Financing Solutions to Reduce Natural Gas Flaring and Methane Emissions

Page 69

3

Financial Modeling of Gas Flaring and Methane Reduction Projects

This chapter provides a template for policy makers to evaluate the indicative financial attractiveness of flaring and methane reduction (FMR) projects by modeling net present values (NPVs) and internal rates of return (IRRs) of six FMR solutions: (1) gas-to-power, with power sold to the grid or other third-party off-takers; (2) gas-to-power, with power sold to the oil field operator for on-site use; (3) gas delivery to an existing pipeline network; (4) gas delivery to an existing gas processing plant; (5) compressed natural gas (CNG); and (6) small-scale liquefied natural gas (LNG). All financial modeling assumptions used in this chapter, although based on project experience, are indicative and do not reflect the wide variety of technological, contractual, regulatory, and end-market variables affecting FMR projects.

HIGHLIGHTS The proposed models are intended as a high-level planning and assessment tool for policy makers to evaluate the potential to involve independent developers and private investors in FMR solutions. For the actual financing and implementation of specific FMR projects, developers and investors will likely want to use more granular and tailored assumptions. The analysis points to a potentially attractive financial opportunity for independent developers to invest in FMR projects tackling flares of 5 million standard cubic feet per day (mmscf/d) or, better, 10 mmscf/d (figures 3.1 and 3.2). Indicative assumptions used in the financial models suggest the following: • At 10 mmscf/d, all FMR solutions would produce positive NPVs and double-digit IRRs, ranging from 12 percent (gas delivery to gas processing plant) to 24 percent (small-scale LNG). • At 5 mmscf/d flare sites, project IRRs—unlevered and pretax—range from a barely acceptable 7 percent1 (gas delivery to gas processing plant) to an attractive 20 percent (small-scale LNG).

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Risks of FMR investments and mitigating factors

6min
pages 127-130

A.1 Selected companies that offer flaring and methane reduction solutions

4min
pages 131-132

Financial attractiveness of flaring and methane reduction investments

4min
pages 125-126

References

1min
page 124

Galileo

5min
pages 110-111

4.4 Flared gas volume in Nigeria, 1992–2019

4min
pages 113-114

Notes

2min
page 123

phases

5min
pages 115-116

Crusoe Energy Systems

5min
pages 118-119

The Nigerian Gas Flare Commercialisation Programme

2min
page 112

4.1 Termo Mechero Morro

1min
page 109

Mechero Energy

2min
page 108

4.2 Aggreko’s installed capacity, by geography

6min
pages 102-104

4.3 Sacha Central flare-to-power business model

4min
pages 106-107

Hoerbiger

2min
page 105

Methodology and general assumptions

2min
page 71

Aggreko

2min
page 100

Highlights

1min
page 69

Summary takeaways

1min
page 99

Notes

2min
page 65

gas sector

3min
page 56

reduction financing

3min
page 64

Financing instruments

2min
page 58

2.1 Banking on Climate Change 2021’s bank policy scoring

2min
page 51

2.2 The European Union Green Bond Principles: Overview

5min
pages 60-61

2.3 Transition bond guidelines: Summary

2min
page 62

and Development, 2014–20

2min
page 57

Categories of investors

1min
page 47

reduction

4min
pages 32-33

1.2 Examples of countries’ regulatory approaches to gas flaring

2min
page 38

Contributions

3min
page 39

Regulatory developments

4min
pages 36-37

References

4min
pages 45-46

1.8 Emission reduction commitments and targets of selected companies

2min
page 43

Notes

2min
page 44

1.3 Reasons for routine flaring and venting (upstream

3min
page 27
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