Natural Gas Flaring: Time to Turn a $30 Billion Waste Stream into Profit, Part 2

Part 1 of this blog series covered the state of natural gas flaring; this post examines specific developments allowing stakeholders to put the gas to use.

Flaring, the intentional burning of excess natural gas, contributes a great to deal to climate change. Therefore, this practice is regulated across the globe in the hopes of meeting climate goals. But is regulation necessary? Ideally, this wasted gas would be put to profitable, efficient use, limiting the need for specific flare gas regulations. In fact, several developments are pointing toward the profitable use of associated gas, including improved gas-to-liquids (GTL) technologies, improved onsite combustion technologies, and access to electricity offtakers through microgrids. Consider the following:

• GTL technologies are improving rapidly. Notably, small-scale GTL players like Velocys, CompactGTL, and many others have commercially available products that convert natural gas into a variety of liquid products, including diesel and methanol, among others. These products have generally higher local value than natural gas and can be transported easily. This points to more opportunities in the developing world—much of which relies on liquid fuels, but has limited access to pipelines. GTL technologies have been held back by low oil prices, but become quite economical in many cases when oil costs over $50 per barrel—a scenario playing out with more regularity.
• Improved combustion technologies, including natural gas reciprocating engines and microturbines, are opening new opportunities. Manufacturers like Caterpillar and Cummins offer dual fuel generator sets (gensets) that can mix natural gas into oilfield diesel generators. Meanwhile, microturbine vendors like Capstone Turbine offer units as small as 30 kW that can run on a wide range of fuels. GE’s Jenbacher gensets, well suited to handle the variable composition and impurities in associated gas, account for more than 450 MW of installed associated gas generation worldwide.
• Access to new electricity offtakers through microgrids has the potential to put flare gas to use. Improvements in solar, storage, and microgrid controls technologies make microgrids a popular phenomenon—though such microgrids often call for a consistent baseload fossil fuel source to optimize generation. This is a good match for wellhead gas, which is produced with a relatively consistent output. Various companies are developing microgrids tied to oil & gas production, from Horizon Power in Australia to Mesa Natural Gas Solutions in the United States.

Global Opportunities

As a measure of global opportunities, consider developments in two key markets: Nigeria and Indonesia. Both major oil-producing nations, these countries rank No. 7 and No. 12, respectively, on The World Bank’s flare gas ranking list, accounting for a collective $2 billion in wasted gas (based on the $5.61 per million Btu measure previously outlined).

Nigeria has an aggressive strategy of 75% electrification by 2020 and recently released minigrid regulations that encourage decentralized generation. This, combined with continued oil & gas growth, points to opportunities for the $1.5 billion of wasted flare gas.

Indonesia, meanwhile, recently released new rules that incentivize wellhead power developments—provided that they are close to gas fields and to existing transmission lines and consumers. With more than $500 million in gas flared there, this regulation will open opportunities for microgrid developers, generator vendors, and other stakeholders in distributed power. With billions of dollars of gas going up in smoke and technologies and regulations pushing for efficient generation, opportunity looms large in flare gas alternatives.