9th Oil and Gas Conference Presentation

7/28/2019 9th Oil and Gas Conference Presentation

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Contents

Some CDM points of departure Some brief examples of CDM projects

An example of using natural gas to replace

coal and electricity

What is the market for CERs?

What is required Designated NationalAuthority


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CDM points

A CDM project activity is mostly a part of a largerproject

CDM is available for emissions mitigationprojects and certain sequestration projects

CDM is market based

CDM is project based

CDM outputs are Certified Emissions Reductions

(CER) = 1 tonne CO2equivalent CERs give annex 1 countries possibility to emit

one tonne of CO2 = globally neutral


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Points of departurefor CDM

CDM is the first multi-lateral trade mechanisminsisting on Sustainable Development article12 of KP assist Parties not included in

Annex 1 in achieving SustainableDevelopment and contributing to the ultimateobjective of the Convention.

CDM assists Annex 1 countries in meeting

their emissions reduction targets in return forincome for credits derived from projects thatcontribute to sustainable development


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Experience limited to thefront end of the cycle


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First project participant


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Bellville South Reducedlandfill gas to industryreplacing LSO/HFO

124000 CO2etonnes/year


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Insulated ceilings, solarwater heaters and CFLsreduce electricity forservices

Kuyasa low costhousing upgrades


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2.8 tonnesCO2/house/year

2.8 tonnes CO2e/house/year Total 6558 tonnes CO2e/year


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Biomass replaces coal andmethane avoided

122000 tonnes CO2e /year

Mondi Richards Bay

biomass project


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Example of fuel

switch to NG

Fuels Combusted CO2kgs/unit energy

(GJ)

Value ofemissions

reductions for

1 million GJ

Coal 90 US$ 386 000

Natural Gas 51 (57% of coal) -

SA Electricity 269 US$2.45m

Note: CH4 has 21 times the globalwarming potential of CO2


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Case study

Mondi Business Paper (large paper mill inRichards Bay)

Natural Gas powered cogeneration

27.5MW (electricity) plus process heat Replacing coal for steam

Replacing grid electricity


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Rationale for project

Require autonomous electricity supplybecause of production losses as a result ofdecreasing quality of supply and cost

escalations. Co-benefits of process heat.


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Grid electricity

27 MW CCGT

Steam for plant process

heat Y GJ/year

GAS piped

Electricity to plant

X MWh/year

Plantconsuming heat

and power

Gas leaks

Existing Power

BoilersCoal

heat

Self generatedelectricity

Projectboundary

Gas

provide

Emissions of heat, CO2,

CH4 and N2O

Grid Electricity

Coal Ash

Emissions

from coal

transport

Emissions

from ash

transport

Emissions from the use of NG

in producing synthetic gas

NaturalGas

Emissions of Y GJ/year

heat, CO2, CH4 and N2O


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Process of project

identification and design

Concept Project Identification Note (PIN) Pre-feasibility

Feasibility (technical, financial, legal etc.)

Project Design Document (PDD) isrequired to register a CDM project

www.cdmguide.com
http://www.cdmguide.com/http://www.cdmguide.com/


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Project design

document sections

A: Introduction

B: Baseline scenario and additionality test

C: Crediting period

D: Monitoring Plan E: Calculations

F: Environmental impacts

G: Stakeholder comments Annexes include contact details, baseline data,

public funding and methodologies


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Methods employed in

design

Size (small-scale)


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Small-scale

methodologies

Type II: Efficiency of demand and supply sideType III: Other

- Switching fossil fuels

- Emission reductions from low GreenhouseGas emitting vehicles


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Regular size

Methodologies

AM0008: Industrial fuel switching from coaland petroleum to natural gas withoutextension of capacity and lifetime of

capacityAM0009: Recovery and utilisation of gas

from oil wells that would otherwise be

flaredAM0014: Natural Gas-based package co-

generation

I G T bi


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In Gas Turbineproject

Regular size project None of the approved methods fit

Conclude to design new methodology

using 3 others, plus using acceptedadditionality tool


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Additionality Theory

What would have happened in the absence of theproject activity?

Additionality test: Standard tool may be applied

Investment analysis (IRR/NPV/Payback of base-case i.e. without emissions reductions) is thisconservatively below the investment threshold?

Barrier tests (are there technical, normative,

investment, other barriers)


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Additionality case study:

Investment analysis

Total capital costs: 15.2million Euros Operational costs: cost of gas, less cost of

coal and electricity

Full conservative discounted cash flowanalysis with and without CDM

IRR (including inflation after tax over 15years) = 22.3% (if company threshold of25% is required project would not havehappened without CDM


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Technology barrier

test


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Emissions

calculations

Baseline emissions: heat: 128 000 tonnes/year

electricity: 251 000 tonnes/year

Project activity emissions:

Cogeneration: 123 000 tonnes/year Less leakage: positive: physical leaking from

pipeline, negative ash removal from coal

Total less leakage: 256 000 tonnes/year worth +/-Euros 2.5million/year

Total project return on investment: 30.6% (at 10Euro per tonne up to 2012)


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Project status

Project methodologies being reviewed (seewww.UNFCCC.int)

Project design validation against approvedmethodologies to follow

Project is to register as a unilateral project

Mass and energy balance with Sasol underwayfor 2.5 million GJ/year (Sasol total 450million

GJ/year plus) Gas price negotiations and contracting underway

P j t t t
http://www.unfccc.int/http://www.unfccc.int/


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Project status:

Transaction costs

Cost of validation: Euro 12 000 Cost of design: Euro 26 000 (estimate) plus

share of risks Cost of registration: Euro 15 000

Costs of adaptation levy: 2% of CERs Cost of govt. approval: varies (SA=0) Costs of monitoring, verification, issuance, tax: ? Income from CERs: Euro 2.5m/year (nominal)

total discounted to 2012: Euro 12.3m Plus operational savings (on electricity, coal and

downtime because of outages less cost of gas)


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Markets for ERs

Markets: Compliance (CERs)

Verified (VERs)

Offset (VERs) Gold Standard (high quality CERs)

Incremental cost (GEF not market)

M h i f l /


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Mechanisms for sale/

purchase of CERs

Multilateral funds (World Bank PCF, CDCF, etc.) Bilateral procurements through tenders: Austria,

Netherlands, Belgium, Finland, Japan etc.

Private purchases

Transfer within multinationals

Brokers

Project developer/wholesale purchases

Spot (still to come) Forward purchases, guarantees, rights of refusal,

options etc


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Prices

Prices going up (early PCF price$3.5/CER)

Bilateral procurements Euro 8/CER

Current price range reported 8 to Euros10/CER

EU Emissions Trading Scheme (EUETS)

Euro 18 to 20/tonne CO2 for allowances VERs Euro 2 to 10/tonne CO2

D i t d N ti l


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Designated National

Authority

To be able to participate in CDM country must bea party to Kyoto Protocol and establish a DNA Required to cede emissions reductions to project

participant

Required to approve the projects againstsustainable development requirements Required to be established in law in host country Approval is part of validation of project activities

DNA must put project out for public comment DNA can be a promoter of projects DNA should be fast and transparent

D i CDM i th


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Doing CDM in the

South

CDM is not easyit requires specialists It results in no net emissions reductions

CDM has very little to do with Sustainable

Developmentsadly Attracting FDI appears to be higher priority that SD.

CDM can leverage technology leapfrogging

There are few points of leverage for the South:choosing projects, choosing partners, timingtransactions.

9th Oil and Gas Conference Presentation

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