms of fiscal policy things were very fragmented, which is why the economic recovery had been very slow and the reason why investors predict Europe will face the greatest challenges to solve its economic, political, and social problems.
Sterling Whipsaws as Brexit Negotiations Fall Flag
Sterling whipsawed on Thursday, first tumbling and then rallying, and experiencing robust volatility. The GBP/JPY also experienced a wild ride as the yen increased in value on safe-haven flows. Sterling has been trading under pressure following news that the European Union has no plans for further Brexit discussions. May is now stuck between a rock and a hard place and may have to exit from the EC without an agreement.
The EU Has No Plans to Continue Brexit Talks
The European Union announced through a spokesperson saying that they had no plan on further Brexit discussions with the UK. The British had hoped for additional assurances on the contested Irish backstop. Prime Minister May has been making the rounds with EU leaders ahead of this month’s vote in parliament, but her diplomacy appears to have failed to change any minds.
The Financial Times reports that a EU source said no dialogue has occurred over the past 10-days and that PM May spoke to the EC head Donald Tusk on January 2. The EU is sticking to their word and appears to reflect the view that EU officials have gone as far as they can as it relates to the Irish backstop. They also revealed that if a backstop was triggered that EU negotiators would use “best endeavors” to negotiate a replacement agreement.
Strong US Private Payrolls Help Buoy US Yields
Sterling was also shaken by a rebound in the dollar which was buoyed by an uptick in US yields. US yields tumbled on Wednesday as traders removed all the potential tightening of interest rates in 2019. In fact, the yield curve shows that 1-year yields are less than current yields. This came despite a stronger than expected private payroll report, released by ADP on January 3.
ADP reported that Private payrolls rose by 271,000 in December, beating expectations that jobs would increase by 178,000. You can follow the private payroll report on Vestle news. The strong jobs numbers should help lift wages which is an argument for why the Fed should remain vigilant. The increase in private payrolls was the largest climb in nearly 2-years and increased the 2018-month average of private payroll gains to 203,000.
The report showed the increase in jobs was mainly drive by professional and business services which increased by a solid 66,000 while education and health services contributed 61,000 and leisure and hospitality added 39,000. In all, service-related industries were responsible for 224,000 of the new hires, while goods producers rose by 47,000. This include an increase in construction which grew by 37,000 and manufacturing added 12,000. Natural resources and mining lost 2,000 positions.
Sterling rebounded after making a fresh low of 1.24 which is a 20-month low on sterling versus the greenback. The exchange rate is likely to remain volatile until there is a solution to the UK exit from the EU. The trend is also downward sloping, and with momentum negative, the path of least resistance is for a lower exchange rate for sterling.
Manufactured goods and industry: a symbol of German decline
German industrial power and quality levels became a national symbol in the latter part of the 20th century, and to some extent the lifeboat of post-war reconstruction. Even throughout the industrial rise of Asia at the end of the century, the German island remained sanctuarize from the competitive attacks of Eastern developing countries. But several German industries have been increasingly struggling in the past decade and gasping for air. Is Germany at the end of its prosperity cycle, for having rested on its laurels?
Germany, along with its wartime Japanese ally, impressed the world with its rise from its ashes in the latter half of the 20th century. Starting with the Marshall plan quickly followed by self-standing growth, Germany speedily re-built its industrial capacity, and its reputation for top-notch quality. As soon as in the 1960s, German brands invaded the global market with their sturdy reputation preceding them: if the product said “Made in Germany” then the customer could feel sure there was nothing better on the market. At the end of the century, a large share of the top global engineering segment was German: BMW, Bosch, Rheinmetall, Merck, the list is endless. Economic historian Werner Abelshauer describes  how the label “made in Germany” became a symbol of quality: “The label “Made in Germany” ultimately developed into a sign of quality, though it took a while.” But the era during which Germany levitated above the rest of the industrial world is coming to an end. While Germany remained unharmed by Asian competition for longer than its neighbors, it is now fighting on a level field with all other manufacturers in the field, and worse: it’s not doing all that well. Economic reporter Chris Papadopoullos placed  the start of the decline during the year 2015: “Total production, which includes construction, manufacturing and mining, dipped 1.2 per cent in August compared with July, German statistical office Destatis said. The production of capital goods fell 2.1 per cent while consumer goods dipped 0.4 per cent. Construction and energy output also posted declines “.
Of course, the Volkswagen scandal caused a major dent in the image of industrial Germany. Consulting group ALVA published an extensive study of the post-scandal consequences on the image of Volkswagen and German quality altogether, and wrote : “After the emissions scandal revelations, we can see a very different picture, with all Advocacy drivers having moved into negative territory to a greater or lesser extent. This is indicative of a reverse halo effect in which a negative emotional response to a company due to an erosion of trust spills over and clouds rational judgement of all of its traits.” Until then, German car manufacturers had been above suspicion, thanks to their reputation for industrial quality and business performance: when one is the best, there is no need to cheat. Through the fraudulent emissions revelations, Volkswagen, one of Germany’s flagships, showed that “Made in Germany” wasn’t all it was cracked up to be, and that they had flown too high on borrowed wings. The scandal shed doubt over other German flagships in its wake, as reported  by automotive journalist James Mills: “German media allege that US authorities have discovered that Daimler, parent of Mercedes, developed software for its diesel-powered vehicles that would shut down vital emissions equipment after driving just a short distance. Daimler is reported to have come up with programs that would shut down certain functions of the selective catalytic reduction filter after just 16g/km of NOx is admitted.” And the damage extended beyond the automobile world, into the whole industry.
Of course, if the problem were limited to the automobile world, Germany could survive on the others. But the slipping in industrial standards, the resulting loss of performance, and finally the need to resort to unsavory business practices to survive, seems to have contaminated all fields of the German industrial apparatus. German shipbuilder TKMS recently illustrated the downfall: after decades of occupying high grounds on the submarine market, the engineering firm is facing such a severe string of problems that it is facing being sold off entirely and scrapped from the national heritage. After losing a major submarine contract in Australia, it delivered a few corvettes to the German Navy, which simply refused them on the dock, due to quality standards being overstepped. Wall Street Journal William Wilkes reported : “Germany’s naval brass in 2005 dreamed up a warship that could ferry marines into combat anywhere in the world, go up against enemy ships and stay away from home ports for two years with a crew half the size of its predecessor’s. First delivered for sea trials in 2016 after a series of delays, the 7,000-ton Baden-Württemberg F125 frigate was determined last month to have an unexpected design flaw: It doesn’t really work.” Germany’s submarine fleet, also built by the same shipbuilder, is currently completely out of order . In desperate need for new contracts, it resorted to bribing officials, resulting in a political and economic quagmire in Israel. In an attempt to secure a submarine purchasing contract in Tel-Aviv, TKMS allegedly transferred over 10 million dollars through shell companies to a top government Israeli official. News Site Haaretz  reports: “At least ten high-powered individuals have been identified as involved in the scandal, including very close associates of Prime Minister Benjamin Netanyahu. A multimillion dollar submarine deal with German shipbuilder ThyssenKrupp is the focus of a police investigation, which is probing possible wrongdoing involving Netanyahu’s personal lawyer and German shipbuilder ThyssenKrupp’s local representative.” For weathered investors, this time in which German manufacturers need to resort to cheating to make up for their slipping industrial standards is something completely new, and in some ways an earthquake. As a result, investments are scarce for start-ups , as well as for established businesses .
Germany’s downfall in the industrial world isn’t taken lightly by political forces, and the economic problem is turning into a political one, with worker unions stepping up their criticism of management, and politicians scrambling to stop the nosedive. Angela Merkel has been urgently addressing the problem, but so far too little or no avail. “Angela Merkel champions Industry 4.0, urging investment in new technology. German business isn’t heeding the call”, says Politico . Unlike Angela Merkel, many in the country haven’t figured out that Germany had slipped from one industrial model to another: initially known for the superb quality of its products, it was caught up quickly by its direct competitors: United Kingdom, France, Japan and the United States in particular. The core of German’s added value today lies mainly in the machine-tools and high-tech subsystems of German equipment-makers. But as a whole, Germany no longer has the capacity to integrate large and complex systems such as aircrafts, frigates or new-generation submarines.
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