OGJ Newsletter

Nov. 1, 1999
Even developed nations with significant oil export revenues will suffer if global climate change treaty targets are to be met, warns OPEC.
Click here to enlarge image

Even developed nations with significant oil export revenues will suffer if global climate change treaty targets are to be met, warns OPEC.

But developing nations that export oil will suffer the most, with OPEC alone expected to lose $23 billion/year in oil export revenues.

If OECD countries impose carbon taxes sufficient to achieve Kyoto protocol emissions targets by 2010, this would trigger a plunge in OECD oil demand of 6.5 million b/d by then, warns Shokri Ghanem, director of research at the OPEC secretariat. Ghanem made the prediction last week at an OPEC-hosted Vienna workshop on climate-change treaty status and effects, just ahead of the start this week of the meeting in Bonn of the Fifth Conference of Parties (COP5) to the UN framework convention on climate change.

Even developed nations with oil exports will suffer from reduced returns on crude sales if some of the measures under consideration are put into practice, Ghanem said. But developing-country producers are the most vulnerable because of their heavy dependence on oil revenues-with some of them being virtually single-product economies.

Under the Kyoto protocol, industrialized countries must reduce their collective emissions of so-called greenhouse gases by 5.2% vs. 1990.

"In fact, when compared with expected emission levels for the year 2000, the total reductions required by the protocol would be about 10%," Ghanem noted. "This is because many industrialized countries, at the time of reaching agreement on the protocol, had not succeeded in meeting their earlier, nonbinding aim of returning their emissions to 1990 levels by the turn of the century, as set out under the framework convention on climate change of 1992."

The protocol has already been signed by 83 countries, plus the European Commission, during a 1-year signature period that ended in March 1999.

There are still opportunities for other countries to become parties, but the protocol will become legally binding when 55 nations, including developed states accounting for at least 55% of developed-country emissions, have ratified it.

Ghanem noted that the protocol has been ratified by only 14 countries, none of which is from the group of industrialized nations, adding that "ellipsethe negotiations up to and including COP6 (the last scheduled round of climate-change treaty talks) would clearly be influential in the ratification process."

North American energy firms are making pioneering moves in trading emissions-reduction credits.

Calgary's Suncor Energy has cut a deal with New York utility Niagara Mohawk Power to buy 100,000 tonnes of greenhouse gas emissions-reduction credits. The purchase was registered with the Environmental Resources Trust, a US nonprofit organization. The firms say they hope their agreement is a step toward developing an international emissions-trading system, as the deal is contingent on Canada and the US approving such a system.

Niagara Mohawk has cut emissions to 6% below 1990 levels, and it has given Suncor the option to purchase up to 10 million tonnes of additional emissions reductions credits over 10 years, starting in 2001.

Meanwhile, a group of seven Canadian companies known as the Greenhouse Emissions Management Consortium and led by energy management firm TransAlta Corp. has agreed to buy up to 2.8 million tonnes of carbon emission reduction credits (CERCs) from US farmers. The deal was brokered by Cantor Fitzgerald Environmental Brokerage Services. IGF Insurance-the US's fourth largest crop insurer-will solicit the CERCs from eligible farmers and landowners, initially in Iowa and ultimately nationwide. TransAlta is the only North American representative on the International Emissions Trading Association management council.

The US Geological Service has examined the US's potential capacity for carbon sequestration as a means of reducing carbon dioxide emissions.

Depleted gas reservoirs would hold sequestered CO2 from fossil fuel use for at least 20 years, says USGS's Robert Burruss. But storage space is only one of the challenges to managing CO2 by sequestration. Capturing, compressing, transporting, and injecting 38 tcf/year of emissions would require an industry nearly twice the size of today's US natural gas industry, he says.

Storing CO2 in depleted gas reservoirs is only one of several options for reducing atmospheric emissions.

Others include deep saline aquifers, depleted oil reservoirs, the deep oceans, and unmineable coal beds, says Burruss.

One likely beneficiary of efforts to reduce emissions of greenhouse gases will be the LNG business, as more nations switch coal and oil-fired power plants and other industrial facilities to imported natural gas.

China continues to mark progress toward its goal of starting imports of LNG in 2001-02. "We have firm plans to import LNG over the next 2-3 years," said Zhang Guoming, deputy general manager of China Petrochemical International Co., a unit of state petroleum company Sinopec. "But before that, we need to have our infrastructure in place."

Despite the lack of infrastructure, Sinopec has identified three likely sites for LNG terminals: Shenzhen, Shanghai, and Guangdong provinces. The locations are near existing Sinopec LPG import facilities.

In addition, China National Offshore Oil Corp. has signed a memorandum of understanding with Qatar's Ras Laffan LNG Co. to buy 1.5 million tonnes/ year of LNG.

Even with the push into LNG-mainly to back out coal use in a country with severe air pollution problems because of the high concentration of coal-burning facilities near heavily populated urban areas-China continues to ramp up oil imports as well. Guoming noted that Chinese refiners currently import 30-40 million tonnes/year of crude oil-mainly from Saudi Arabia, Iran, and Kuwait-and plans call for continued increases in those import levels over the next few years, as domestic petroleum demand shows little sign of slacking off. China is expected to show a significant decline in its crude oil production this year, the first noteworthy drop in more than a decade.

Australian natural gas consumption is set to double over the next 15 years, driven by the privatization of energy utilities and pressure for cleaner and more-efficient energy sources. This is among the findings of a study by the National Institute of Economic and Industry Research (NIEIR), undertaken on behalf of the Australian Gas Association.

The recent opening of Australia's energy sector to greater competition will play a part in gas demand growth. NIEIR predicts gas's share of total energy will rise from the current 17.7% to 22% by 2005 and 28% by 2014-15.

Electricity generation is likely to account for 46.5% of the predicted growth, while industries such as mineral processing will push 38.6% of the growth.

UAE Offsets Group claims to have put into place another piece of its Dolphin gas pipeline jigsaw puzzle with an agreement to deliver gas to two customers in Abu Dhabi.

The UAE government-funded body plans to deliver gas from Qatar's supergiant North field to petrochemical, industrial, power, and EOR projects in the Persian Gulf region, and possibly in Pakistan (OGJ, July 19, 1999, p. 28). Under the latest accord, Dolphin will be the exclusive supplier of gas to the Abu Dhabi Water & Electricity Authority, except in the western region, and will supply all of the gas that Abu Dhabi National Oil Co. has committed to deliver to Dubai.

The US Export-Import Bank is reportedly keen on participating in the $460 million West African Gas Pipeline project, said the bank's chairman, James Harmon, in Abuja last week.

The Chevron-led pipeline project will transport Nigerian gas to power plants in Benin, Togo, and Ghana starting in 2002 (OGJ, Oct. 11, 1999, p. 38).

Nigerian National Petroleum Corp. will be responsible for funding 25% of the project's preliminary costs. Still to be determined are the environmental impact of the pipeline, the exact pipeline route, and other regulatory provisions.

President Clinton has pledged to veto the $14 billion US Department of the Interior's appropriations bill if Congress does not drop "anti-environmental" riders such as the one delaying an oil royalty rule.

The White House said delaying MMS's royalty reform rule would "grant major oil companies a windfall on oil drilled on public lands."

The bill would delay the rule for 6 months, pending a study by the congressional General Accounting Office (OGJ, Oct. 18, 1999, p. 34).